Important Information About Bitcoin Forks
I wrote this for my Agora contacts on Saturday and I figured that, rather than right it all out again and change it for Bit-Talk subscribers I would just simply copy it here. At the end of the day, the information is very much about Bitcoin rather than anything specific I am doing with the Agora people anyway - so here goes...
Upcoming Bitcoin Fork(s),
Impact on Holdings.
This entire newsletter is devoted to Bitcoin and Blockchain and Blockchain forks (yes, I said forks, plural).
This is going to seem a little on the heavy side. I apologize for that but I must make you totally aware of what is approaching and what you should decide to do about it, if you decide to do anything at all.
I will try to make it as clear as I can but you may find reading a few of the sections over again might help. I really can’t find an easier way than I have, to explain it all to you and it really is important.
There is little point in me ignoring all of this (as tempting as that would be for an easier life) only to then start hearing about issues you have because you were clueless as to what was going on around you. I couldn’t do that to you because, as old fashioned as it sounds, I do very much care about what happens to you all.
The plot thickens, as they say, as more information becomes available to me. Let me go back to the plural use of “forks”. Yes, I am afraid to say, we are facing not one but two imminent Blockchain forks (or splits if you prefer that term) over the next month or so. The timing is terrible and confusing.
Why terrible? One split is difficult enough to get detailed facts on, let alone two! Fortunately, the first split is simple enough because it is the birth of an out an out altcoin.
The first split is the impending Bitcoin Gold, Blockchain fork on 25th October 2017. This one is only important for two reasons right now and they are both positive reasons.
The first is that anyone with Bitcoin holdings will (should) receive a bonus giveaway on the activation of this Bitcoin Gold fork. That is, of course, great news. Bitcoin holders did very well indeed in the Bitcoin Cash fork back on the 1st August and there were no moments of horrible stress along the way as was largely being expected.
A very good friend of mine holds over 100 Bitcoin and his Bitcoin Cash bonanza was worth around $55,000 to him overall on that Bitcoin Cash split. So, you can see how attractive these splits can be and why it pays to be aware of them. Even if you have 0.1 of a Bitcoin right now, that is worth, as I type this, $570 and who knows what in additional Bitcoin Gold value.
The second reason that this October 25th split is important is that there is little doubt that the upcoming fork is creating a rush of new money into Bitcoin and it is almost certainly the primary reason behind the recent positive climb in the Bitcoin price to nearly $6,000.
That means that if you hold any Bitcoin right now you have already made seriously good profit since you purchased, assuming you purchased at least 4 to 7 days back. People just love free money and who can blame them.
There is a not so obvious downside with this though (isn’t there always) and that is the rush of money into Bitcoin is partly coming away from the altcoin markets and they, accordingly, are showing signs of rapidly shrinking liquidity. There will be new money coming in as well but the re-direction of money is a concern, albeit perhaps a small one, if you’re trying to find trading opportunities.
I will be very pleased to see the start of 2018 as far as cryptos are concerned. I have never struggled so much as I have lately with trading and trying to work out what to get behind and what not to get behind.
The first half of 2017 was so good for trading and the second half, so far, has been a pain in the rear.
Fortunately, I can at least see some light at the end of the tunnel. We have a bunch of new and recent ICO coins coming into the market that may create some new trading opportunities for us. And there have been compensations of course (the Bitcoin Cash windfall and another one coming).
And, while we’re on downsides; we also must expect a downturn in the Bitcoin price again after the first fork and maybe even before it. On that note, it doesn’t help that the ridiculously, unhelpful and idiotic Jamie Dimon (the JP Morgan Chase CEO) has stuck his oar in again about what he thinks of Bitcoin.
Hey Dimon! Butt out! No-one cares what you think especially as it doesn’t take a genius to work out that you are only trying to manipulate the market. You probably bought a bunch of Bitcoin, sold it on the new high and now want the price down again so you can buy some more!
So, here’s the thing, I am basically now going to wait these forks out and wait out the immediate aftermath. I am aware that for someone new to Bitcoin this could be a frustrating period.
If you look at the current state of play in terms of market capitalization the gap between Bitcoin and the rest is huge. Bitcoin is now representative of $94 Billion of the total cryptocurrency market of $174 Billion. That is largely because people are queueing up for some free Bitcoin Gold.
If you take the top 3 in market cap terms (Bitcoin, Ethereum and Ripple) they currently account for $137 Billion of the total. You can easily deduce from those figures that there is little altcoin buying and selling going on outside the top 3 with less than $37 Billion left over for the rest.
Upcoming 1st Bitcoin Fork, Impact on Us.
Unlike the fork back on 1st August this year which was, in the end, an altcoin giveaway even though it didn’t set out with that intention, with this upcoming one we now have experience and precedent and the anticipation of free money. And we weren’t sure, really, that we’d get that last time. This one will be another altcoin from the get go rather than a challenger for the pure Bitcoin title.
We now know how this all works and feel renewed confidence about Bitcoins’ future whereas, back in July, August, there was a big fear factor gripping the Bitcoin community because this type of fork had never happened before with Bitcoin.
What we really all need to know this time around is:
1) Are we going to get some Bitcoin Gold?
2) Are there any dangers to our existing Bitcoin on the occurrence of this and the next fork?
3) What will the impact be on Bitcoin and other cryptos come the day of the first Blockchain fork and the days that follow thereafter?
So, let me deal with question 1 as best I can.
More wallets and exchanges are declaring their position on this now, which is great news.
I was pleasantly surprised to receive notice from blockchain.info upon logging into my Bitcoin wallet just last week that they had allocated some Bitcoin Cash to me (remember, that was the coin that emerged from the 1st August fork).
If you had money in a blockchain.info wallet on 1st August 2017, you too should have received the same notice from blockchain.info when you logged in recently about a Bitcoin Cash allocation.
I hadn’t really been expecting this although I was quietly hoping that they would eventually respond. That, in my mind, sets a precedent and tells me that they will do likewise with any new Bitcoin split coin. Thus, Bitcoin Gold should also be coming to blockchain.info wallet holders with funds in that wallet on 25th October.
That said, the allocation is unlikely until at least 1st November 2017 and is probably going to be sometime after even that.
Many other wallets have already declared positively for coin allocation on the Bitcoin Gold split. Coinbase and Bitfinex (and others) have gone further and have already declared support for both new Blockchains after the other split I am going to tell you about a little further on.
That’s good as well because it could mean even more free coin (but we aren’t sure about that just yet).
There will be plenty of others specifically declaring their intentions with the Bitcoin Gold giveaway but I still can’t give you a definitive list of who will and who will not and, in the end, it doesn’t really matter.
I am very much getting the feeling now that, wherever your Bitcoin is being held on the 25th October spilt date, it should not be an issue as it is becoming more and more likely that you will get a Bitcoin Gold payout on the split anyway and anywhere.
But we shouldn’t ever be complacent as there is a definite danger looming with the second split if you do not know how to protect yourself against it. More on that later.
By the way, it’s easy enough to protect yourself but you need to know how all this is going to potentially impact upon us. I will cover that in more detail as we move on.
To cut to the chase regarding question 1, what this first fork means to us all in a practical sense is that most wallet and exchange services are now saying that they will allocate some Bitcoin Gold to you on a 1 for 1 basis (whatever you hold in Bitcoin you will also get in Bitcoin Gold).
The specific trigger date on this first split is 25th October just to be sure you have that firmly in mind. We need to be aware of 3 significant dates that are coming up now in articles, forum threads and blogs all over the place.
Those dates are 25th October; 1st November and 18th November and some of these articles etc. are making these dates merge some and a little confusing.
So, let me give you a clear idea of what they mean.
The 25th October date, as we know, is the trigger date for the Bitcoin Gold initiative. The 1st November date is the first possible allocation date of Bitcoin Gold. The 18th November date we will get to but that is when the second of the upcoming forks occurs.
The Bitcoin Gold people will pick a block on the blockchain on the 25th October and initiate a split from the current core blocks. Then Bitcoin Gold will emerge from that point onwards and Bitcoin (let’s call it core) will continue as if nothing had happened. Bitcoin Gold will establish itself as an altcoin, just like Bitcoin Cash did. And the core Bitcoin will go marching on.
What will Bitcoin Gold be worth? Who knows?
The most important thing about Bitcoin Gold that has been established and, once again, I will need to come back to this later, is that there is no danger of replay attacks.
In practical terms this, for me (25th October) is the start date of a period from which I will be as protective as I can over my Bitcoin holdings. I will be making certain that all the “liquid” Bitcoin I have that hasn’t already been turned into altcoins is put away in a wallet that I control the private keys for. In my case that is the Ledger Nano S, offline wallet.
Talking about the Ledger wallet, apparently, you can now also buy the Ledger Nano S wallet on Amazon as well as the Trezor offline wallet.
Just to recap – online wallets and exchange wallets (in the main) hold the private keys to your specific onboard wallet on your behalf. Holding your own private key means you and only you have access to the wallet.
With you holding the private keys, no-one but you can move any wallet content away from that wallet. A wallet on an exchange though must have access to your private keys to work with and activate any transactions you make when trading or spending.
Now, before you start holding your head in your hands and thinking “what the hell…” let us be practical for one moment.
If you have only a little Bitcoin (and I can’t decide for you what a little means but I would certainly say less than 0.2 of a Bitcoin is a little) you might think, to hell with all this, I am just going to carry on as normal with my Bitcoin left where it is now and forget about all this forking and splitting nonsense.
And that would be an understandable approach for anyone to take. Any danger that comes from a blockchain split is only a danger that could come from replay attacks anyway and these are only likely to be targeted at more significant (and attractive) Bitcoin amounts being moved through transactions.
As I said, I will need to come back to replay attacks in a while because they need a little more explanation.
That’s why knowing that most wallet and exchange services will distribute Bitcoin Gold to you after the split is such good news. In the end, you don’t want to miss out but you don’t want to have to jump through hoops to be in the right place to get it either.
I just feel that those with a bit more at stake need to pay attention to where it is and how they move it around and only you can decide how you want to approach this.
And now to question 2, are there any dangers to my existing Bitcoin on the occurrence of this and the next fork?
The 25th October fork is unlikely to cause any problems that I can see. Part of Bitcoin Gold’s promise is that they have built in replay protection as part of their new Bitcoin program. So now I think I need to explain a replay attack.
Replay Attacks.
A Replay attack is where a transaction made on one blockchain can be repeated or instantly replayed on another. This is only ever a possibility when there has been a blockchain fork. It means that deliberately (by some unscrupulous third-party deceit) or accidentally, one transaction is made on one chain and then the same transaction is made on the other.
If that happens the danger to the owner of the Bitcoin funds is that twice the amount of coin is taken than was intended out of his/her wallet.
It can happen accidentally when the wallet you are using is being operated by people who really do not know what they are doing. Or they are not paying close attention and the intent for the transaction to only go along one chain is not made clear.
This cannot happen when you control your own private keys.
Replay attacks can happen cynically or with criminal intent when an opportunist that really understands this stuff sees an attractive transaction being relayed on one chain and makes that transaction happen instantly on the other before the next block in the chain is confirmed.
Now admittedly, this takes some serious inside knowledge and, of course, a way of copying the transaction exactly. It isn’t something that most of us would even know how to do but, again, it simply cannot happen anyway if you control your private keys.
Perhaps more importantly for those who can already feel their heads spinning, this cannot ever happen if you make no transactions during this unsettled initial period around and after a fork. And that’s exactly what I am going to do.
Hence my comment that I will be putting my available liquid Bitcoin into my offline Nano S wallet from 25th October for a time and that time will be until the 18th November fork (fork 2 – the Segwit2X fork) has come and gone and left no issues behind.
So, to recap. The Bitcoin Gold folks have put replay protection in place so the 25th October fork is not going to cause any replay attack issues. Bitcoin Cash back on 1st August also had replay protection built in and there were no such issues accordingly.
This, sadly, is not the case with the second fork. Why is that?
Fork 2 – Segwit2X and the Absence of Replay Protection.
When block number 494784 is cracked open on the blockchain (estimated to occur sometime on 18th November 2017) Segwit2X is activated. Segwit2X came about owing to something called the New York Agreement back in May 2017.
Segwit (Segregated witness) was scheduled to go active and did so on July 21st this year. This change in the Bitcoin protocol allowed for the Bitcoin block size to double from the established 1mb of data to 2mb of data. But many miners and movers believe that Segregated Witness should have gone further.
Segwit2X (the New York Agreement) instigated a change that would allow that data size increase to double and go even further. That change was set in to motion for activation on block 494784.
The Bitcoin core team believe that this change is too much too fast, too soon and oppose the change altogether thus a second Bitcoin Blockchain fork is headed our way and what makes this one dangerous is that neither side (core or Seg2X) believe that Replay Protection needs to be applied because both sides believe that they will be the ongoing, original, true blue Bitcoin after the split.
Up until recently, it seemed like everyone who signed the NYA was sticking to that decision to bring in Segwit2X but it now appears that some, perhaps quite a few of them indeed, are backing out.
The Segwit2X protocol change does have something called an “opt-in” replay protection built into the code but not a mandatory one because supporters of 2X believe (as the core Bitcoin guys also believe) that what they are doing is merely an original Bitcoin upgrade and not a fork into an altcoin. So why should they worry about replay attacks because, surely everyone is going to follow their chain moving forward, right?
It’s an out an out mess but there is still time, we hope, for one side to give way and build in more than opt-in replay protection. Let’s hope they do.
Opt-in replay protection is a pain, that means that an individual notice of intent as to which chain the transaction is meant for must be added to the transaction data. And the way the Segwit2X coder has done that is to have a small amount of Bitcoin sent to a specifically recognized and coded wallet address if you want to opt-in for replay protection.
In other words, if you want to be certain that the transaction you are making cannot accidentally or purposefully, through deceitful practice, be transmitted through both chains, you need to make a small donation to this other wallet address. It need only be a tiny amount but it makes the transaction replay attack proof.
Phew, sorry, I did say it was a little heavy.
The Conclusion.
My view is that you should at least be aware of all this stuff so that you can protect yourself or, more specifically, protect your Bitcoin.
One of the parties in the second fork must surely put replay protection into the code in the end because, fundamentally, all these guys really do care about Bitcoin in the long run.
However, for a while during the run up to the fork and for a while after, there is a danger of replay attacks and because of that I will be making no transactions with my Bitcoin until I know that danger has been cleared away.
I am going to stop making transactions between 25th October and a few days after 18th November – can’t say how far past that date for sure – unless I absolutely must make transactions.
If I need some crypto funds to move around, I will use Ethereum to do it.
I also strongly suggest that you read this excellent article by Jimmy Song - ARTICLE - so that you understand a little more about replay attacks. I have only been able to scratch the surface here to get you at least a little up to speed.
Don’t leave a lot of Bitcoin in a third-party wallet. There are some online wallets that give you private key control if you don’t want to buy a hardware wallet. Wallets like Mycellium, Jaxx and Exodus should you want to explore those.
Also, beware of fake websites that appear to be telling you that you can go to them to access or claim your fork coin benefits. You shouldn’t ever have to go anywhere outside of your own wallet to get these coins. They should always come to you. Support threads on “how to” get to your new coins are OK maybe but nothing else.
And most of all remember not to worry. Whatever happens after the Segwit2X fork on 18th November one of the forks will very quickly emerge to continue as the original legacy Bitcoin and the story will go on.
If I can find out anything else that will help you, I will bring it to your attention as soon as I can.
John
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