A time not long ago
The year is 2009, and just as the year was starting Bitcoin is born on 3 January. Its inventor Satoshi Nakamoto mines the first block containing a reward of 50 bitcoins. This genesis block had a message embedded on it reading 'The Times 03/Jan/2009 Chancellor on brink of second bailout for banks'. The text refers to a headline from The Times newspaper the day Bitcoin was born. This text represents what Bitcoin was created to overcome. That is to eliminate trust of 3rd parties and financial institutions as the financial institutions were responsible for the financial crisis of 2007-2008. They were bailed out by government because it deemed banks too big to fail, committing $16.8 Trillion to the cause. That amount is still being paid out till this day according to an article on Forbes [see Resources]. This would be a cost to tax payers over the years. A new system had to be invented, little did we know it was already on its way.
The Bitcoin white paper defines Bitcoin as a peer-to-peer electronic cash system. A electronic cash that would allow online payments to be sent directly from one party to another without the need for a 3rd party or a financial institution. Bitcoin has garnered a lot of attention since then from people all over the world looking for a better alternative to the current financial system. The ability to send money from one country to another without restrictions of governments or 3rd parties in a matter of seconds is one that can't be overlooked. Also being able to receive funds from persons you don't know without having to trust them due to irreversible transactions is a major stepping stone.
Fast forward to 2017. The bitcoin that was worth less than a penny just a few years ago was now worth more than $20K. There was only one issue though, people were paying too much in transaction fees and the network had stalled because of the many transactions taking place. This raised questions of whether Bitcoin could scale and what kind of solutions need to be implemented.
There were long discussions between the block producers (miners) that the network would have to be adjusted in order to be able to facilitate mass volumes of transactions. One camp would point out that Bitcoin no longer was what its creator envisioned it to be. It was no longer a electronic cash because people simply can't transact with it anymore. The other side wanted to maintain the integrity of Bitcoin by not tempering with the creator's code.
Consensus could not be reached between the two camps and the Bitcoin blockchain had a fork resulting in two chains. The new resulting chain became known as Bitcoin Cash. This weakened the network as miners even the users now had to pick which chain they prefer. Bitcoin Cash went on to fork again in November 2018 resulting in the birth of Bitcoin SV. Bitcoin Cash and Bitcoin SV both claim to be the more superior blockchain even more superior than Bitcoin. I think not.
This project was created not to be a direct competitor to Bitcoin but rather to provide for a different functionality and usage of the blockchain. Ethereum is a distributed computing platform and operating system that has smart-contract functionality. Much like Bitcoin however, it faced problems with scaling to a point where transactions on its network were clogged and couldn't be verified in time. More on that later, for now let's focus on the forks.
The Đecentralized Autonomous Organization, otherwise known as the ĐAO, was crowdfunded in May 2016 and had set the record for the largest crowdfunding campaign in history. It was a stateless venture capital fund having no board of directors with its code open sourced. The objective of the DAO was to fund decentralized applications (dApps) and set up to give funders the power to decide on which dApps would receive such funding. Just a month later (June 2016), the DAO was hacked and a third of its funds, roughly $50 Million, stolen through a vulnerability in its coding. The community was hysterical. This looked bad on Ethereum and the whole world was watching. I remember the panic from developers and supporters on social media. The error was not Ethereum's but that of the DAO organization.
Under the pressure of scrutiny, Ethereum decided to 'bail out' the DAO and return funds to the users. Satoshi Nakamoto's embedded message come to mind - The Times 03/Jan/2009 Chancellor on brink of second bailout for banks'. In fact, for this very reason consensus could not be reached for this bailout but because there were more votes for it the chain was forked on July 2016. The new chain managed to recover the $50 Million that was taken from the DAO. The original chain still remains as Ethereum Classic and the new chain retained the name 'Ethereum' because it had more support.
There are a couple of things that intrigue me about this case and how it all unfolded. The guys at Ethereum Classic (original chain) didn't want to make any changes to the Ethereum blockchain the same way the Bitcoin guys refused changing its blockchain's code. This was the approach of maintaining the integrity of the code and not become like governments bailing out financial institutions. Unfortunately in this case the original chain didn't win majority support yet it's still relevant on the markets.
When Ethereum creator, Vitalik Buterin, was asked about how this affected Ethereum he had this to say:
“First of all, I think Ethereum is definitely fine,” Buterin responded. “Outside of a fairly kind of small group of people that are like really strongly into the sort of purity [or] morality of you know — if it’s stained once then it’s gone forever — even people who disagreed with the decision, many of them are kind of fine with it. I think over time they’re starting to see that Ethereum governance is stabilizing more and more and that the project is continuing to move forward.”
Coming back to the scalability issue I mentioned earlier.
Late in 2017 the Ethereum network experienced slow transaction speeds, an issue attributed to 'CryptoKitties', a popular application on the Ethereum blockchain at the time. Due to slow transactions and reduced quality of gameplay, the application died down a bit and Ethereum regained stability again. A solution could not be found then but the developers vowed to find one before another popular application comes and threatens the blockchain once more.
A few weeks ago Vitalik Buterin had suggested using Bitcoin Cash's blockchain/code in order to alleviate its scaling problems. This was met with recoil by the community understandably so as some of them are big Bitcoin supporters who were against the Bitcoin Cash fork.
This blockchain was created by Dan Larimer because of he believed the scaling issues of Bitcoin and Ethereum could not be solved anytime soon. If I were to put it bluntly, EOS is aiming to topple Ethereum from its top position as the market leader in the decentralized operating system and distributed computing platform space. In fact, Dan Larimer and Vitalik Buterin have been debating on all forms of social media and in conferences they attend, for as long as I can remember. Each exchanging their ideas on current problems surrounding scaling and the best way to solve them. I don't think the two have openly agreed on anything. This is why it is hard for me to mention EOS without comparing it to Ethereum, which is the point right?
Many projects have tried to be better than Ethereum before but to no success. EOS however is the first to even put up a fight. It currently runs 10% of the total dApps on the blockchain compared to Ethereum's 74%, but that number is growing. I wrote a more extensive article on EOS in a previous post. Dan Larimer claims to have solved the scaling issue or at least he's the closest one to solving it. Currently EOS can run up to 3097 per second and Ethereum does only 15. But the purpose of this particular article is to clarify why EOS is different from Bitcoin or Ethereum in the sense that it can't fork its chain like the others did.
To understand this we have to look at the design of its governance. Only 21 miners, known as Block Producers, are allowed to validate blocks on the blockchain. Its the same 21 Block Producer who get to vote on any new changes that occur to the EOS code. The Block Producer are voted upon by the EOS token holders and can be replaced at any moment. There are some issues with this form of governance which I outline in the previous article for those not familiar with it. This voting process is what allows or rather prohibits the EOS chain from splitting into two opposing chains.
The voting rules stipulate that in order for any decision to pass at least 15 of the 21 Block Producers need to vote in agreement otherwise the decision doesn't pass. For example, let's take the case of Ethereum. When it decided to fork in order to recover the stolen $50 Million from the DAO it resulted in two opposing chains with their own currencies, same thing happened with Bitcoin. On EOS this isn't possible because of two reasons: (1)Block Producers have the ability to freeze accounts of stolen funds; and (2) When 15 of the 21 BP's vote for a change it is implemented on the existing chain with the votes of the other 6 nulled out.
Since EOS is also open source it is possible to create a new blockchain off the EOS code but it wouldn't have any of the previous EOS blocks and the new tokens would have to be redistributed to new users. Having this type of governance on the blockchain helps in reaching consensus much quicker and this results in a faster growing blockchain with every update. Whereas on Bitcoin and Ethereum consensus could take months and as we've seen in the past it leads to a splitting of communities over and again. Personally I find this confusing, especially to a new user of a blockchain who suddenly finds themselves with two different tokens. Not knowing which blockchain is which or which side of the fork serves their best interests.
The Good of Hard-Forks
The good thing about hard-forks is that they provide you with two tokens, the one you have and a new token of the resulting chain and you get to keep both. You know the price of the token you already had but the price of the new token could be any amount depending on the support it has. It the case of Bitcoin Cash it went on to be valued at over $1K at its peak and it was free.
The bad thing about hard-forks has to be the stifling effect it has on innovation and growth. The community of users and developers are split into two opposing groups. The original Ethereum chain (Ethereum classic) lost 90 percent of the support and the resulting Ethereum although it won majority support it still lost 10 percent. We saw this when the price of Ethereum dropped from $20 to $13 leaving a bad experience to people who bought at $20 and sold at $13 with a vow to stay away from cryptocurrencies. But such is the risk for early adopters I guess.
I hope I did a decent job in defining hard-forks and how they've affected blockchains thus far. The game of hard-forks is a game of differing ideologies. The fact that code cannot speak for itself beyond what it was initially programmed to do, means that more forks are ahead. As projects aim to out do each other in this space both in value for investors and performance for its users, the sure is more fun developments further down. Blockchain has uplifted many of the limits we have with the internet as a result blockchain is being regarded as the new-internet.
We are still in the early days and I've been saying this since 2016 when I first got involved with crypto. This is the phase of trial and error, and although Bitcoin, Ethereum and EOS are some of you safer bets it is important to learn about other projects that are solving different problems. A perfect place to start is to learn about projects from industries that peak your interest like music or sports. By being involved in such projects you'll learn about the blockchains they run on and how it affect you interaction with those projects/applications.
Until the next one,