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bifurcation of the development of cryptocurrencies is the advantage or disadvantage?

Interpretation of bitcoin bifurcation: bifurcation of the development of cryptocurrencies is the advantage or disadvantage?

 For a long time, I've been asking the wise men the same question - what is bitcoin actually?

When I saw Mike Sofaer at Brian Kelly Asset Management at the recent Bitcoin Expansion Conference, I asked him the question. Mike replied: "Bitcoin is a collective insurance that collapses the legal tender."

His answer left me a new question: why can not we have a lot of insurance companies? (Original text with insurance company metaphor forks)

Suppose we have a decentralized system - which means that miners (at least those who have consensus) are not working together, and their decisions are almost irrelevant. The result is that every miner verifies the work of all other miners and follows the rules exclusively.

This setting is similar to an insurer, which has a sufficiently diversified pool of policies: two identical, proportional claims, with virtually zero probability of occurrence.

This is exactly how insurance companies operate - they have flood control policies and forest fire prevention policies, which of course can not happen at the same time. (The original metaphor refers to these bifurcations will not function in conflict)

So, how does the cryptocurrency economy develop a similar robustness? Maybe forking is part of the answer.

About bifurcation

To put it in a nutshell, bifurcation before bitcoin (and failed bifurcation) has shown that even in this unpredictable scenario bitcoin is stable enough as the first cryptocurrency.

But what is clear is that the bifurcation types I discuss in this article meet the following criteria:

  1. They have a common history of transactions;
  2. They use the same encryption method - in other words, a forked purse private key can also open other forked purse;
  3. They use the same mining algorithm (at this point, they are different from other altering algorithms to prevent the bifurcation of 51% of the attacks).

Bitcoin bifurcation is mainly due to the contention of control over the future development of Bitcoin. The bitcoin system itself is decentralized - but apparently there is disagreement on how to improve Bitcoin.

in case:

  1. Bitcoin is completely anonymous;
  2. Miners are decentralized and do not form pools.
  3. The number of transactions per second can be increased proportionally on demand

If bitcoin can do this there is no need for bifurcation.

In this case, the system will get closer and closer to perfection, to the desired security assurance and true decentralization - then it is very likely to succeed.

But obviously, Bitcoin does not do all three.

Who benefits from the forks?

There are several vested interests in these bifurcations:

  1. Bitcoin miner. They are relatively indifferent to what they've dug - the only problem for them is maximizing returns, so more bifurcation means more choices.
  2. Speculators are looking for a proven technology that gives them high liquidity, high volatility and adoption rates. (Bitcoin branching is an advantage over other encryption technologies because it inherits the Bitcoin codebase)
  3. Users wishing to use cryptocurrency for high value transactions in a gray economy. Bifurcation indirectly leads to increased transaction liquidity because more instruments are traded, the market value of all cryptocurrencies is growing, and more opportunities are created for the transfer of value between chains. In the meantime, the government finds it harder and harder to track different cryptocurrencies, while trading fees have dropped as a result of competitive levels.

Ultimately, however, bifurcations have a series of positive and negative consequences.

On the negative side, they undermine investor confidence in Bitcoin (which one is real bitcoin?). It also caused inflation, which is one of the main arguments against bifurcation.

If we are afraid of inflation, then we will undoubtedly equate bitcoin with the same scarce services. For example, if there is only one hairdressing salon in the town, then the price of hairdressing salon will be higher than that of the same hundred other salons. But despite this, you can have a copy of Mona Lisa as you like, but their number will never affect the original value of Leonardo da Vinci.

Apart from the negative effects, there are some positive benefits to forking. One example of this is forking to make technological advances because they force the teams to compete with each other.

Behind the fork

The biggest challenge for any bitcoin-type bifurcation is really centralizing control. Consider bitcoin cash (BCH), where the major mining operations have been previously concentrated in a handful of people (and worried about the selling of Bitcoin cash holders and where it can be traded).

Obviously, not all of these people will sell their bitcoin cash (because Nakamoto did not sell his bitcoin anymore). However, the chances of manipulating bitcoin cash prices are far greater than the original bitcoin. So far, the Bitcoin cash community has not set out any definitive standard to prevent price manipulation, so it is hard to say whether it has such a capability for development.

On the other hand, it must be admitted that if both bifurcations are completely anonymous, the bifurcation with ten miners and millions users will be exactly the same as the bifurcation of three miners and one hundred users (since we do not know Who control the power or account).

Indicators of volume and market value are useless in the context of price manipulation and private trading by people.

If Bitcoin experiments succeed, it will teach us how to create a provable, decentralized anonymous distributed system. And these bifurcations can begin to compete on the same level with true decentralization, security, service quality, and transaction costs.

Of course, the "traditional" financial system can be assumed to take the form of: Each country, whether it is real or virtual, can manage its own currency with its own "central bank" - for example, using smart contracts, Economic performance statistics analysis, and use it to establish monetary policy.

Free forks

In my opinion, there are many more new forks that can happen, especially for Ethereum, when it switches to a PoS proof of stock (PoS warrants create a bifurcation that is far easier than PoW proof of work) Bifurcation occurs. For bitcoin, there is a good chance that new potential improvements will emerge - the introduction of which will require a hard fork (eg MimbleWimble, a way to improve the privacy of Bitcoin transactions).

We must note that a large number of bitcoin bifurcations of the same mining algorithm will increase the likelihood of a double flower attack. This may be the next bitcoin fork to be attacked. However, such a benefit may be that the real experience of such an attack will provide data to prevent future similar attacks on other networks.

I've started thinking about the positive value of forking - as long as they do not compete for the king. If we follow the path of decentralization, then there should be many ways to achieve decentralization.

Based on this principle, users should be free to choose any bifurcation at any time. Bitcoin is just "founding fathers", opened up the center of development.

Bifurcation gives thought leaders the opportunity to put their ideas into practice without putting them in endless quarrels with others.

More importantly, this does not mean that bifurcation is a new cryptocurrency from the ground up trying to win more user support - because bifurcated bitcoin original chains, who previously held bitcoin, will also receive points Cross currency.

In the long run, this approach will be effective for the development of cryptocurrencies - because it can independently test different technical solutions, and then choose the best solution.