Bitcoin Gold – The good, the bad and the ugly
On October 25th, Bitcoin is going to fork its blockchain again into a new version called Bitcoin gold. Earlier this July, the currency was forked for the first time into Bitcoin cash. For the uninitiated, forking is simply dividing the cryptocurrency into more entities, and creating separate digital assets. This fork will take the number of Bitcoin versions to three: the original Bitcoin, Bitcoin Cash and Bitcoin gold.
Bitcoin Gold is developed by a number of developers, programmers and other contributors. It is led by Jack Liao, the CEO of Hong Kong mining manufacturer LightiningAsic, with financial partner Wubi, a Chinese mining company which also owns Bitcoin news portal Jinse.com. H4x3rotab is the anonymous lead developer of this project.
Bitcoin Gold will have a hard fork; a hard fork is basically “when you implement something that is not backwards-compatible and this results in the chain rejecting each other.” Since Bitcoin is an open source, the code can be changed by anyone. The developers are altering the code in order to make it incompatible with the current version of Bitcoin. The transaction history before forking will be stored in the single-previous network i.e. Bitcoin. After forking, transaction histories of all three cryptocurrencies will be stored separately.
Like Bitcoin Cash, private keys holding Bitcoin accounts will get the same amount in BTG account on Nov. 1st. However, they will not be tradable for a few weeks owing to current technical and execution issues.
The main aim behind forking is to decentralise the Bitcoin blockchain where it is dominated by a few. This would allow a wider consumer base to be established by letting other programmers enter the Bitcoin world. Its purpose is to compete with Bitcoin Cash, Ethereum and GPU coins, by bringing down the existing monopolies in Bitcoin. This decentralisation would be done by removing the use of ASIC chips, that are used by Bitcoin currently.
ASICs are specialised chips that are specifically made for Bitcoin mining. However, ASICs were developed and are controlled by some big companies, which has led to a monopoly over Bitcoin. Hence, the biggest change in Bitcoin Gold is the use of ASIC-resistant mining algorithm, called Equihash. Equihash is currently used by Zcash and Ethereum, which uses GPUs (Graphic Processing Units) instead of Bitcoin’s current ASIC mining machines. It is expected that GPUs will allow more participants to mine, widening the Bitcoin consumer base which was cornered by bigger miners.
Another advantage of using the Equihash algorithm instead of using Bitcoin’s SHA-256 is that Bitcoin will be able to compete with Ethereum for mining hardware in the future. Ethereum has planned to switch its mining algorithm in 2018 from Proof of Work to Proof of Stake. Since Ethereum is the other coin that currently uses a very large percent of world’s GPU mining equipment, their switch would allow Bitcoin to become the sole recipient of mining hardware. There are expectations that some Ethereum miners might even shift to Bitcoin Gold in the future.
Also, Bitcoin Gold will have an alteration in the adjustment time. In Bitcoin, the difficulty level of block was adjusted every two-weeks. In Bitcoin cash, this resulted in unstable hashpower. So, in Bitcoin Gold, the level of difficulty will be adjusted in every block found.
Discussions about Bitcoin Gold has been going on since July and has taken a more serious shape recently. Experts say that it is very similar to Bitcoin and can serve as a backup for disaster recovery in case future fork projects do not go well. Some even anticipate that Bitcoin gold might take over Bitcoin, or merge with its code to permanently remove the problem of ASIC.
Companies monopolising over ASICs feel most threatened by Bitcoin Gold, as their production and profits would be massively affected. For instance, a company called Bitname, which produces the fastest and cheapest ASIC, and has the highest market share would be hit hardest if Bitcoin users switch to BCG. Similarly, mining cartels, that have monopolised Bitcoin are at war with Bitcoin’s core developers whose main aim is to reverse this centralisation.
Other issues are existing technical glitches in Bitcoin Gold that are yet to be resolved. Unavailability of testnet yet is a serious issue, as it prevents miners from testing the new version. The “replay protection code” isn’t done yet, which protects users from accidentally using real Bitcoin gold or Bitcoin and vice-versa.
Though, the largest criticism of this project is the decision by developers to mine the new blockchain themselves, sometimes after the fork is implemented. Users are concerned that this would lead to an “unknown amount of Bitcoin being mined.” However, the lead developer says that it would at the most be one percent of the total supply only.
Another issue with Bitcoin Gold is price unpredictability. Since Bitcoin Gold and Bitcoin would be two separate entities, they will have different prices too. The prices depend on the current market situation, and being new in the market makes it difficult and risky to predict prices. Moreover, the introduction of Bitcoin cash led to fall in Bitcoin value from $2,976.41 in July to $2,000 in August. It is speculated that the prices would further fall in case of Bitcoin gold.
However, experts believe that fall in prices would be minor and momentary as Bitcoin Gold would lead to long-term benefits. In fact, even in case of Bitcoin cash, though value fell in the first month, but rose to as high as $4,909.11 in following month of September.
Even if it does not happen, people holding Bitcoin accounts will have the same amount in their Bitcoin Gold account. Since prices in different accounts will be unrelated, rising value of Bitcoin Gold would separately generate more profits.
However, experts have noted that cryptocurrency market is already rising, with the market increasing from just Bitcoin to Bitcoin, Ethereum, Zcash, etc. Due to hard forking, Bitcoin has already increased to three digital currencies with two more coming up in the future. With this current rising trend, if more cryptocurrencies flood market in the future, a high supply would reduce future value of all digital currencies.
In conclusion, while Bitcoin Gold’s noble aim for decentralisation and better competition might increase consumer base in the Bitcoin world, the resistance faced by ASIC producers and dominating account-holders might cause problems. Also, technical glitches and unpredictability about future prices currently seem threatening. However, experts still believe that Bitcoin Gold might actually have a bright future ahead.
Time will tell, we guess.