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A Fight Is Breaking Out Over Bitcoin Cash – And It Just Might Split the Code

With bitcoin cash developers at each other throats, the year-old cryptocurrency might just split into two.

Created from a hard fork off the original bitcoin network after the scaling debate boiled over last year, bitcoin cash stakeholders seemed unified in their goal of boosting the cryptocurrency’s block size parameter in the hopes of attracting more users and enabling more transactions.

But a few cracks started to pop up in this united front over the past year, as bitcoin cash developers had one technical disagreement after another.

And a new software release by leading bitcoin cash implementation, Bitcoin ABC, has been perceived by some as a subtle declaration of war within the developer community.

The software includes a suite of upgrades, including a smart contract feature that would support atomic swaps, a way of trading one cryptocurrency for another without traditional exchanges. And while many cryptocurrency projects are excited about the idea of interoperable coins, some big names in the bitcoin cash community don’t agree with the changes and have – no surprise – been very vocal about it.

Leading the opposition is Craig Wright, nChain CEO and the cryptographer who claims to be bitcoin’s pseudonymous creator Satoshi Nakamoto, though he’s not provided any proof of this claim so far. And he’s teamed up with Calvin Ayre, an entrepreneur and founder of crypto news site CoinGeek, to lead the resistance with a new bitcoin cash implementation called Bitcoin SV.

Bitcoin SV scraps Bitcoin ABC’s scripts for its own – as well as pushes the block size parameter to 128 MB (bitcoin cash’s block size is currently at 32 MB).

Taking a dig at Bitcoin ABC developers, the Bitcoin SV release announcement reads:

“Bitcoin SV is intended to provide a clear bitcoin cash implementation choice for miners who support bitcoin’s original vision, over implementations that seek to make unnecessary changes to the original bitcoin protocol.”

While infighting about the technical direction of a cryptocurrency is no out of the ordinary occurrence, this particular disagreement could have big repercussions for bitcoin cash.

Bitcoin ABC and Bitcoin SV are incompatible software, and both groups behind the implementations are seeking to trigger new code changes in November. As such, if some bitcoin cash users run one software and others run the other, it’ll cause a chain split and create a new competing cryptocurrency.

All about ‘fake Satoshi’

The fire underlying this technical debate was fueled by none other than one of bitcoin cash’s more prominent supporters – Wright.

After ethereum creator Vitalik Buterin took the mic at a cryptocurrency conference to call Wright a “fraud,” many developers and other stakeholders in the industry started taking sides. For instance, many devs argue against nChain’s Bitcoin SV partly because they’ve started to distrust Wright’s judgment.

Even Jihan Wu, the co-founder of mining hardware manufacturer Bitmain, who has been a proponent of bitcoin cash (his business holds a substantial stake in the cryptocurrency), joined many others on social media calling Wright “fake Satoshi” since they don’t believe his claims that he created bitcoin.

Following up on his earlier condemnation, Buterin later tweeted:

“The bitcoin cash community should not compromise with Craig Wright to ‘avoid a split’ and should embrace it as an opportunity to conclusively ostracize and reject him.”

Despite all this, though, Wright is far from alone in supporting the nChain implementation. Ayre promised in a statement to put all CoinGeek’s mining power towards it (the mining pool is the largest for bitcoin cash at press time), and Cobra, the pseudonymous owner of Bitcoin.org, took to social media to voice his opinion that those behind Bitcoin ABC are in the wrong.

“This is what happens when you have incompetent rogue developers like Bitcoin ABC lead developer [Amaury Sechet] pushing their agenda instead of compromising,” Cobra tweeted. “Tired of these fucking amateurs and morons screwing around with bitcoin cash. Upgrade with consensus, or don’t upgrade at all.”

Attempts at compromise

What’s getting lost in the debate, though, is that several notable bitcoin cash developers actually think both sides are acting out and would instead prefer to compromise.

Besides BitcoinABC and nChain, there are still other bitcoin cash implementations, including Bitcoin Classic and Bitcoin Unlimited, two software implementations that actually predate bitcoin cash.

And these veteran developers are skeptical about the two proposals getting the most attention.

“Both ABC and nChain are trying to hard fork. Both of them are not giving any rationale why. Both of them are completely not responsive to any feedback or any compromise requests from the rest of the ecosystem,” wrote Bitcoin Classic lead developer Thomas Zander.

And Bitcoin Unlimited lead developer Andrew Stone agrees.

He’s not particularly swayed by either side, arguing that both developer groups don’t have the best interest of the end user in mind.

“Given the ‘no changes, no matter how reasonable, except mine’ strategy being pursued by both of these organizations, I can only sadly conclude that this is again about power and ego not about technical merit and end-user adoption,” Stone wrote on a popular bitcoin cash forum.

Instead, he believes bitcoin cash proponents need to “stick together,” and to that goal, he’s working on a code change that would allow Bitcoin Unlimited users to effectively vote on which set of changes they’d like to see activated.

This voting system, he hopes, will help resolve not only this caustic debate but also similar situations in the future.

Meanwhile, on Thursday, Cobra announced a similar effort called the Cobra Client. But rather than allow users to vote, the client simply removes all contentious code changes and replaces them with replay protection, a code change that will protect users from accidentally losing their money in the case bitcoin cash does indeed split into two.

Yet, others, such as long-time crypto enthusiast and Bitcoin Magazine reporter Aaron Van Wirdum, remain pessimistic that a compromise will be reached.

Van Wirdum recently tweeted:

“Turns out if you start a coin by hard fork without consensus, precedent is to hard fork without consensus.”

Photo by Ivan Vranić on Unsplash

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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The Downside of Democracy (and What it Means for Blockchain Governance)

Taylor Pearson is the author of “The End of Jobs” and writes about entrepreneurship and blockchain technologies at TaylorPearson.me.


Following acrimonious debates within the bitcoin and ethereum communities over the past few years regarding governance decisions that ended in forks, there has been a wave of projects offering on-chain governance.

This is a system for deciding on changes to public blockchain protocols using formalized governance mechanisms encoded in the blockchain, rather than informal discussions offline. Prominent examples of protocols with on-chain governance include Tezos, EOS and Decred.

While these projects may have some value, I believe the push for on-chain governance is, in large part, the result of an intuition carried over from environments like nation-states and private companies, both of which are very different from crypto networks

Implicitly, their belief is that we are seeing too much exit and not enough voice and we need to build better mechanisms for voice via formal on-chain governance.

Let’s step back a bit. What do I mean by voice and exit?

Members of an organization, be it a nation, a business or a crypto network, have two possible responses when they’re unhappy with its governance.

They can exit – leave the relationship – or they can use their “voice” to try to improve the relationship through communication.

Citizens of a country can respond to political repression by emigrating (exit) or protesting (voice). Employees can choose to quit their unpleasant job (exit), or talk to management to try and improve the situation (voice). Unsatisfied customers can opt to shop elsewhere (exit), or they can ask for the manager (voice).

In crypto networks, users can try to change the way that the protocol operates through governance (voice) or they can choose to exit by either leaving the network or forking.

Spectrum of governance

The relative merits and drawbacks of voice and exit depend on the cost of exit.

For example, it’s important that countries are democratic and have (on-chain) voting that allows citizens to formally express their opinions because the costs of switching your citizenship (exit cost) are very high.

The tradeoff of prioritizing voice over exit is that democracies tend to be very inefficient compared to more technocratic forms of governance. This is epitomized in moments such as Alaska senator Ted Stevens describing the internet as “not a big truck, but a series of tubes.” Despite being the head of the committee ruling on net neutrality, Stevens displayed a very low level of understanding about how the internet actually worked.

Democracy fundamentally operates at the median of society, not the edge. It does that in order to maintain peace and allow for economic prosperity. On the whole, this has worked better than any previous governance system.

Private companies are more technocratic than nation-states. A relatively small group composed of top management and large activist shareholders effectively control the institution. This allows them to be more efficient but also makes them more prone to disgruntled stakeholders – be it shareholders, employees or customers.

This is less of an issue because, compared to changing your citizenship, it’s much easier to change your job or sell your stock. That is, the cost to exit is lower so you’re less likely to “revolt.” If you don’t like how Apple’s key decision makers are behaving, you have the option to quit your job or sell your stock.

At the far end of this spectrum is open-source software. The governance of open-source software is captured in the phrase “rough consensus and running code.”

Open-source software governance tends to be technocratic with a relatively small group of stakeholders controlling the project. The broader stakeholder community has very little voice. Even fairly large bitcoin holders and miners have almost no say over bitcoin core’s development roadmap.

However, if the technocratic rulers go in a direction you don’t like, you can much more easily “revolt” by forking the network. Facebook’s employees and shareholders can leave but they can’t take the database with them. In open source software and blockchains, you can.

It is the opposite of democratic nation-states in this sense. You have very low exit costs and so you can get the efficiencies of a technocratic system without the threat of revolution. The revolutionaries can just start their own competitor.

From a top-down perspective, this technocratic, fork-prone governance is uncertain and hard to predict, which is often perceived as an inefficiency. To the contrary, this uncertainty is a necessary pre-condition, a fertilizer, for opportunity.

Bloodless revolutions

Open-source source software (and software more broadly) is the source of so much innovation because it so uncertain and loosely governed.

It is prone to frequent “revolutions” but those revolutions do not end the same way as real-world revolutions because information is a non-rivalrous good. The revolutionaries can walk out the door and build the future they believe should exist.

Physicist Max Planck is frequently paraphrased as saying that “Science advances one funeral at a time.” Democracies tend to be no different and organizations often advance one retirement at a time.

By contrast, open-source software advances one fork at a time. It is not bounded by biology or geography but only by non-rival, infinitely replicable information.

These forks may ultimately be proven as worthless by the market, but the dissatisfied faction need not wait to try out the approach they perceive as better.

Returning, then, to blockchains, introducing on-chain governance to crypto networks is likely to make them more like nation-states with the inefficiencies that entails. Is that the right tradeoff?

There are certainly some exit costs associated with crypto networks. Forking a blockchain is easier than forking a nation state, but still requires sufficient scale in terms of users, miners, and broader tooling (wallets, exchanges, etc.).

Network effects related to brand and real-world integration points are other important sources of friction that discourage forking. I suspect for specific circumstances, that some form of on-chain governance proves more efficient.

But for a technology with comparatively low exit costs, forking is more feature than bug. Many projects with strong technocratic leaders practicing loose consensus and running code form a robust and competitive ecosystem. While many individual projects will fail, it’s more likely that more optimal approaches are found by one of many forks.

Off-chain governance may seem more unpredictable, but may prove more fertile ground for innovation for just that reason.

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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The Age of Endless Blockchain Forks Is Coming to an End

Paul Brody is the global innovation blockchain Leader at EY.


When we sit down inside of EY and discuss what the biggest risks are to the future of the blockchain industry, one topic that comes up again and again is the high rate at which key blockchains are forking and the possibility that future forks will split apart large blockchains with critical mass.  

This is important because we do not believe that private blockchains will scale effectively beyond highly specific use cases into a general-purpose platform for digital contracting between enterprises. That job, if any system is to take it, will belong to public blockchains.  

The more companies and users there are on a single network, the more likely it is you can transact with your key business partners over a common infrastructure.  

But, if public blockchains splinter into many different camps, one of their key advantages over networks of private blockchains will disappear.

Right now, however, forking a public blockchain is as easy as copy and paste, and it happens all the time as a means to “resolve” (I’m using that word in a very limited way) governance disputes.  

This option won’t be viable for much longer, however, as real-world assets represented by digital tokens start popping up on public blockchains. Links between those assets – be they real estate, diamonds, gold or U.S. dollars in escrow accounts – and the blockchain tokens will only be valid on the primary network.

If they don’t already, the purchase agreements for these tokens and assets will need to be quite specific about what constitutes the “primary” or “original” blockchain on which the token is located, and external firms involved in attestation and audit will have to agree to and link up those plans.  

The role of external firms will be particularly important going ahead. As blockchains are more and more linked to ownership of real-world assets, verifying the link to those assets is going to be important to investor confidence.

It will still be possible to fork blockchains, but the chances that users will come to alternative paths is declining by the day. Those users will be closely tied to their investment assets, which if they represent off-chain items, will have one and only one valid public blockchain representation.

As a result, it will become more and more important for the major public blockchains to develop robust governance models that are able to manage change and incorporate the views of stakeholders. It is also important for users to understand that as blockchains mature, they are likely to become much less dynamic and change less frequently.

It’s no accident that trustworthy institutions tend to evolve slowly and prize stability.  

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Bitcoin Forks and Livestock Law? Tax Day 2018 Is a Different Animal

Stevie D. Conlon is a vice president and tax and regulatory counsel, Anna Vayser is a product manager and Robert Schwaba is a senior tax and regulatory specialist with Wolters Kluwer. They acknowledge the contributions of colleagues John Kareken and Cynthia Lapins.

The following article, an exclusive contribution to CoinDesk’s Crypto and Taxes 2018 series, is adapted from “Taxation of Bitcoin, Its Progeny, and Related Derivatives: Ex Coin Machina,” published in Tax Notes, February 19, 2018.


If the great bitcoin forks of 2017 entitled existing bitcoin holders to “free money,” as was often said, do Americans have to pay tax on that windfall, and how much?

This is a particularly timely question due to recent volatility in cryptocurrency values and the approaching April 17 U.S. deadline to file tax returns. Unfortunately, there is no guidance from the IRS or existing law specifically addressing the matter.

However, current tax law should be considered. On a fork, the new cryptocurrency received (such as bitcoin cash, which split off from the main bitcoin network in August, or bitcoin gold, created in November) is not identical to the cryptocurrency already held.

Generally, the definition of taxable income under U.S. tax law is broad and exceptions are few. For example, found property is generally taxable to the finder per IRS regulations, rulings and court cases.

Although tax law excludes gifts from the recipient’s income, it can be difficult to prove that a transfer is a gift and the exclusion is narrow. Similarly, prizes and awards are taxable income.

And tax law providing tax-free treatment for stock splits and other corporate reorganizations is either generally limited to receipt of the same (not similar) stock or has other requirements that narrow eligibility.

As a result, one might conclude that a fork causing the receipt of a new cryptocurrency of determinable value could trigger taxable income.

A different animal

Although new cryptocurrency received in a fork differs from that already held, could it be analogous to the taxation of pregnant livestock?

In a 1986 revenue ruling and a 1977 Tax Court case the IRS addressed the tax consequences of the birth of a calf and a foal, respectively. In each case, the purchaser acquired the pregnant cow or mare knowing it was pregnant. The value of the unborn calf or foal was determinable at the time of acquisition (not at birth) and was used to allocate a portion of the purchase price upon birth of the offspring (with no tax being paid at that time).

Could these authorities support similarly treating the receipt of cryptocurrency in a fork as nontaxable?

If this approach were applied to new cryptocurrency acquired in a fork, would it only apply to holders who had knowledge of the pending “birth” of the new cryptocurrency at time of acquisition (as was the case in the ruling and court case discussed above)?

And would basis allocations be made by reference to valuations at time of acquisition (rather than at time of the fork)?

In absence of clear guidance, treating the receipt as taxable would seem to be the conservative approach, while treating it as tax-free could be risky, with potential tax, interest and penalty consequences.

Timing of income

Even if the gain is taxable, timing presents a related question.

There has been and could be delayed access to the new cryptocurrency depending on the exchange or other manner by which a specific holder owns her cryptocurrency. Values differ from day to day. Which value should be used for determining the amount of taxable income?

Under tax rules treating found property as income, the timing of income depends on when the finder has dominion and control. Applying this rule to forks, some holders might be entitled to access (and considered as having dominion and control of) the new cryptocurrency received earlier than other holders.

Does timing of income recognition (if taxable) differ? Does timing of income require taking control, such as transferring or selling the new cryptocurrency? Or does it occur earlier, such as when the holder has the right to do so, or has awareness of control–such as upon reviewing an account statement?

The taxable amount

If timing of income recognition differs from holder to holder, does the amount of taxable income differ based on the date when income is recognized?

Market values of either the existing or newly received cryptocurrency typically change after the date of a fork. If the new cryptocurrency received is taxable, it logically follows that the recipient’s tax cost basis should equal the amount of income or gain recognized, and the holding period should start the next day. The basis in the existing cryptocurrency should be unaffected.

Another consideration if a fork results in taxable income is the income’s character as ordinary income or capital gain. Different tax character results in different tax rates, rules and permitted items that can offset such income or capital gains. Capital gains and losses require a sale or exchange seemingly absent in the context of a fork, so presumably any income recognized would be ordinary income.

Even if receipt of new cryptocurrency is nontaxable, the recipient’s tax basis in the new cryptocurrency must be determined. The new basis could be zero, in which case any subsequent gain would be taxable.

Otherwise, the basis would need to be allocated between the cryptocurrency held before and after the fork, leading to questions of how to determine basis allocation and the tax law justification.

American Bar and IRS

The American Bar Association’s Tax Section submitted a report to the IRS dated March 19 that discusses these issues. The ABA report recommended a temporary solution in part treating the 2017 forks as taxable events but with a deemed value of zero. This proposal may not fly given the reported values of the new coins at the time of the forks.

And on March 23, the IRS reminded taxpayers to report virtual currency transactions on their tax returns and warned of the tax liability, interest and penalty costs of failing to do so.

Conclusion

The U.S. income tax treatment of forks is unclear. However, there is a risk that the receipt of the new cryptocurrency could be taxable as ordinary income to the recipient, and it seems that a conservative approach would be to treat it this way.

There are also concerns regarding the timing and amount of income. Holders of cryptocurrency should consider these issues and discuss them with their tax advisors due to tax liability, interest and penalty risks.

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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No-Fork Guarantee? New Cryptocurrency Touts Resistance to Code Splits

The team behind a soon-to-be-launched cryptocurrency has issued the notable claim that it will be un-forkable.

Announced today, Hedera is a public network built on Hashgraph, a type of distributed ledger technology (DLT) developed by the software company Swirlds, which has already deployed private versions with several enterprise clients.

Hedera Hashgraph, the governing body for the network, raised $18 million through a private sale of the as-yet-to-be-named token in January. That sale, the company said, represented less than 20% of the total supply.  

Different than a blockchain, Hashgraph is billed as more secure, scalable and “fairer” than either the proof-of-work mechanism securing bitcoin or the permissioned systems that banks and other corporations have been experimenting with. The creators say the Hedera version can facilitate micropayments, distributed file storage and support smart contracts out of the gate.

But perhaps what’s most striking about Hedera is the use of a patented – rather than open-source – codebase in an otherwise open network.

While the code will be publicly reviewable, and developers will be free to build applications on top of the network without a license, the governing body for Hedera says it will enforce the patent to prevent copying of the codebase or the creation of a competing platform and associated currency.

Mance Harmon, a co-founder and the CEO of Swirlds, calls this situation “transparency with stability.”

“We can guarantee our platform will never fork,” he told CoinDesk, adding that it will be “one platform with one currency forever.”

While the option of forking is viewed by many in crypto as a positive, since it allows those unhappy with a particular project’s direction to go their own way (not to mention sometimes providing free money to those who hold the original token), “we view that as a hindrance to mainstream market adoption,” Harmon said.

Hedera’s white paper lays out the rationale this way:

WThe hard forks that bitcoin & ethereum have experienced have arguably damaged the network effect of their corresponding currencies – creating confusion & uncertainty in the marketplace. Similarly, the explosion of altcoins (and the dubious legitimacy & value of many of them) does not engender the necessary confidence in businesses & consumers considering adopting crypto currencies.”

Swirlds, which patented the network technology, granted an irrevocable license to Hedera Hashgraph, the governing body, for use in the public network, according to Harmon.  

Visa as a model?

In another departure from the usual set-up of a public network, the actual governance process for Hedera is permissioned, or restricted to only certain parties. 

Hedera Hashgraph consists of 39 “known and reputable organizations,” according to the white paper, all of whom collectively own two-thirds of the supply of the network’s token.

Swirlds is one of the 39, and a spokeswoman said the other names would be announced in the coming weeks. Harmon said they include banks as well as companies working in the healthcare, media and legal industries.

“The goal was to make sure no single party has no more or less influence over the network than any single party,” said Harmon. All the 39 members are “on par with one another,” he explained.

The model was the governing structure that Dee Hock used in 1968 to create National BankAmericard, which is known today as Visa – again, not the usual cypherpunk inspiration. According to the white paper, the governing body will control the money supply and manage changes to the codebase.

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Prices Aside, Crypto's Tech Stack Is Steadily Improving

A look at the headlines of late may leave you with a familiar conclusion – with all the ups and downs in the market, it’s just too early to take crypto seriously.

And it’s true, despite the best efforts of even the industry’s most notable developers, the world’s largest cryptocurrencies remain not just volatile, but difficult (and risky) to use, at least in a way that their creators’ intended.

Still, heading into 2018, enthusiasts the world over are hard at work on improvements.

As such, there’s optimism advances could start to compound, creating a user experience that finally starts to transcend the issues – namely, the high fees and long wait times – users of most blockchains have become all too accustomed to.

In fact, in the year ahead, blockchain users could see exciting new features and scientific firsts that just might help push the industry closer to that vision:

1. Off-chain channels

What if it was possible for blockchain-based transactions to avoid using the blockchain at all?

That’s the big idea behind off-blockchain payment channels, an idea that harkens back to 2015, but whose time may have finally come this year. Most associated with Bitcoin’s Lightning Network, the idea is actually more general than this specific instance.

Essentially, off-blockchain payment channels would allow two people using any one cryptocurrency to send small payments back and forth, settling to the blockchain (and dealing with its high fees and slow transaction times) only when absolutely necessary.

Due to the potential impact, the idea is catching on – ethereum developers, while they often don’t see eye-to-eye with their bitcoin peers, are at work on the same type of solution.

But there’s more than just a rivalry at play, there’s also reason to believe 2018 might be different in that actual live transactions could be sent in significant numbers.

The developers behind bitcoin’s Lightning Network have declared the technology almost ready based on successful tests. Meanwhile, ethereum’s developers have also unveiled successful tests for their versions of the concept, Raiden Network, with a more ambitious version, Plasma, potentially around the corner.

2. Real-live staking

As their popularity grows, attention is also being paid to the electricity required to sustain cryptocurrencies.

While the relevant data is difficult to pin down, proof-of-work, the consensus protocol that underlies bitcoin mining, is best defined as an energy-intensive process. As such, there are concerns about its electricity use could have large-scale environmental effects.

This is leading to new research on an idea from 2011. Called proof-of-stake, or “consensus by vote,” the idea has been implemented, however, not at the scale intended by ethereum.

As such, it’s long-awaited project Casper is likely to be under significant scrutiny this coming year, and early versions are beginning to see the light.

In a testnet released on New Year’s Eve, one variation of Casper, was claimed to be functional. Karl Floersch, a leading developer behind the technology, told CoinDesk at the time that the code is working with “no hiccups.”

Work remains to adapt this early version of Casper across the different ethereum clients, but ethereum creator Vitalik Buterin has said he expects the technology will be tested alongside proof-of-work sometime in the future.

3. Privacy advances

Privacy has been a somewhat neglected promise in the majority of blockchains, but it’s nonetheless an issue that could see improvement this year.

Most notable is the advances in zero-knowledge proofs, what Buterin has called “the single most under-hyped thing in cryptography right now,” are getting cheaper and easier to deploy.

A form of cryptography that hides information without risking validity, it’s already been adapted to a small degree into ethereum, which could lead to a wave of startups experimenting with private smart contracts in novel and unexpected ways.

Plus, in a white paper published earlier this month, a system for achieving zero-knowledge without compromising trust – a point of contention in some earlier iterations of the tech – was released, an update which could have exciting consequences.

And as existing tech matures, privacy-centric cryptocurrencies such as monero and zcash are also set to improve.

In preparation for an upgrade, zcash has been steadily reinforcing its security, while monero is stepping up to implement “bulletproofs,” a feature that could cut fees by 80 percent.

4. Decentralized exchanges

No, this isn’t just a new version of Coinbase or Kraken.

As the industry’s largest exchanges struggle to cope with the influx of new adopters, an increasing number of projects are at work developing something called a decentralized exchange. The term denotes not just a new browser-based exchange, but rather a type of software users can use to swap one cryptocurrency with another without a central entity.

2017 saw a flood of new decentralized exchange projects, such as ShapeShift’s Prism, 0x, OmiseGo, Kyber Network, and many others.

Expect those efforts to accelerate this year.

So far, hardware wallet Ledger has already integrated with decentralized exchange Radar Relay, allowing users to trustlessly exchange tokens based on ethereum.

While functionality is limited (it’s only supported by a single wallet and only ethereum-based tokens can be sent), many in the industry see it as a glimpse into the future of not just cryptocurrency exchanges, but the technology itself.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase, Kraken and Lightning Labs.

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The Death of the ICO (And 4 Other 2018 Predictions)

Stefan Thomas is chief technical officer at Ripple and co-creator of the Interledger payment protocol.

The following article is an exclusive contribution to CoinDesk’s 2017 in Review.


If 2017 was the year of the ICO, 2018 will be the year of the great ICO hangover.

It will also be the year major financial institutions adopt digital assets, and mark the birth of hybrid blockchains.

1. The death of the ICO token

“Cryptocurrency” became a major buzzword in 2017. Suddenly, all eyes were on these new assets with speculators jumping into the market in droves and regulators heavily scrutinizing them.

In fact, in early December, the combined market capitalization of all digital currencies surpassed that of JPMorgan, the biggest U.S. bank. Initial coin offerings (ICOs) similarly exploded, raising hundreds of millions of dollars around the world in a matter of months.

While they made for exciting headlines, though, I expect the exuberance around ICOs to fizzle in 2018.

What’s more, I also expect regulators and authorities worldwide to come down hard on fraudulent ICOs in the new year. That’s because many ICOs skirted existing regulation in order to raise equity — with no solid business to back up the offering. Funds raised from some of these ventures have already started to disappear, and regulators, such as the SEC, recently announced that they’re getting ready to crack down on them.

I wouldn’t be surprised to see hefty fines, litigation and even jail time for those standing on the wrong side of the ICO issue.

Beyond the regulatory crackdown, questions will arise around the utility of special-purpose tokens. Why would a file hosting company accept payment in Filecoin, when a general-purpose digital asset is so much more liquid and therefore easier to turn into fiat?

We don’t use different currencies to buy clothes or pay our mortgage in the brick-and-mortar world and ICO token holders will realize the economics are no different online.

2. Financial institutions will adopt digital assets

If speculators entered the digital asset market in droves last year, 2018 will be the year that major institutional players like asset managers, pension funds and other financial institutions, such as payment providers, enter the space.

We’re already seeing increased over-the-counter (OTC) trading of digital assets, such as bitcoin on the Chicago Board Options Exchange (CBOE), causing liquidity across the market to deepen. It’s really a matter of when, not if, listings of additional cryptocurrency futures on OTC exchanges will take place. My bet? We’ll see the listings by next summer.

Between this and new institutional players entering the market, I think digital assets have plenty of room for growth. However, the crypto space won’t be without its challenges. Forking, regulation, and banking — oh my!

Governance issues will continue to plague some digital assets — causing forks such as the one with bitcoin and bitcoin cash. This instability will be problematic for some who want to enter the market as it raises questions about supply as well as the level of risk involved.

The uncertain regulatory environment in the U.S., China and elsewhere could also stifle further development of the digital asset market. While countries like Japan and the Philippines have embraced digital assets in their economies and regulatory frameworks, there are many more worldwide without clear policies and laws for these assets.

They should take a page from the respective books of Japan and the Philippines in order to enable new services, increase financial inclusion, and lower barriers to economic growth.

For example, there are only a handful of financial institutions in the U.S. that will bank businesses in the cryptocurrency space. If they were to exit, or if regulation were to come through that prohibits exposure to the digital asset market, this could have very serious, adverse consequences on the improved services being developed. Banks need clear guidelines from regulators on how they can lawfully bank those associated with cryptocurrencies.

3. Blockchains will start to interoperate

In 2017, we’ve seen bitcoin’s share of the cryptocurrency market drop from 87 percent to under 50 percent. Hundreds of new coins and tokens launched and are now being traded.

To make the broad use of digital assets truly mainstream, however, I think we’ll need the many blockchain networks that currently exist to interoperate. The truth is there will not be one single dominant blockchain network in the future — just as there isn’t any dominant internet or email provider globally today.

Currently, we can all email family, friends and colleagues from Gmail to Yahoo to Outlook seamlessly and instantly. Value should move across all ledgers in exactly the same way -— irrespective of the blockchain network, PayPal wallet or traditional bank account involved.

Indeed, we’ve already seen efforts in 2017 to address blockchain interoperability.

Raiden, the ethereum interoperability solution for ERC-20 tokens, launched its token in September, while the Interledger Protocol (ILP) was used to connect seven ledgers including bitcoin, ethereum and XRP in June. My money is (unsurprisingly) on Interledger.

If all networks were to become ILP-enabled, it ultimately wouldn’t matter if you held bitcoin, ether, litecoin or XRP. ILP would allow you to make payments to a merchant that only accepts bitcoin, for example, using XRP — all in just a matter of seconds.

4. The birth of hybrid blockchains

Until now we’ve seen a proliferation of both public blockchains like bitcoin and private blockchains like Hyperledger Fabric. Going forward, I think we’ll start to see the rise of hybrid blockchains, which combine the best of both worlds.

A hybrid blockchain runs on the open internet and is accessible to anyone like a public blockchain, but it uses a smaller set of validators and is more targeted towards a specific use case like a private blockchain.

Deploying an ethereum contract or creating an ERC-20 token will be replaced by launching your own mini-blockchain, which can be tuned to the exact needs of a given project.

Need more decentralization? Less? More powerful functionality? Should it be upgraded frequently or remain very stable? One size doesn’t fit all, but next year you’ll finally be able to choose.

This will be part of a larger trend for blockchain networks to specialize. Current systems try to be everything to everybody. In the future, we’ll see more targeted implementations designed for a clear use case. The best way to explain why this is necessary is to point to the Yahoo example — a tech giant that spread itself thin across too many products and services, and couldn’t be truly successful in any of them.

In the same way that Google focused on data, or Apple on design, I think those blockchains that focus on one core offering (e.g. a pure database like BigchainDB) will survive, and thrive.

5. Specialization or generalization — a contradiction?

Over the course of this article, I’ve argued that general-purpose tokens will replace special-purpose tokens and I’ve also said that special-purpose blockchains will replace general-purpose blockchains.

This might seem like a contradiction at first, but as blockchains become more interoperable, blockchains and tokens will simply be less coupled together. This transition will involve more growing pains, so it’s sure to be an interesting year.

I’m excited to see how it all plays out.

Think you have a better idea? CoinDesk is looking for submissions to its 2017 in Review series. Email news@coindesk.com to pitch your idea and make your views heard.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Ripple.

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Forks Galore For Crypto Christmas

Hard forks and Bitcoin are no strangers. Since its inception in 2009 the digital currency has had several hard forks, the first back in December 2014 called Bitcoin XT. The goal was to increase the block size to 8Mb to achieve 24 transactions per second. Miners continued adding blocks to the original chain so the fork was a failure. Since then we’ve had Bitcoin Unlimited and Bitcoin Classic in early 2016.

Most will only remember the recent ones, Bitcoin Cash and Segwit in August this year. These were followed by Bitcoin Gold and the unsuccessful attempt to double the block size with the Segwit2x fork which never materialized. With more to come it leaves us asking which is the real Bitcoin.

Playing God with crypto currency is pretty easy, especially if you are a Chinese blockchain entrepreneur named Chandler Guo. The crypto guru plans to fork his own version of Bitcoin off on Christmas day and Tweeted: “Bitcoin God (GOD) will be forked off the main bitcoin chain at the block height of 501225, which will happen on December 25th to be symbolic of me giving candy to all bitcoin holders. The total amount will be 21 million. No pre-mine.”

This network snapshot will effectively create another clone of Bitcoin with an identical blockchain up until that specified block. It will then be split with the new one adding its own transactions and blocks from those that decide to follow and mine it. Bitcoin GOD on Christmas day has to be a joke, but Guo appeared deadly serious when investors questioned him stating that the fork is real.

For the second fork of Christmas we have Bitcoin Diamond which has already been split at block 495866. Futures are already listed on CoinMarketCap.com trading at around $45 and the BCD team aim to “lower the cost for participation thresholds by reducing the transaction fees and the cost of participation”. Currently transactions on the Bitcoin ledger are publically visible so Bitcoin Diamond will add a layer of encryption for additional security and privacy.

Rumors surrounding something called Bcash are also floating around the crypto sphere following statements on a Github repository: “Bcash is a new cryptocurrency that uses the existing Bitcoin ledger combined with Zcash privacy technology.”

That sounds a little like Bitcoin Diamond but is apparently an entirely different network in development which also has nothing to do with Bitcoin Cash. Confused yet?

Better not look at the BTC Twitter page then as its December calendar has more forks than an Italian restaurant. Over the next month future Bitcoin hard forks include Super Bitcoin, Bitcoin Platinum, Bitcoin Uranium, Bitcoin Cash Plus, and Bitcoin Silver.

Looks like there will be a lot of forking around this festive season, with all these promises of equivalent free coins on new chains driving the price of the original Bitcoin even higher.


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