Why the Sudden Drop in BTC Price Is a Good Thing in the Long Term For BCH

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Avatar for dave_gutteridge
3 years ago

As I write this, today, on January 22, 2021, BTC dropped by about 17%, going from $36,000 USD to $29,000 USD in under twenty four hours. It may drop more, it may bounce back up.

Although the overall cryptocurrency market doesn't move in lock step with BTC price as much as it used to, it's still the case that in general, if BTC goes up, so does everything else. And when it goes down, so does everything else. I mostly hold BCH, which has dropped by a similar amount, so, I'm not happy to see my potential purchasing power go down.

But, in the long run, I think this time, there is more than just a silver lining to the dark clouds.

All crypto prices go up and down for largely unknown reasons, but sometimes a narrative emerges that becomes the commonly accepted explanation, whether or not it's true. This time, the story is that the reason BTC price dropped is because there was a double spend on the BTC blockchain.

I was actually under the impression that double spends happen more often, but, it turns out, I was a little confused about the difference between a "double spend" and a "replace by fee". So, in trying to understand what's going on, as always, this was a good learning opportunity.

In any case, my current understanding of what caused the current drop is that someone intended to transfer some BTC, but then later wanted to get the transaction to go through faster, so they tried to replace the transaction with a new one at a higher fee. After that, I get a little fuzzy on the technical details, but apparently some blocks got orphaned or something, both transactions went through, the result being a double spend. It wasn't, by all appearances, a malicious attempt to defraud the network, just an unfortunate set of circumstances.

Nonetheless, it calls into question the integrity of the network if double spends can happen, even if it's a very unlikely form of accident. The price seems to be dropping because people are concerned that their money is tied up in a technology that is not as safe as they thought it was.

Which means people are surprisingly, at least to me, sensitive to the technical merits of BTC, and possibly of crypto in general. Banks make errors all the time, such as depositing transfers into the wrong account. I've personally experienced them. And yet, people tend not to withdraw all their money over any one technical glitch they may have heard about.

The reason I see this as a good thing is that it means the technical limitations of Bitcoin are not just a theoretical disincentive. In the BCH community, people talk all the time about how BTC is fundamentally broken in ways that should make it unappealing. And yet, those limitations don't seem to have meant much in the face of people seeing huge gains in their investments. No one cares if BTC fees are high and the processing times are slow if they are making ten and twenty percent or more increases in a matter of days or weeks. Sure, it's all a Ponzi scheme, but that only matters if you're not one of the people to get out in time.

But here we have a clear example of the technical problems of BTC scaring people who back off, which lowers the price, which scares more people, and so on. This development does empirically show that technical merits are not just the obsessive concerns of fanatics, but tangible concerns to everyone's bottom line.

The only question is how to capitalize on that, because there is a second layer to the problem of BCH flipping BTC, which is that most reporting on BTC, even before today's downturn, is limited to talking only about BTC. The mainstream news, the ones not specialized in cryptocurrency reporting, says, "BTC has a problem, so cryptocurrency seems unreliable" It doesn't say, "BTC has a problem, as opposed to other cryptocurrencies without this problem." BTC still has a hold over people's perception that there is essentially only one cryptocurrency, Bitcoin.

Personally, I don't think all the existing, well intentioned, videos and blog posts and whatever else that explain the differences between BTC and BCH are going to help push BCH into the minds of the public that is not yet aware of it. The main messaging problem BCH has had up to now is that it emphasizes that it is the "real" Bitcoin. I think it need to position itself more as the "fixed Bitcoin."

It's a subtle difference, and some BCH purists might object on the grounds that BCH represents having stayed true to the original course. BCH is not a "fix", it's a commitment to the original ideals, and all development on BCH has been to preserve and accentuate the original intents of peer to peer currency as outlined in Nakamoto's white paper.

However, that's a complex message to people who aren't already familiar with the issues. If you were new to Facebook, but unsure about it, would you consider switching to the people who said they had the original Facebook, or would you switch to the people who said they had a better Facebook?

Whatever BCH's origins or philosophies are, I think it's better branded as "improved Bitcoin," "Bitcoin 2.0", "updated Bitcoin," and similar descriptions that capitalize on any perception of BTC as limited. It's a simpler message that cuts through, is similar to how people understand other software and services, and there isn't really any conflict with reality, it's just another way of looking at it. After all, removing the one megabyte cap is just as much an "upgrade" as it is a "commitment to original philosophies." Not to mention the continuing developments, like zero confirmation times and tokens and more.

Many cryptocurrencies claim to be "better" than Bitcoin by whatever metric, and in some cases that may even be true. But only BCH can claim to actually be Bitcoin, but improved. Not preserved. Improved.

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Avatar for dave_gutteridge
3 years ago

Comments

Unfortunately, there's a lot of bad information out there, and double-spend is a bit of a misnomer. If there was an actual double-spend where both transactions were confirmed on the same block (or at least had numbers of confirmations on the latest block in the valid chain), that would be a big deal and the coin would provably be broken as per your impression, but this didn't happen and should still be impossible.

What did happen, is a transaction to one address was confirmed on one block, but that block was orphaned, and a different transaction that sent the same funds to a different address was confirmed on the block that replaced it. Put another way, the transaction on the orphaned block had 1 confirmation and then went back to 0 confirmations when the block was orphaned. Arguably, that transaction will never have confirmations now, so the coins were only spent once in the valid blockchain.

This has always been a known risk, and it is the reason that most exchanges wait for multiple confirmations before letting you trade your cryptocurrency. Originally, it was only a risk if an attacker had majority hashrate or submitted two different transactions at the same time to different miners (hence the term double-spend), but because of the added replace-by-fee "feature" on BTC, it is possible for a pending transaction to be overridden by a newer transaction with a higher fee.

IF replace-by-fee was utilized to cause this double-spend, which is most likely the case, then you are correct that it likely wouldn't have happened on BCH because the miner that generated the orphaning block that nullified the transaction likely would have generated an orphaning block that included the exact same transaction.

On the other hand, if this was a legit double-spend attack where two different transactions were broadcast simultaneously to two different mining pools, then BCH would be just as susceptible, but the odds of success are incredibly slim in either case (because miners aren't participating in the attack).

Finally, if this was an attack that involved miners intentionally orphaning a block with one transaction to replace it with a block that had a competing transaction (a very expensive attack by design), then BCH would arguably be more susceptible due to the lower hashrate (cost) on BCH when compared to BTC, but hopefully that is a temporary problem, and in the meantime, it would still be a very expensive attack on BCH.

$ 0.00
3 years ago

Thanks for your explanation, it's helpful to know.

You might want to consider adding paragraph breaks to make it more readable.

$ 0.00
3 years ago

No problem, paragraphs are now broken up.

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3 years ago