Back in Bitcoin history, when Argentinian millionaire Wences Caseres (
Xapo, Paypal) came across Bitcoin he saw it as a potential solution to
the periodic financial turmoil that totally wipes off the wealth of hard
working Argentinians. In what I consider a very prudent act of due
diligence, he paid a couple of hackers a sizable amount of money to hack
and break the fledgling Bitcoin. Their conclusion was that it was
unbreakable and that has remained true until today. The Bitcoin protocol
has never been hacked. The vulnerabilities were the trusted
infrastructure around it like the exchanges. The most memorable being MT
Gox.
However on the 1st August 2017, Bitcoin main chain forked and a new coin
Bitcoin Cash (BCH) came into existence. Some argue that it is closer to
Satoshi's vision than the current Bitcoin (BTC) which separate the data
portion from the address portion of the data structure. BTC became the
main coin because it was supported by the majority of users, developers,
Bitcoin businesses and miners in what is now knows as the New York
Agreement.
Chain Death Spiral. (CDS)
After Bitcoin fork on 1 August it became obvious that Bitcoin the
protocol did have an inherent vulnerability. This was that if the chain
loses mining power it will have to wait a full 2016 blocks before the
difficulty can be adjusted to bring the block time back to the normal 10
minutes. This vulnerability was never considered or analysed because
until now the miners had no choice but to keep mining on the Bitcoin
chain. After the fork however, the whole landscape has changed. Miners
have a choice and power to influence the fate of the chain they are
mining on.
This was brought clearly into focus when the blocktime of the BCH fork
went as high as 15 hours per block in the beginning. BCH however was
designed with Emergency Difficulty Adjustment (EDA) which adjusted the
difficulty even before the 2016 block adjustment period is up. Bitcoin
(BTC) does not have this safety feature and cannot have one unless a
hardfork is performed to include it.
A Chain Death Spiral occurs when the block time increases leading to
some miners switching chain. As more miners leave the problem gets worse
and a feedback loop results in the dreaded Chain Death Spiral.
Bitcoin (BTC) mempool been increasing since after the fork on 1st
August. It is currently 52MB which means it will take 52 blocks to clear
without any additional transactions. The record was in May 2017 when it
reached 120MB. The whole community was in an uproar resulting in a move
towards other competing coins for transacting.
Looking at the hashrate distribution and starting from the 6th August we get the following
(Peta Hash) BTC BCH TOTAL (Block Time) BTC BCH
6 August 2017 7473 143 7617 8.13 110
7 August 2017 6023 499 6612 10.28 22.15
8 August 2017 6637 551 7188 9.41 18.46
9 August 2017 6835 154 6989 8.78 62
10 August 2017 6200 541 6741 10.43 15
A picture is forming. Between 8 to 10 August roughly 400 petahashes
moved out of BCH which triggered the EDA adjustments then move back in.
In addition there was a loss of 200 Peta Hashes on the 9th August and a
further 200 Peta Hashes loss on the 10th August.
The current BTC mempool is 50MB and blocktime is 10.28 minutes. There is
clearly a development and it will get clearer today. Will the 400 Peta
Hashes leave BCH again or will the hashing power on BTC decrease
further. What happened to the 400 Peta Hashes missing since 8th August.
The BTC chain cannot afford further loss of hashing power. Its'
blocktime must come back to within 10 minutes and soon.
What is certain is that the current price of BTC is not justified with
this inherent vulnerability, risk of the dreaded Chain Death Spiral. Have investors totally abandoned any thought of immutable economic security and due diligence? It is incredible how we lose sight of the risks when we bamboozled with riches, hype and misinformation through censorship.
It is other peoples' hard earned money and other peoples' investments.
Even the possibility that this "black swan event" can happen must be
addressed. It should never be censored speech.
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