Monday, October 9, 2017

Bitcoin Gold – The next fork for Bitcoin

On 25 October, a group of cryptocurrency enthusiasts plan to fork the Bitcoin blockchain, and alter the algorithm it uses to calculate hashes, to create Bitcoin Gold.

Bitcoin Gold will use an algorithm call Equihash for mining, which is "ASIC resistant".

This means it is designed to discourage the use of ASICs for mining. Instead, Equihash is written so that graphics cards offer the most efficient way to mine coins based on it.

This is similar to Ethereum and several other cryptocurrencies. The most prominent Equihash coin is Zcash, which has USDT trading pairs on Bitfinex, Bittrex, and Poloniex – three of the largest cryptocurrency exchanges.

Bitcoin's current algorithm includes a system to increase or decrease the difficulty of finding the correct hash for a block based on how quickly the previous 2,016 blocks were found.

While a standard CPU was sufficient for mining Bitcoin in its infancy, users soon realised it was possible to build specialised chips – ASICs – that could mine Bitcoin more efficiently.

As more hash power from ASICs was added to the Bitcoin network, it became more difficult to mine the coin.

Luno weighs in

Local exchange Luno said the proposed fork appears to be a reaction to the dissatisfaction many feel with the current Bitcoin mining landscape.

"It seems that not a month goes by without confused messages in the Bitcoin community about yet another Bitcoin fork," said Luno.

Luno said that since Bitcoin is an open technology, the various parties with a stake in the blockchain can disagree on proposals to improve it.

"They might even agree about a problem – say, fixing slow Bitcoin transactions – but disagree about how to solve it."

As Bitcoin is software, developers can fork from its current software branch and bring a new version into existence when disagreements happen. This is how a fork takes place.

If you have Bitcoin before the fork, you will keep your Bitcoin and receive an equivalent amount of the new coin after the fork – as was the case with the Bitcoin Cash fork.

"In the case of Bitcoin Cash, there was significant interest from the community. It was listed on multiple reputable exchanges, and the price traded above 0.1 BTC for months."

As a result, Luno provided the ability to withdraw and sell Bitcoin Cash.

If there is a fork that isn't embraced by a significant portion of the community, Luno will not provide support for it.

"Many forks come with various security risks, which could result in the loss of funds."

Luno said that Bitcoin Gold currently appears to lack enough community support to gain traction.

Another fork scheduled to happen in November will see Bitcoin adopt a scaling solution called SegWit2x.

CEO of Roger Ver believes that SegWit2x won't be a simple switch, and that Bitcoin will fork again as the community debates how best to scale the blockchain.

Luno disagrees with Ver's assessment, saying there is significant miner and platform support for SegWit2x.

The table below summarises Luno's position on the various forks.

Bitcoin UnlimitedApr 2017Lost support. No fork.
SegWitJul 2017Majority support. Implemented without fork.
Bitcoin CashAug 2017Forked. Luno added BCH withdrawal and sell ability.
Bitcoin Gold25 Oct 2017Monitoring. Currently appears to lack sufficient community traction.
SegWit2xNov 2017Monitoring. Significant miner and platform support.

Now read: Why South Africans do not buy Bitcoin

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