On November 16 an event will shake the small world of cryptographic coins: Bitcoin will undergo a new fork, that is to say a new separation into two separate blocks. Why ? How? Is it necessary?
The debate that has stirred the Bitcoin community has been raging for two years and focuses on the method that cryptographic money must follow to grow as smoothly as possible. This growth is achieved by increasing the number of transactions that the network can support each new block, produced once every 10 minutes or so.
Two major schools compete: the first aims to increase the number of transactions in each block which amounts to increasing the size of the blocks. The second intends to carry most transactions outside these blocks and to only report in the blocks actually produced settlement transactions. It all boils down to whether Bitcoin can grow by increasing the size of its blocks or by deporting more and more of the transactions in a second protocol layer (called Lightning Network).
If, two years ago, the two options were open and the debate, the positions of one and the other gradually crystallized and hardened to such an extent that the two factions now seem irreconcilable.
The first school, holding the “big blocks”, has already made a first fork last August that I evoked in a previous ticket and gave birth to Bitcoin Cash. Interestingly, some of the miners who secure the Bitcoin chain have joined the Bitcoin Cash teams and at the same time, a majority of the miners on the market seem to indicate wanting to increase the size of the blocks also on the historical chain.
The second school, called Bitcoin Core, now refuses categorically to the point that the dissensions accumulate between minors (holding a doubling of the size of the blocks) and the developers of Core.
In this context and from the outside point of view of an average investor, putting money (or leaving money) in Bitcoin at the moment is actually taking a risky bet on the ability of an entire ecosystem to overcome. these internal dissensions especially as the two families have positions by nature antinomic and have another concern: the developers provide maintenance of the application, the minors ensure the security of the network.
In other words, one can not do without one or the other technically.
On the economic side, however, it’s even more complex: developers are inherently purchasable (even if a package of those working on Core are now millionaires since benefiting from recent courses of Bitcoin). Miners, by nature, have heavily invested in their infrastructure. Changing completely the chain or method of work would potentially cost them a fortune, which imposes on them an implacable economic pragmatism. In addition to these players, exchanges (trading and buying / selling platforms for bitcoins or cryptocurrencies) can make a political choice by giving or not the possibility of market players to exchange or not the cryptos produced as well as assign tickers (names) to these cryptos. So,
The other economic actors (traders, lambda consumers, traders) do not really have a say since their trade and their “economic votes” are counted only when they make transactions, transactions that are taken into account by the exchanges and ultimately recorded by the miners. Remain the nodes of the peer-to-peer network, those who do not undermine and who are content to validate the transactions: they can choose to accept or not the bitcoins of one or the other, but ultimately they do not have real impact as long as there is at least one node of each given perfume, connected to one or more exchanges.
Economically, the only relevant actors in the table are the miners and the exchanges that determine almost 100% in what direction the market will behave vis-à-vis any new fork. The other actors will have to follow.
Concretely, it is currently a beautiful confusion between the various exchanges and the minors: a super-majority of these want S2X (it is in any case what they signal ), and the exchanges seem tend to consider that the new The channel produced by these will be B2X and not BTC, which will directly impact its price (the willing buyer / seller of the BTC and nothing else).
This confusion also means that the fork will potentially be a moment of great volatility. In this kind of situation, you have to be sure of being able to buy or sell quickly, which no exchange can guarantee. ; worse, this situation could last as long as the two chains from the fork secure themselves correctly. If 80% of the hashrate (computing power provided by the miners) disappears from the Core chain, the production of the next block of transactions will be 5 times slower, for example. If the price falls on one of the two channels, miners will have to make quick economic choices to redirect their power to the most profitable channel. The variations of this power could add to the confusion, not to mention that, for a minor, switching from a B2X channel to a Core channel or even to a Bitcoin Cash chain represents little technical effort, but only an economic bet.
All the ingredients are together for a nice panic, or, in any case, a significant volatility of the course of Bitcoin. If it is temporary, those who will be released before this period will be able to reposition themselves later by buying cheaply bitcoins become better markets when the dust will fall …
We will have to act with caution in the coming weeks.
On a philosophical level now, if we observe the specific behaviors of the communities behind the minors on one side and Core on the other side, we note another concern: they are communities that address very different audiences, and particularly tight.
The former are essentially business-men who seek profit and who will be economically obliged to adapt to the deal, whatever it may be. The latter, on the other hand, may very well ignore economic realities and focus on purely technical aspects. This is not necessarily a problem in itself, but it does lead to practices that obviously slow down the penetration of Bitcoin as a product in a particularly competitive market (for example, it may be noted that the main software does not has not evolved in ergonomics over the past seven years).
In other words, the juvenile community aims to make the system capable of responding to increasing demands for transactions, here and now. In this, they join Bitcoin Cash, rightly or wrongly, which seeks to provide a system capable of processing a progressively larger number of transactions, directly on the blockchain, without going through additional technical inventions.
In contrast, Core seeks to push small and large transactions out of the main channel (via Lightning Network), which does absolutely not meet the needs expressed here & now, but only to future needs, possibly, if the developments are going well and if the network behaves as expected. Core offers in the future very complex technical answers to current problems whose simple and fast solution has already proved that it works (at least on the seven previous years of growth of Bitcoin). In addition, for the average user, the proposed techniques are particularly complex to understand and use (I challenge you to explain the side-chains and Lightning Network to your grandmother).
One can quibble for hours about the comparative advantages of the techniques on one side and the other. It remains however that the initial vision of Nakamoto was to create an electronic money without trusted third party, usable by everyone. Such a goal requires providing technological answers whose security and ease of use are at least equal to that of cash and electronic payment means that are currently known.
But since the arrival of Bitcoin, other cryptos continue to seek this goal. Bitcoin, which has benefited so far from its first-mover advantage and its network effect, is gradually nibbling away at market share. The two years passed on this debate too animated, which ends with this delicate fork gave time to the competitors to solidify. Perhaps this fork will clarify the positions.
In any case, these elements dictate in my opinion the greatest caution regarding Bitcoin and investments that can be made in the coming weeks.