Category Archives: Bitcoin

On March 7, leading bitcoin payment processing company BitPay co-founder and CEO Stephen Pair released a blog post entitled The Bitcoin Fee Market to discuss the growing fee market within the bitcoin network and potential scalability solutions to address issueson bitcoin blockchain congestion.

In Bitcoin, fee market refers to an ecosystem wherein users begin to pay higher fees in order to have transactions settled at a faster rate. This creates a market in which users compete by including higher fees each time for miners to prioritize certain transactions. Higher fees are often utilized by businesses or individuals processing urgent transactions that need to be confirmed in the fastest time possible.

Since the beginning of 2016, the Bitcoin fee market intensified due to the 1 megabyte limit of the bitcoin blockchain. According to the worlds most popular bitcoin wallet Blockchain, the Bitcoin network is processing around 350,000 transactions a day. However, the 1 MB cap on the blocksize limits the network of settling 300,000 transactions a day. Thus, the other 50,000 transactions are often delayed or stuck in the bitcoin mempool, waiting for miner confirmations.

As seen in the Blockchain chart above, the bitcoin mempool size increased significantly since the past year. The exponential expansion of mempool demonstrates the rising number of transactions being stuck or delayed due to the blocksize limit.

Because of the growing fee market and mempool size, businesses like BitPay have been paying increased miner fees. The chart provided by Pair below demonstrates that the sum total of miner fees paid by BitPay increased from less than $3,000 a month to nearly $55,000 a month.

Miner fees paid by BitPay certainly could have seen drastic increase in miner fees because of BitPays increasing number of transactions. However, the major factor behind this abrupt increase in miner fees is attributable to increasing transactions of Bitcoin in general and the growing fee market.

Still, Pair notes that this increase in miner fees isnt a huge problem yet, because a few dollars for BitPay customers are irrelevant. Pair explained:

For these customers, miner fees of a few dollars are irrelevant. It appears that transactions for high value use cases will eventually crowd out smaller on-chain payments, and smaller payments will move off-chain.

If the Bitcoin community fails to implement some type of solution which eliminates transaction malleability and open doors for two-layer off-chain solutions however, the few dollars could become a problem. For large customers or businesses utilizing the bitcoin blockchain to process large sums of money, a few dollars of miner fees isnt a problem.

For customers processing less than a thousand dollars per transaction, the miner fee can get overly expensive.

Currently, the only solution which allows off-chain solutions like Lightning to be activated is Segregated Witness (Segwit). When considering Segwit, miners, businesses, investors and uers must start seeing it as a technology which enables efficient and urgently needed off-chain solutions rather than as a scalability solution on its own.

As off-chain transactions in one form or another are increasingly adopted, market share growth will start to diminish for miners. With their considerable investments at stake, they will be under pressure to increase transaction throughput to compete with off-chain payment solutions. We estimate that Bitcoin needs to acheive an approximate 100 fold increase in throughput just to be viable as a savings and settlement medium, said Pair.

Image from BitPays offices from BitPay.

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BitPay Miner Fees Double in Two Months; Potential Bitcoin Scalability Solutions? - CryptoCoinsNews

Bitcoin price could hit $3,000 by years end, having recently traded above gold and hitting a new high, according to Adam Davies, a consultant at Altus Consulting who works with financial institutions on technology.CNBC recently interviewed Davies, noting in the interest of disclosure, that he owns bitcoin.

Adam Davies

That price would mark a near 150% gain over the recent $1,204, and more than 130% over the $1,293.47 high from last week.

Bitcoins price has not trading above an ounce of gold. However, its price is up 195% in the past 12 months, due to various market and geopolitical factors. Chinas clampdown on money laundering has delivered stricter regulations in that country.

Demonetization in India has made bitcoin a more likely alternative store of value. Other currencies have experienced volatility while the global economy faces uncertainty. Davies said as bitcoin expands and its acceptance grows, adoption will increase rapidly.

People are unsure about global events, he said. Brexit has impacted currencies such as the U.K. pound, causing people to divest into bitcoin. Such drivers will hedge against insecurity and currency fluctuation in markets.

Peter Smith, Blockchains CEO, told CNBC that Blockchain has experienced unprecedented volume. A 3,000 price by year end is feasible at current price appreciation. Experts cited other factors as well.

The expected approval of the Winklevoss exchange traded fund could deliver a flood of institutional funds into the bitcoin market, said Thomas Glucksmann, marketing head at Gatecoin, a cryptocurrency trading platform.

Japan recently approved a law deeming digital currencies similar to fiat currency that can be used as methods of payment, bringing credibility to cryptocurrency. Glucksmann agreed a $3,000 bitcoin price by year end is realistic. He said a range of $2,000 to $2,5000 is a safer prediction.

The bitcoin price will rise this year, he said, but the extent of the rise is difficult to say.

Image from Shutterstock and LinkedIn.

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Analyst: Expect Bitcoin Price at $3000 By Year's End - CryptoCoinsNews

Chinas three largest bitcoin exchanges have extended a self-imposed moratorium on all coin withdrawals for an indefinite period, as they seek regulatory approval for a crypto-currency thats gained popularity with local investors as an alternative to the yuan.

BTC China, Huobi and OKCoin said in separate statements Wednesday that the suspension will lift only after regulators approve internal compliance upgrades. The three temporarily halted withdrawals last month, citing central bank requirements to re-tool such systems. Huobi and OKCoin have said it will take about a month to adjust to the new guidelines. BTC China didnt give a time.

Bitcoin prices were down 2.6 percent at 5:58 p.m. local time, paring a loss of as much as 6 percent earlier. The price recovery began soon after the exchanges made their announcements around 4 p.m.

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The digital currency, which last week passed the price of an ounce of gold for the first time, has come under increased scrutiny by Chinese authorities worried about money laundering and capital flight. Wednesdays move suggests Chinese authorities are sticking to their hard-line stance on the cryptocurrency.Peoples Bank of China official Zhou Xuedong told Bloomberg News on Tuesday that bitcoin regulation introduced previously wasnt temporary.

China has taken a central role in the bitcoin market in recent years as its citizens became leading traders and miners, deploying the vast computing power needed to make transactions with the cryptocurrency possible. Their interest was fueled by a hunt for alternative assets, zero exchange fees and the low cost of electricity to run mining computers.Demand from investors in Asias largest economy, home to most of the worlds bitcoin trades, has fueled a three-fold increase against the dollar over the past year.

But the authorities are concerned, among other things, that bitcoins being used to spirit money out of the country, undermining official efforts to clamp down on capital outflows and prop up the yuan.The PBOC told nine bitcoin exchanges during a meeting in Beijing last month that it will close exchanges that violate rules on foreign exchange management, money laundering, payments and settlement.

With assistance by Gary Gao, and Benjamin Robertson

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China's Top Bitcoin Exchanges Extend Suspension of Withdrawals - Bloomberg

One of the recurring themes in the socio-political experiment that is bitcoin is how the cryptocurrency community has slowly accepted norms and strictures that govern the fiat money system bitcoin was invented to supersede. As traders slowly grasp the scope of manipulation and grift that accompanies such an anarchic, anything-goes market, some have clamored for rules that might make the world of bitcoin as fair as it is free, from anti-money laundering safeguards to deposit insurance. Innovation recapitulates regulation.

FT Alphavilles Izabella Kaminska highlights the most recent such episodeof this sagain the travails of Daniel Masters, founder of the Global Advisors Bitcoin Investment Program. In Masterslatest investor bulletin, he recounts how his fund got knocked ten percent from its benchmark by a competitor practicing textbook price manipulation. He writes:

The matters set out above highlighted another issue with bitcoin trading, which up until this point we had not considered. After the price drop, one player emerged as totally dominant in the open interest of the futures contract. It seemed pretty clear to us as a result that this event was not just a normal version of a large liquidation, with which we are familiar, but was a premeditated attack. When the dust settled, one unidentified player was short well over half the open interest.

In a typicallyregulated market like, say, lean hog futures, position limits established voluntarily by exchanges (and later mandated by Dodd-Frank) would keep a market participant from amassing such a dominant, price-shifting position. But the techno-utopia of bitcoin trading refuses to shackle its citizens with these kinds of outdated contrivances. And for Masters, thats kind of a bummer:

We would therefore class this episode as clear market manipulation, and in fact it was not just momentary: for many days thereafter the basis was so weak that it seemed that the one attack was being followed up by periodic smaller attacks. As such we approached the exchange. They confirmed to us that there were no position limits whatsoever and that people were free to do whatever they wanted in their happy trading environment (yes, they used those actual words). We made it very clear that such activity, whether in a regulated environment or not, might amount to criminality in Hong Kong and would certainly do so in many other jurisdictions. Following a number of discussions, the exchange encouraged the rogue player to withdraw and things have now normalized.

Clearly, one mans happy trading environment is another mans viper pit, which is the ultimate tradeoff with bitcoin investing. You get all the excitement and arbitrage opportunity of a relativelyprehistoric market without the safeguards of the current one.

Of course, were talking bitcoin exchanges here, not bitcoins central coding community. Though exchange operators seem to have some of the same libertarian leanings as the currencys diehard core (see above), they also have incentives like making money and staying out of jail. Regulators tend to treat bitcoin trading as a commodity, which subjects it to a basic set of rules and safeguards that exchanges must follow. But regulatory pressures are less interesting that those stemming fromthe bitcoin community itself.

When OTC markets backfire, bitcoin edition [FT Alphaville]

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Bitcoin Is A Chaotic Bedlam Of Manipulation And Deceit And That's Just The Way We Like It - Dealbreaker

Bitcoin price seems to be down to its line in the sand for the uptrend, as a break below this area could lead to a longer-term selloff.

Bitcoin Price Key Highlights

Bitcoin price seems to be down to its line in the sand for the uptrend, as a break below this area could lead to a longer-term selloff.

Technical Indicators Signals

The 100 SMA is still above the longer-term 200 SMA on the 4-hour time frame, confirming that the path of least resistance is to the upside and that the climb is likely to continue. Also, the gap between the moving averages is widening to indicate that bullish pressure is strengthening.

Price broke below the 100 SMA to show that sellers are trying to push it lower, but the 200 SMA appears to be holding as dynamic support so far. This coincides with the channel support and a former resistance level, which suggest that there could be plenty of orders waiting right here.

Stochastic is on the move down to show that sellers are in control of price action. However, this particular oscillator is already dipping into oversold territory to indicate seller exhaustion. If buyers are able to take over and stochastic heads back up, bitcoin price could follow suit. RSI is also heading south and has a ways to go before hitting the oversold area.

Market Events

Dollar strength has been in play over the past few days as traders continue to build up expectations for a Fed rate hike in the next meeting. Not only have most policymakers affirmed their hawkish bias but data has been mostly upbeat so far.

For one, the ADP figure for February printed a huge gain of 298K versus the projected 185K rise. To top it off, the January reading was upgraded so market watchers are expecting the same results for the official NFP report due on on Friday, sealing the deal for a March hike.

Charts from SimpleFX

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Bitcoin Price Technical Analysis for 03/09/2017 Last Line of Defense! - newsBTC

Bitcoin startup 21 Inc has released an update to its previously announced paid messaging platform, soft launched earlier this year.

In a Medium post today, the San Francisco-based startup debuted '21 Lists', a new function that enables 21 users to offer bitcoin as a way to incentivize VCs, CEOs and angel investors to answer email messages from unknown senders.In advertisements, the startup has sought to position the offering as "better than LinkedIn".

"Each list is a mini-directory organized by profession or skill," the post explained.

It went on to detail six lists that group participants into categories including 'VCs', 'CEOs', 'angels', 'founders' and 'blockchain'.

The update is the latest that finds 21 moving away from a former bitcoin mining hardware product play and toward software solutions it believes will spur consumer use of the digital currency.

In statements to CoinDesk earlier this month, 21 CEO Balaji Srinivasan pushed back on claims that the new product marks a pivot, indicating that its main goal is to increase bitcoin adoption.

He went on to compare the bitcoin network favorably to other forms of payment.

"[Bitcoin] allows instant receipt of funds without linking a bank account, it works across borders and it can scale up and down to very small and large payments alike," he said.

Email visualization via Shutterstock

21Balaji Srinivasan

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21 Adds List Feature to Bitcoin 'LinkedIn' Alternative - CoinDesk

With bitcoin on a tear, Mira Kwon decided theres more money to be made elsewhere. A little over a month ago, the University of Maryland economics graduate began pouring more than $2,000 into a different crypto-currency called dash.

Bitcoin is expensive, Kwon, a mother, investor, Korean interpreter and U.S. Army veteran, said in a telephone interview. I think dash has a bigger growth rate.

So far, its worked. Dash has risen to $46 from $15.20 when Kwon started, according to prices at CoinMarketCap. With a market value of $326 million, dash has become the third-largest crypto-currency, behind bitcoin and ether. Other digital currencies are on the move, too, including monero and zcash, to name some of the 700-plus out there. Investors who feel they missed out on bitcoin are seeking a different path to crypto-riches.

They think theyve missed most of the move, so they are starting to look at other coins that could be their ticket, said Adam Wyatt, chief operating officer of the crypto-currency researcher BullBear Analytics.

Trading crypto-currencies is speculative. Characteristics that may give each version value include a restricted supply, the willingness of merchants to accept it as terms of trade, technical features and ultimately the faith investors put in it.

Chris Burniske, an analyst at Ark Investment Management LLC, sees signs that some investors are cashing out of bitcoin and putting funds into so-called alt coins, varieties that havent gone up as much. His company operates an exchange traded fund with 5 percent of its assets in blockchain -- the database technology underlying bitcoin -- and peer-to-peer computing.

Bitcoin fell 0.5 percent to 1,239.35 Tuesday in New York. Its up 30 percent this year.

Others are trying to hedge as bitcoin approaches possible speed bumps: The first bitcoin-based exchange-traded fund is expected to be rejected or approved by U.S. regulators by March 11, and the price has risen in anticipation of new investor interest in the digital currency. A decision -- one way or the other -- could lead to more volatility.

With a rejection, probably the entire crypto-currency market as a whole could drop, said Alex Sunnarborg, an analyst at researcher CoinDesk, said in an interview.

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Another issue facing bitcoin is network speed, which has been sluggish.At high congestion times, bitcoin transactions have taken hours to clear. While thats faster than a traditional cross-border money transfer through a bank, its too slow for some users. Bitcoin developers are having trouble agreeing on ways to scale up the network, and the deadlock is pushing some investors to look at the alternative coins.

This creates tension and uncertainty, said Leah Stephens, a Kansas City-area writer who has investments in crypto-currencies such as steem, dash, monero and bitcoin. Many traders are hedging in alt coins because of these reasons.

Other coins have features that bitcoin lacks: Dash transactions are confirmed much faster, so it may be better for payments, Kwon said. Many of the coins that are on a tear -- such as dash, monero and zcash -- offer extra privacy protection.

What I think you are seeing is dash emerging as a true challenger to bitcoin in the market, said Ryan Taylor, director of finance at the team that developed dash. We are doing it by adding features customers really like. What you are seeing is recognition on the part of the users.

Smaller markets also present major disadvantages: The currencies tend to be less liquid, and more volatile. Large holdings of dash, for example, are concentrated in several thousand hands, Burniske said.

Not that thats deterring investors like Kwon, who are partial to crypto-currencies because they reduce dependence on money regulated by central banks.

We need some alternative currency other than fiat currency, and bitcoin is too slow and expensive, Kwon said.

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Investors Who Missed Bitcoin Rally Go for Dash, Ether, Monero - Bloomberg

Bitcoin prices fell below $1,200 for the first time in March, on Wednesday. The dent represents the sharpest drop to the bullish rally that began last month wherein the cryptocurrency scaled to new all-time highs for the first time in over three years.

Bitcoin dropped by nearly $100 compared to yesterdays prices when it struck a low of $1,160 today, losing about 7% in value on the Bitstamp Price Index (BPI).

Having started the day above $1,230, bitcoin peaked to the days high of $1,244 around 01:30 UTC. The decline came soon after.

Bitcoin price fell from $1,240 at 02:30 to $1,219 in an hour. The sharpest drop of the day occurred when price slumped from $1,222 at 04:00 to $1,190, losing over $30 in value in a 20-minute trading period. Although price recovered briefly to $1,217 a steady decline resulted in price sinking falling to the low of $1,160 at 07:00.

A resurgence has since followed with bitcoin resurfacing above $1,200 at 08:00 and staying on top of the milestone throughout the day.

At the time of publishing, bitcoin is trading to the dollar at $1,203 on the BPI, with brief respite above $1,225 near midday.

The downturn comes in the lead-up to the much-publicized ETF decision to be taken by the US Securities and Exchange Commission, with the deadline this Friday. One theory is that traders are selling off their bitcoin to avoid losses in the event of a negatory decision by the SEC.

Todays sharp fall coincides with the big three Chinese exchanges extending the month-long bitcoin withdrawal freeze indefinitely. In identical statements, OkCoin, Huobi and BTCC confirmed that bitcoin withdrawals will only be processed after approval by regulatory authorities. There are no details of a time-frame provided.

Bitcoin prices dropped sharply this time a month ago after the exchanges halted withdrawals, the last significant price influencer from China.

Image from Shutterstock.

Originally posted here:
Bitcoin Price Falls to March Low, Rebounds Above $1200 - CryptoCoinsNews

In the Morning Risk Report, the Wall Street Journal emphasized that law enforcement agencies and financial organizations that are describing bitcoin as a terrorism financing tool are exaggerating the risks involved in digital currencies including bitcoin.

Since the beginning of 2016, law enforcement agencies including the FBI and Europol have begun to describe bitcoin as a terrorism financing tool due to its use case in the dark web. However, these law enforcement agencies were harshly criticized for misleading the public, as fiat money or cash, which serves the global financial ecosystem as the base monetary system, accounts for nearly 97% of all criminal activities due to its complete anonymity.

Analysts and supporters of bitcoin expressed their concerns over governments and law enforcement agencies attribution of bitcoin to criminal activities, mostly because bitcoin is not completely anonymous as anyone can track down the flow of transactions using the public blockchain. When a criminal tries to sell bitcoin in a regulated bitcoin exchange, with KYC and AML systems in place, government agencies will be able to unravel the identity of the bitcoin user with ease.

More to that, criminals are always in search for better technologies and alternatives. Criminals utilize automobiles, cash, phones, and other technologies to supplement their operations. However, this shouldnt necessarily lead to the struggle of the general public. In other words, government agencies shouldnt attempt to ban every technology utilized by criminals across the world. If so, no one will be able to utilize the internet, bitcoin, banking system, cars, amongst many other technologies.

International defense and security think-tank Royal United Services Institute consultant and former US Department of the Treasurys Office of Terrorism and Financial intelligence official David Carlisle stated:

Treating cryptocurrencies as an exceptional threat creates the misleading impression that more conventional financial products are not already equally, or more, vulnerable to terrorist exploitation.

Essentially, bitcoin is a decentralized protocol built to facilitate payments between two parties with the absence of moderators or third party service providers. Everyone within the network has equal authority over each other and there exists no administrators who can manipulate, alter or delete transactions from the public blockchain.

This decentralized architecture of bitcoin prevents exploitation and manipulation of funds, unlike conventional banking. Over the past decade or so, banks have been exposed for leading fraudulent operations that have led to hundreds of billions of dollars in losses. In fact, it was revealed last week by Bloomberg that the worlds largest banks were fined US$321 billion in total since the 2008 financial crisis.

In consideration of this staggering number, it is dishonest and deceitful of governments to attribute bitcoin as criminal and terrorist money, when their most trusted partners have deluded the public for decades before being fined billions of dollars for their actions.

Carlisle also noted that terrorist groups including the ISIS have their own forms of money such as their unique minted gold coins as the unified currency. Thus, bitcoin or other digital currencies will not be a priority for terrorist groups especially if bitcoin is difficult to obtain without forfeiting user identity due to KYC and AML regulations implemented across the world.

Image from Shutterstock.

Link:
Wall Street Journal: Bitcoin as Terrorist Money is Exaggeration - CryptoCoinsNews

An often misunderstood topic is that of chain splits and how they are potentially resolved. With the recent proposal from Shaolinfry discussing User Activated Soft Forks (UASF) getting much attention, these misunderstandings must be clarified to fully understand the implications of chain splits and their potential resolutions.

Types of Forks

Miners can create chain splits through the deliberate orphaning of blocks that appear to be valid to some clients. Users maintain a set of consensus rules that they require of all blocks. When users disagree about the sets of consensus rules to enforce, they will follow a different chain. To simplify discussion, well skip the case where the consensus rules are agreed upon, but miners decide to orphan blocks for other reasons, and cases where there are more than two sets of consensus rules.

In the following examples, there are two sets of rules, the Red rules and the Yellow rules. In these examples, the Red rules are original rules being enforced, and the Yellow rules are the modified rules. Orange rules are the combination of both Red and Yellow rules (both rule sets agree that these blocks are valid).

Incompatible Hard Fork

An incompatible is the simplest type of chain split to understand. At a certain block height, some users decide to implement a new ruleset. In this case, the new ruleset is completely independent of the original rules.

Incompatible Hard Fork

A hard fork occurs after some miners decide to mine on the new ruleset, and some continue on the old ruleset. No block produced under the new rules is valid under the old rules, and vice versa. The Ethereum/Ethereum Classic split is an example of this kind of split. In this case, the chains are eternally split with no chance of ever converging, no matter how much work is mined into each chain.

Semi-Compatible Hard Forks

A semi-compatible hard fork occurs whenever the rulesets intersect, but there are some blocks that are valid on only one of the chains for each chain.

Semi-Compatible Fork

In these cases, miners can prevent a chain split by mining only Orange rule blocks. However, once a miner mines a Red or Yellow block, the chain splits. It is possible for the chains to converge if miners eventually put together an exclusively Orange chain starting from when the users accepted Yellow rules that surpassed the total work of both of the other chains. If they ever did this, both the Red/Orange and Yellow/Orange chains would be orphaned by Red/Yellow clients, and they would see a single chain. There are no major forks of this type that I am aware of.

The best bet for miners in this case (depending on the specifics) would typically be to just mine Orange blocks, preventing any chain split. By doing so, miners are effectively turning a Semi-compatible fork into a Soft Fork.

Compatible Hard Fork

In a hard fork, the ruleset expands, to include all of the previous rules, but also allowing other conditions.

Hard Fork

When the rules expand, as soon as a miner mines a block with the Yellow rules, the chain splits. This type of split will diverge as long as the Yellow chain contains more work than the Orange chain. One danger in this type of split is that if the Orange chain contains more work, the Yellow chain will be orphaned. Users of the Yellow chain must not only be sure that a vast majority of hashpower will be on this chain initially, but will continue to be on this chain for eternity. Examples of this type of fork include Bitcoin XT, Bitcoin Classic and Bitcoin Unlimited.

Soft Fork

A soft fork is when the ruleset is tightened and the Yellow rules are completely covered by the Red rules (thus only Orange and Red rulesets).

The chain split can occur whenever a miner creates a Red block. Users who use the Red ruleset will follow that chain, and users who use the Yellow ruleset will follow the Orange chain. In this case, if the majority of hashpower ever starts enforcing the Orange rules, the Red chain will become orphaned. This type of fork occurred in Bitcoins history numerous times with changes such as BIP66, CSV, CLTV, and is in the proposed SegWit Soft Fork.

Reorganization Risk and Split Risks

Both massive reorganizations and chain splits present dangers to users and miners. A massive reorganization can cause previously accepted transactions to disappear, which will guarantee that a large number of people will lose money in the process.

In this case, for example, perhaps a year ago you were paid 10BTC for your car, and a year later, that transaction essentially disappears from the ledger and your chain is abandoned. You have no car and no Bitcoins. This type of behavior would cause a great loss of confidence in the currency. Depending on the type of split, a massive reorganization will only affect users of the looser ruleset. Users of the tighter ruleset will never get reorganized.

A chain split also presents risk. The value of Ethereum took a tumble after it split from Ethereum Classic. It added confusion to the marketplace (Which is really Ethereum? The one with the original rules, or the one with the rules the centralized Ethereum Foundation enforces today?). A chain split affects all users adversely. There are cases where a split may be preferred (say, two groups have vastly different interests and are best served following their own wants, rather than compromising).

Mitigating Risk

Risk for most of these forks can be mitigated by both miners and users, in most cases.

For an incompatible hard fork, no mitigation plan can occur. The chain IS splitting, so long as some miners and some users want it to. There is nothing that can happen. This is the equivalent of getting a divorce decree and parting ways, never to interact again.

For a semi-compatible soft fork, miners have the power to prevent both a chain fork and massive reorganization. If the majority of miners choose to mine only Orange blocks, users will remain on one chain and reorganizations will be limited to a small number of blocks.

For a compatible hard fork, risk is exclusively on the Yellow rule users. Their best mitigation is to ensure the majority of the economy is on their side. Its also important to make sure the majority of the miners are also on their side initially, otherwise the chain will not split. Without the majority of the economy, the value of the Orange blocks will be greater, thus pulling miners interested in profit to their side, leading to a massive reorganization.

Extreme care must be taken in this scenario (something that was not present with Bitcoin XT, Bitcoin Classic, nor the proposed Bitcoin Unlimited). The former would activate with a mere 75% of hashpower, and Bitcoin Unlimited has no threshold for activation.

For a soft fork, the risk is exclusively on the Red rule users. Their best mitigation strategy is to ensure that they have the economy on their side, and the vast majority of miners following the Red rules OR the vast majority of miners on the Orange rules.

This may seem a bit counterintuitive, but if the vast majority of miners are mining the Orange rules, then they will remain in consensus with the Orange users and will not get Orphaned. Miners can mitigate this by only mining blocks in the Orange set and orphaning the Red set.

Miners have a significant role in mitigating this risk. In every case except the Incompatible Hard Fork, the miners can prevent a chain fork. For the semi-compatible hard fork, they can do this by converting it into a soft fork. For the compatible hard fork, they can only do this by rejecting the hard fork. For the soft fork case, they do this by enforcing the soft fork. However, even without the miners doing this, users have an incentive to protect themselves by enforcing the Orange rules and rejecting anything does not meet them. This means rejecting hard forks and enforcing soft forks.

Epilogue: Escaping a Miner-Imposed Ruleset Change

Many, including Jeff Garzik, have cast suspicion upon soft forks because they do not give users a choice. The nature of Bitcoin and other Proof-of-Work based blockchains cannot prevent miners from enforcing stricter rules than users agree to. However, users do have power by invoking an incompatible hard fork.

In this case, users will force the chain to split by introducing a new ruleset (which may include a proof-of-work change, but does not require one). This ensures users always have an escape from a miner-imposed ruleset that they reject. This way, if the economy and users truly reject a soft fork rule change, they always have the power to break away and reclaim the rules they wish. It may be inconvenient, but the same is true of any attack by the miners on users.

This guest post by Alphonse Pace was originally published on Mediumand is reproduced here under a Creative Commons License.

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Guest Post: Chain Splits and Resolutions - Bitcoin Magazine