On Hard Forks: They’re Getting Harder

Since the Ethereum hard fork on July 20th Ethereum Classic (ETC) (the original blockchain which includes the DAO heist) has found increasing support beyond just banter on twitter and crypto forums. It has grown substantially in terms of hash rate, price and trade volume. (It even surpassed Ethereum trade volume on 7/26/2016 at over $105 million).

At the time of the hard fork the new chain established almost instant separation in terms of hash rate leading many to declare the hard fork a success (Ethereum Blog Post). Many are beginning to realize that the fight may not be over. This is the first sign that in the maturing cryptocurrency ecosystem hard-forking a mature protocol provides challenges beyond hashing power — including the hearts, minds, and incentives of speculators and exchanges. With it’s own hard fork in the pipeline it may be a good idea for bitcoin to take note.


 

A Blockchain Street Fight

Anyone remember Double Dragon II for NES? No, just me? Well, in this game there was a point where the character is forced to fight his own shadow — a near mirror image of himself. In the most basic of analogies this is what is playing out before our eyes with Ethereum. We now find the two versions of the protocol battling it out.

Screen Shot 2016-07-26 at 6.34.12 PM

If I had to decide which was which I would call the hard-forked version of Ethereum the “shadow” chain. After all, it’s fair to say it is a less pure.

 

From what I see, this battle is being fought on several fronts. The historical elements of a hard fork include the following:

  • Mining Hash Rate: On one front, miners driven by profit motive are finding that rewards for mining Ethereum Classic in the immidiate time after the hard fork are greater than those of Ethereum leading to increased competition for hash rate between the protocols. This can be seen here: What to Mine
  • Perception & Social Media: Sadly this is a reality which I don’t care to discuss — but if you follow this stuff online the infighting is laughable and makes me slightly ashamed to associate myself with this industry.

A New Layer of Complexity

The new challenge facing open-source protocol forks is the maturing infrastructure surrounding them. Some of the new fronts include the following:

  • Exchanges Enabling Trade Volume & Price: Within days Poloniex exchange made ETC available to trade. Since then Kraken, Bitfinex and Shapeshift have either gone live with ETC trading or shared their intentions to do so. As a result ETC’s 24-hour trade volume now exceeds that of ETH. Its price has also increased substantially with a market capitalization ranking ETC a top 10 cryptocurrency. Where as a less mature ecosystem wouldn’t be able to support the previous chain the industry can now almost instantly get the previous asset on exchanges.

Ultimately, this new layer of complexity may indicate that as the ecosystem becomes more robust future hard forks could face new challenges not faced by previous forks.

So What’s Next?

I do not pretend to know enough to accurately predict how this battle will play out but that won’t stop me from speculating. It would seem the final stage would lie with the developers and companies building upon the blockchain(s) themselves.

If both chains can establish effective hash rates, mining incentives, communities, trade volume, and price it will come down to adoption by developers and companies.

  • Developer and Startup Preference: We’ve seen this play out with other blockchains (example: Onename moving from Namecoin to Bitcoin) where it became clear that one blockchain was favored over another. In this case it likely sealed the fate of Namecoin. The adoption of these companies can make or break a blockchain.

The ultimate deciders may be the developer and entrepreneurial community. Will they choose ETC, ETH … or will the division rendered by competing chains stagnate Ethereum sentiment and give Bitcoin maximalists more time to time to mature their more expansive projects built to compete with Ethereum with a proof-of-work backing. (Examples include YoursNetwork, Sidechains, Lightning Network, Rootstock, etc.)

One thing is certain … there will be more hard forks on open source blockchains and the Ethereum civil war will provided a number of great lessons for these projects. Hard forks are getting harder but with careful planning and attention it may still be possible to mitigate the risks and pull them off smoothly. Only time will tell.

 

Advertisements