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Bitcoin Cash Hard Fork - Nakamoto (Bitcoin) Principles You Should Grasp

Liz Louw
18 September 2018

If you have been following cryptocurrency media lately, no doubt you have come across mention of the upcoming Bitcoin Cash Fork. Very likely you have also seen reports equating the upcoming election to a battle for sole custody during an acrimonious divorce. While the metaphor is not entirely unwarranted, it is fundamental to see the situation within the Bitcoin context to understand that the aim of the process is reconciliation instead of a split. The creator of Bitcoin, Satoshi Nakamoto, actually foresaw the occurrence of disputes within the community and made provision for conflict resolution within the original Bitcoin Whitepaper.

This should come as no surprise, as any (human) community driven by the goal of innovation will inevitably see the development of incongruous and sometimes incompatible proposals. In the case of Bitcoin, however, the movement is rooted in non-authoritarian philosophies that strives to decentralise power in every aspect of the movement. While a top-down decision-making process might seem uncomplicated as the final say belongs to a centralised authority (Capish?), it is always doubtful whether the community’s best interest was taken into consideration.

In the case of a decentralised power structure, on the other hand, election processes tend to look a bit messy and noisy as all voices must be heard and granted the opportunity to convince the group of the merit of their proposal. To steer the Bitcoin community upon such a path, Satoshi Nakamoto’s Whitepaper described the process to be implemented should conflict arise within the community - we will refer to it as the Nakamoto Consensus Mechanism.

The Nakamoto (Bitcoin) Consensus Mechanism

Given that Bitcoin is based on the economic principles of a Free Market System, it is essential to understand the players and the game of the approach. Per Austrian economist, Ludwig von Mises in his book, Bureaucracy a free market approach can be outlined as follows:

“The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses.”

In the case of Bitcoin, developers play the role of enterprises that propose competitive products and services while the network’s users and miners play the part of the market that chooses the most desirable option.

The democratic process described above goes all the way back to the principles expressed in the Bitcoin Whitepaper:

“Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it. If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains.”

We can say that Bitcoin miners as those who have invested millions of pounds in mining hardware and electricity bills to acquire the computer processing units (CPU’s) to secure the network are granted an executive role in the process. Not only are miners the party with ‘the most skin in the game’ and therefore the most incentive to keep the network secure and efficient, but they also possess something that other parties in the network do not have: an objective metric, that is hash rate or CPU’s. In the absence of such an objective measurement, it would be impossible to gauge the majority view of the community. At the same time, miners are not given free reign to vote for a solution that benefits them at the cost of other users. The dynamics of the free market system means that, without the support of the community (community adoption of the new chain), there would be no market for the tokens mined on the new chain.

“What many do not realise is that every time miners choose to run an upgraded piece of software (with different consensus rules), they are actively making a vote change. Usually this happens very seamlessly since most of the small fish, follow the big leads.” Eli Afram, Founder of Bitcoin Cash Australia

Why the 2017 Bitcoin Fork Is Not an Example

If you are calling upon the August 2017 Bitcoin fork as example of the upcoming Bitcoin Cash fork, be warned: the 2017 fork took place in direct defiance of the Nakamoto consensus mechanism.

At the time, Bitcoin Core developers acted as a central planning committee that implemented changes to the network without letting the consensus mechanism decide between the two opposing roadmaps. Though a sizable subset of the Bitcoin community demanded that the Bitcoin algorithm is changed to upgrade the block size and were strongly opposed to the implementation of the SegWit protocol, Core developers forced the changes onto the network without increasing the block size.

Bitcoin Cash's existence results from Bitcoin developer, Amaury Séchet, return to the original Bitcoin vision by releasing a software client that carried out the wishes of the snubbed faction. Séchet’s version, Bitcoin Cash (BCH), maintained the original Bitcoin algorithm by splitting the original chain off before BTC could implement the controversial SegWit.

The newly forked Bitcoin (BCH) chain kept the original codebase intact while upgrading the block size. A sizable portion of the Bitcoin community preferred the forked version over the manipulated BTC version. Today, Bitcoin Cash has significant hashing power (miners) securing the network, dozens of developers working on it, and thousands of enthusiastic users.

And, what we expect to see in November, is for the Bitcoin (BCH) community to implement the Nakamoto consensus mechanism as described in the Whitepaper for the first time.

Bitcoin Cash Fork: Two Incompatible Visions

At present, the Bitcoin community finds itself, once again, disagreeing on the roadmap to follow we will not return to authoritarian consensus model. Developers might be proposing alternating ideas, but it will be the market who decides. Be prepared: reaching consensus among a community of freethinkers and innovators is necessarily fraught with strong feelings and loud voices. Keep heart, this is not a sign of the community’s imminent collapse but of its robust democratic process.

Our next blog on this topic will cover the two roadmaps that will be put to the vote. Spoiler alert: While the proposals entail changes to opcodes, block size limits and transaction ordering protocols, the dispute is not technical but philosophical of nature as the implications would steer the Bitcoin Cash network into two significantly divergent paths.

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