Dr. Pavel Kravchenko holds a Ph.D. in Technical Science and is the Founder of Laboratory Distributed .

For a long time now, I have been asking the same question to smart people – what is Bitcoin, in fact?

I asked Brian Kelly Asset Management's Mike Sofaer when I saw him at the Scaling Bitcoin conference recently. Mike replied: "Bitcoin is a group insurance against the collapse of currency fiat systems."

His answer has left me a new question – why can not we have a lot of insurance companies?

Imagine that we have a decentralized system – which means that minors (at least, those among whom there is consensus) do not work together, and the correlation of their decisions is negligible. The result would be that each miner checks the actions of all the others, and is exclusively interested in following the rules at a T.

This type of configuration is similar to an insurance company with a sufficiently diversified set of policies so that the probability of occurrence of a certain percentage of identical claims situations occurring simultaneously is effectively zero.

And in reality, it's exactly how insurance companies work – they have policies against floods and forest fires, when it's obvious that both calamities do not can not happen at the same time.

So, how can the cryptocurrency economy develop a similar robustness? Maybe the ranges are part of the answer.

Forking 101

Looking back, the previous bitcoin forks, as well as those that have not been, have shown that the first cryptocurrency is sufficiently robust and stable, even under such unpredictable circumstances.

To be clear, the kind of fork I'm talking about in this post meets the following criteria:

They share a common transaction history

They use identical cryptography – in other words, the keys of the wallet of one fork will suit the wallets of the other fork

They use the same data mining algorithm (in this case, they differ from other forks, where the algorithm was modified to prevent 51% attacks)

The main causes of bitcoin forks are the struggles for the control of the development of Bitcoin. The system itself is decentralized – but of course, opinions diverge on how the project can be improved.

If, 1) bitcoins were completely anonymous, 2) miners were decentralized and not pooled, 3) the number of transactions per second would increase in proportion to the demand – there would be little to no. pulse for the ranges.

In this scenario, the system – which would come closer to perfection, with guaranteed guaranteed security and the actual decentralization of control – would have the greatest chance of success.

But obviously, we are far from touching this trifecta.

Who wins forks?

There are several groups with special interests in these ranges:

Bitcoin minors. They are relatively indifferent to what they are undermining – for them the only concern is the maximum return, so more forks means more options. Speculators looking for a proven technology (bitcoin forks have advantages over other cryptos because it's the oldest code base) that offers them liquidity , high volatility and adoption. Users who want to use cryptocurrencies to perform high value transactions in the shadow economy. Forks indirectly lead to increased liquidity as there are more instruments to trade and the market capitalization of all cryptocurrencies increases, creating more opportunities for value transfer between channels. Meanwhile, governments are struggling to keep up with all the different cryptocurrencies, and the level of competition is driving down costs.

Yet in the final analysis, pitchforks have a series of negative and positive consequences.

On the negative side, they erode investor confidence in an asset (which is true bitcoin?) – as well as the creation inflation, one of the main arguments against the ranges.

If we are afraid of inflation, we implicitly equate Bitcoin with services. As an example, there is only one hair salon in town, the price of haircuts will be higher than there was one hundred. Nevertheless, you can have as many copies of the Mona Lisa as you want – and their number will never affect the value of Leonardo's original.

Beside the negatives, there are also some positive advantages of the forks. One example is that forks lead to technological improvements because they force teams to compete against each other.

Man behind the curtain

The most difficult problem for any bitcoin type system is to prove that the system is really decentralized from a control point of view. Consider bitcoin cash (BCH), where the main mining operations are historically concentrated in the hands of a small group of people (there are also concerns about BCH ownership and trade where it is traded).

It is clear that not everyone sold his coins in bitcoin cash (even Satoshi did not sell his own, nor his own, nor theirs). However, the possibilities of rigging the price are significantly greater here than in the original bitcoin. Until now, the bitcoin species community has not put in place clear criteria to prevent manipulation, so it's hard to tell if they're even capable of such a development.

On the other hand, you must admit that if complete anonymity was in place, a fork with 10,000 independent miners and millions of users would look exactly like a pitchfork with three miners and a hundred of users (since we have no idea who controls the hashrate, or accounts).

The mere fact of having indicators on the trading volume and market capitalization is useless when it comes to manipulation cases, or people having exchanges "in their pocket ".

If the bitcoin experiment survives, it will teach us how to create anonymous decentralized systems with provable decentralized control. It is then that such systems can begin to compete on their level of true decentralization, security, quality of service and transaction costs.

Of course, there is no reason to suppose that "traditional" financial systems could not mutate in this format either. Each state, whether real or virtual, can create its own currency managed by its "central bank" using a format, for example, smart contracts, which analyze economic performance statistics and use them to establish Monetary Policy.

Freedom to fork

It seems to me that new forks will surely occur, especially for ethereum, when it goes to proof of the stake (it's a lot easier to create a fork than it is for a fork). with proof of work). As far as Bitcoin is concerned, it is very likely that further potential improvements will appear – the introduction of which will require a difficult range (such as the much anticipated for MimbleWimble).

We must note that a large number of bitcoin forks with a single extraction algorithm will increase the probability of a double-spending attack. It could be that the next bitcoin fork is exactly where this kind of attack is likely. But the benefit of this could be that the actual experience of such an attack would provide the statistics to guard against similar attacks on other networks in the future.

All in all, I began to think that forks have a positive value, provided that the systems do not compete to be the king of the hill. If we follow the line of thinking of decentralization, then there should be many systems.

Based on this principle, users should have the free choice of which system to select at a given time. A single world currency, dug in the stone of the Founding Fathers as an alliance of the true path, nowadays seems more and more like an Orwellian future – even if it is served with a sauce of decentralization.

Forks offers ideological leaders the opportunity to put into practice their ideas on improving protocols without getting lost in endless quarrels with others.

Plus, that does not mean starting from new cryptocurrency, and trying to win users – there are already people who hold bitcoins.

The long-term vision is that this approach will yield results – since it allows different technical solutions to be tested independently of each other, then to choose the best ones.

Forkway Image by Shutterstock

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