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Looking for a free market champion

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  143
7 months ago
The Block Size War and the battle over 1MB. Sorry, no - Arjuna during the battle of Kurukshetra.

I hope Bitcoin Cash can avoid a split about this funding proposal, but I haven't seen the encouraging sign I need to see, which is proposers taking the main point of dispute - the block orphaning aspect - out of it.

Before Bitcoin Cash was created in 2017, there was a lot of preceding discussion. Most people who had good data, knew that it would face a struggle, splitting off from Bitcoin BTC as a hard fork with minority hashrate.

However, people took up the challenge - to preserve Bitcoin as peer to peer electronic cash, according to the original plan laid out by Satoshi in the whitepaper.

Protocol developers, pools, miners, exchanges, wallet developers, payment processors - many people worked hard together to bring it about, and Bitcoin Cash is still standing tall more than 2 years later.

But now it faces an existential threat to its fundamental economic incentives.

Possible Futures

That which we have scorned in BTC, a captured development process - is proposed to be introduced in even worse form in BCH, namely in the form of protocol rules that enforce some kind of whitelist-based diversion of funds from miner coinbases, supposedly to some select development teams. (UPDATE 15 Feb 2020: confirmed by ABC announcing intention to implement with whitelist & BIP9-like activation) That all sounds vague, and it is because no-one has seen any clear specification or even code for it, but in this case it is enough to form an opinion on the high-level concept, which others have criticized at length for its potential (some would say "near certainty") to corrupt the current free market conditions and enshrine a cartel of mining pools and likely their chosen development team as financial gatekeepers of BCH's development decisions.

I could write an essay about why I think it's a bad proposal, but my efforts would not be better than the article that Peter Rizun has written about it - so I recommend you read that later if you haven't.

We can boil this down to two possible futures, after the tabling of this proposal:

Two futures for Bitcoin Cash.

History - the futures market in 2017

Haipo Yang

Ahead of the BCH fork in August 2017, Haipo Yang introduced a futures market for the upcoming fork (then denoted by the ticker 'BCC' for 'Bitcoin Cash').

Haipo's futures showed that there was demand for Bitcoin Cash and helped to set the opening price for the coin.

However, on the flipside of history - if it had shown that there was no demand for such a split, then the likely outcome would have been that significant backing for it - from miners, developers and other businesses - would have evaporated as people would have viewed the new coin's chances as too dismal.

Without the futures market, Bitcoin Cash might have never got off the ground at all.

Screenshot of ViaBTC's BCC / BTC futures market.

Fortunately, that is not what happened then. Bitcoin Cash was created successfully.

But today we are in a different situation. Hardly anyone wants to see a split of Bitcoin Cash over a question of funding, nominally a value of ~ $6M.

People are working hard to come up with better alternatives than the proposal, mostly based around voluntary contributions, which some proponents of the coinbase tax (I'll just call it that, this is my post :) deride as ineffective.

Another futures market in 2020?

I want to suggest that we need a futures market again.

We need someone be rise up and be a champion for the free market, again, like Haipo Yang did in 2017.

The futures market would demonstrate whether there is sufficient support for the coinbase tax plan, or not. In the case of a split opinion in the community, it is nevertheless up to the backers of the plan to decide whether to follow through and split the coin (since their changes would be the splitting changes).

If they decide to call off any split and just proceed with uncontroversial changes, then the futures market will just have been a market instrument in coming to a decision, with no-one needing to lose any of their money (except for opportunity cost of using BCH that they lock up until the fork/no-fork outcome).

Basically, it would work as follows:

  1. User deposits BCH on an exchange

  2. User can split his BCH into the two futures, BCHA and BCHB (for each 1 BCH locked up they would receive 1 BCHA and 1 BCHB)

  3. Users can trade BCHA / BCHB freely, providing relative price discovery

  4. If a split happens, users' BCHA and BCHB get converted into rights to withdraw the equivalent amount of coins on the respective splits

  5. If no split occurs, all futures trades are rolled back (moot) and users get back the same amount of BCH as they hold combined (BCHA + BCHB).

EDIT: had to correct point 5 because it was badly worded. Trades would not be "rolled back", the market would just be closed with each user getting back whatever BCH = BCHA + BCHB they have at that point.

I have not spoken about a deadline condition for such a future decision, I think that could be left up to the market (exchange) to decide, but it seems reasonable to use the updated proposal of the next upgrade (November 2020) as a possible end date. So a contract could be written in terms of that, or May 2020 if an exchange wanted to test a short term resolution.

It's unclear to me whether this could be done in some decentralized way, but if not, then someone taking the lead on a centralized exchanges (like ViaBTC in 2017) could suffice, or even inspire other exchanges to create similar futures markets.

My opinion: this is more effective than some kind of coin holder signature voting, which doesn't seem to attract much broad interest, probably because there isn't much to gain.

Weighing and counting

In the case of a futures market, holders stand to gain a lot more.

They can effectively demonstrate that they do not wish to have a split, by providing weight to the "No change" option.

Let me know what you think.


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Comments

Interesting idea!

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User's avatar Read.Cash Banned
7 months ago

Ask Poloniex to do it!

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7 months ago

Interesting piece you've written. I think that there have been too many hard forks of BTC since the BCH fork, including bitcoin black, bitcoin diamond, and all of the others. I was not aware of the impact that the futures market had on the success of BCH, so you taught me something new today already!

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7 months ago

This is an interesting idea!

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7 months ago

Awesome idea! Consider Zcash & Zcoin, there would always be some miners who don't want to be taxed or don't like new rules, so it is hardly to prevent forks. There seem noway to prevent a decentralized community to be forked. A decentralized community wants to never be forked, as naive as a centralized organization wants to be through generations ( Zhuoer Jiang of BTC.top used to quote '一个去中心化组织想要永不分裂,跟一个中心化组织想要千秋万代一样幼稚' from others, https://weibo.com/3982803458/FxENV3g9B?type=comment#_rnd1581501147501 , last paragraph ).

Therefore, we may have to accept these. Since there must be forks for decentralized communities sooner or later, we may have to tolerate new forks like BSV. So set pre-forks markets ( that is future market said by author, but I like to use pre-fork instead ) for BCH may be a better way to resolve disaggrements. Actually, what Haipo Yang did in 2017 is setting a BCC pre-fork market, rather than future market. Only when the forks have enough supports, the new forks will really born. They will have to pay enough fiat money or BCH to keep the new pre-fork has enough profit to attract neutral miners, or the new forks will failed like BTG and other BTC forks.

With pre-forks markets, BCH holders will NEVER WORRY ABOUT THE MARKET PANICS when a unexpected fork born, like what had happened in Nov, 2018. Consider what have happened on segwit2x fork in 2017. Segwit2x fails because nobody wants to really support segwit2x pre-fork with money. At that time, some exchages used to set segwit1x ( BT1 ) & segwit2x ( BT2 ) as BTC pre-forks.

TALK IS CHEAP, SHOW ME YOUR MONEY.

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7 months ago

I asked a friend to translate the quote from Jiang Zhuoer, and in English it is

"Wanting a decentralized organization to never split is just as naive as wanting a centralized organization to last forever"

That is a very wise statement.

With pre-forks markets, BCH holders will NEVER WORRY ABOUT THE MARKET PANICS when a unexpected fork born

Whether to call it a pre-fork market or a futures market - I also agree with the above statement of yours. It is much better for the market to judge when a fork happens if participants already have clear positions and ability to invest in the outcome they want, ahead of time. There should be no need to panic, and some splits might be possible to avoid (as I outline in the article above).

If we consider that BCHA and BCHB might both contain some common changes, e.g. A contains the previously planned upgrade changes, but not the coinbase diversion, and B contains everything including the coinbase diversion, then it could be called a pre-fork market by your definition because BOTH A and B are forks from current BCH.

In BCH right now, every upgrade is at least partly a hard fork (that's intentionally of course).

Segwit2x fails because nobody wants to really support segwit2x pre-fork with money.

That's interesting. > 90% of hashpower representatives voted for it, but nobody wants to really support with money.

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User's avatar btcfork
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7 months ago

To make this fair, in case there is no split, e.g. only chain BCHA materialises, then holders of BCHA should get 1 BCH for every 1 BCHA and the value of BCHB should go to zero.

A futures market requires skin in the game. Just like Nakamoto Consensus, you profit if you vote for the winning chain and lose if you vote for the losing chain.

However it seems like we need more concrete specifications of BCHA and BCHB first.

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7 months ago

One of them, A or B, would be the "no change" chain, i.e. the one which doesn't implement the new coinbase rules.

A futures market where the "taxing" BCHx goes to zero if no split happen might be a better option, I don't know.

In the scheme I described, nobody loses in the case there is no split, but people still have as much skin in the game as they want in case it does. I don't know if the former is fatal, I could see people expressing their preference without much risk (at least they can adjust).

But I'm very open to the "requires skin in the game" idea in general. I hope it can be used in some way to come to a better consensus before a chain split happens, because that would be my worst case outcome.

The beauty of a free market is, we could have both kinds of futures contract (not necessarily on same exchange) and even compare which one people would prefer.

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User's avatar btcfork
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7 months ago

Futures are by no means a replacement for shareholder voting! Also the design you propose is going to fail for the same reason all the bigblock futures were shit - it is a night and day difference if there is a bigblock chain with 2/3 hashrate or 1/3 hashrate. It is literally impossible to judge the value of the chain whatsoever without knowing how much hashrate it is going to have.

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7 months ago

There is nothing stopping miners from whispering to such a market by demonstrating their hashrates on chain more openly, e.g. through signaling their opinion about such a split through BMP.

it is a night and day difference if there is a bigblock chain with 2/3 hashrate or 1/3 hashrate

I agree

The second problem is that you need to unbundle the bet "is a fork going to happen?" from the bet"which of the chains are going to be more valuable?"

Once code for a coinbase diversion / whitelist of addresses has been published, unless it is withdrawn, a fork is PROGRAMMED to happen.

So that would immediately answer the question of "is a fork going to happen?".

If no such proposal is made into code, then a fork cannot happen without 51% attack with closed code by miners. That is a possible, but different scenario.

The market cannot tell us "is a fork going to happen", it could only tell us what market participants think about the possible outcomes.

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7 months ago