Miners (the governors) were facing two options. By choosing BIP91 (BIP = Bitcoin Improvement Protocol) miners avoid threat of BIP148 by default (increase the block size), which could have been very bad because it didn’t require full buy-in, and thus, could possibly cause a “fork” (two warring ledgers).
One way to think of a “hard fork” or split of a blockchain, is where you start with a single distributed ledger, where everyone plays nice. If a decision is made that not all of the operators agree with they may decide to break into two or more groups and run separate blockchains or ledgers. Because there is no central governance, no one is forced into one decision or the other and it can become confusing which one is the official ledger of record. In the Bitcoin world, the rules are that one with the longest chain and the most hashing power (kind of like computing power) is the official system of record. If you want to be part of the project and profit from it, this very basic rule is what keeps chaos at bay and people working together to solve problems. Bitcoin valuation is extremely high and if you can’t figure out how to play nice together, everyone loses. After a “hard fork” or split, if it’s peaceful, which chain will carry on to the official chain is clear. If the split is not peaceful, it will initially unclear who the winner, and go-forward change is but it will eventually sort itself out per the rules set forth above.
A split into two ledgers can create chaos if the decision isn’t close to unanimous. Confusion about which chain of transactions is the real chain and where your transactions will live causes uncertainty and uncertainty, as we all know, generally drives value down. A contentious split can cause the price of Bitcoin revenue and holdings to become worthless and the future success in question.
There are two main groups affected by this decision, Bitcoin miners that run the network (and are they only ones that get to vote), and users of the bitcoin Blockchain that drive the price of bitcoin via standard economic forces. Both parties are global / multinational and therefore bring many points of view to the table.
My theory is that during the week of 7/10, threat of chaos due to a hard-fork on August 1st started rising, introducing a lot of uncertainty and valid fear of devaluation or worse. The value of bitcoin obviously affects anyone holding bitcoin, both parties, but lower prices also cause miners to lose out on possibly $28,000 every time they mine a bitcoin (at current prices). The price of bitcoin is one of the key drivers for miners since they have a heavy capital and OpX investment. If the price gets too low, it doesn’t make financial sense to run machinery that operates and protects the blockchain. Given the financial forces, miners are going to make decisions that drive positive value for themselves. I also posit that when miners realized the market (users of bitcoin) reacted positively to the news that there was early signaling, by bidding up BTC, they followed the money and essentially listened to users, which probably influenced the undecided miners. The price of bitcoin is the only way for users to send a message to miners.
In this particular case, investors started liquidating when it was unclear if BIP91 would succeed and the risk of a bad hard-fork was possible. The value of BTC was quickly falling. As soon as investors saw the news that there was early signaling that miners would support BIP91, I, along with others, bought back in. This was evidenced by the price spike on the morning of July 17th. The market spoke.
The Voting Mechanism
Another interesting thing here is the voting mechanism. Dan Tapscott mentioned that blockchain is a perfect use-case for voting and referenced E-Estonia in his book “Blockchain Revolution” . In this case, the minders used the consensus engine (Blockchain), to handle the voting.
- Each vote is from a valid member of the Blockchain.
- Voting and decision rules are enforced by logic code running on distributed computers
- 80% of 336 bocks must contain a yes vote. That is, once blocks contain 80% yes, they start counting and if 336 blocks are added to the chain with 80% of a yes vote, then the decision is “locked in”. This ensures that you can’t cheat, and that you continue to receive votes over a set period of time to ensure that nobody cheated nor changed their mind.
- Decisions / votes are written to a public ledger that is immutable and transparent, and therefore trusted. Miners used the Bitcoin Blockchain to record their votes.
- The computer code that will be activated follows the rules by implementing small code change 336 blocks later. (approx. 2.3 days). Once the change goes into place, anyone not signaling agreement will be excluded (and thus looses the chance to mine coins and profit). Later, the full change it implemented after all of the participants have had a chance to upgrade their software with the new feature.
Making a decision at the end
This is interesting from a sociologist’s view of how a group of humans just “work it out” and make decisions as well as how they are influenced.
Lastly, they way this has been handled may set precedence. It may demonstrate that even when there is disagreement (vigorous in this case), there is a way that the global governors can come to consensus and make a decision. It may also mean that improvements in this technology, which were taking years, may start to be made in less time as they may have found a path that allows breaking decision jams. Given the perceived preference for stability, volatility may go down. Users and miners prefer for continued improvement which I think results in higher value.
Reference
- Why when do you capitalize blockchiain and bitcoin?
(OK, I had to look it up and geek out)
-- Chris Claborne
(aka Christian Claborne)
No comments:
Post a Comment