BitCoin

Over the past few days, despite major swings throughout the crypto-market, ETH-USD finally appears to be displaying nice, reliable signs of market consolidation:

Figure 1: ETH-USD, 2-hr Candles, Bitfinex, Consolidation Pattern

Two key characteristics of market consolidation are decreasing volume over the course of a trend and decrease in price volatility. It should be noted that price consolidation can take many patterns and is not restricted to the convergent pattern (lower highs accompanied by higher lows) displayed above. For the sake of this article, we will focus on the convergent pattern displayed in our current market. To see the health of the overall market, let’s put this trend in the context of the weeks leading up to this pattern:

Figure 2: ETH-USD, 6-hr Candles, Bitfinex, Macro Fibonacci Retracement Values

Within the context of the macro trend, our consolidation pattern falls very neatly on the 60 percent Fibonacci Retracement values of the macro bull trend that brought us to our all-time high values. When looking at the health of this trend, the first thing that pops out is the large amount of supportive volume (shown in yellow) that has gone into shaping the current ETH-USD volume. The current volume trend far outweighs any of the previous volume trends throughout the life of the bear market and even throughout the life of the previous bull run that led to all-time high values.

If we zoom out even further, we can see our current volume is actually at the highest volume the market has seen since its last major consolidation period within the $40 values:

Figure 3: ETH-USD, 1-Day Candles, Log Scale, Bitfinex, Last Major Consolidation Period

The previous consolidation period (shown in yellow) resulted in a substantial Bull Pennant pattern that resulted in a bull run that doubled the market value of ETH-USD. Something interesting to note is our current consolidation pattern within the context of the entire market since the last consolidation pattern. If we look at the market moves post-consolidation as a massive bull run — which, technically, it is — we see ETH-USD is consolidating very nicely on the 50 percent Fibonacci Retracement values.

Although the price projections for our current consolidation period is substantially lower than the last major consolidation period, the important aspect to take away from Figure 3 is the magnitude of the volume the market has experienced over the past couple weeks. High volume leading into a consolidation period is a good sign that the market has found its bottom and is now gathering up support and investor confidence before a breakout.

There are two ways to view our current consolidation pattern:

1. An agnostic (meaning it’s neither bullish-leaning nor bearish-leaning), symmetrical triangle;

2. A Bull Pennant (a bullish continuation pattern).

For the sake of time, I won’t go into details regarding how to calculate the price targets of these patterns. Both symmetrical triangles and Bull Pennants are very commonly traded patterns and have a lot of literature to support their price targets. If this pattern turns out to be a symmetrical triangle and the consolidation breaks down, we can most likely expect a move down to the $180 range before any further upward movement is seen.

However, if this is a Bull Pennant, ETH-USD can most likely expect a ~$100 move upward, leading to a price target of approximately $330. It’s important to note that a price target of $330 would result in a 100 percent retracement since the beginning of our prior bear run. If the market breaks upward and we do see a $330 price target, a test of this 100 percent retracement value will be crucial to determine the future moves within the ETH-USD markets.

Summary:

1. ETH-USD has spent days consolidating along $230.

2. A breakout upward would most likely yield a $330 price target.

3. A breakout downward would most likely yield a $180 price target.

Trading and investing in digital assets like bitcoin and ether is highly speculative and comes with many risks. This analysis is for informational purposes and should not be considered investment advice. Statements and financial information on Bitcoin Magazine and BTC Media related sites do not necessarily reflect the opinion of BTC Media and should not be construed as an endorsement or recommendation to buy, sell or hold. Past performance is not necessarily indicative of future results.

Last week, startup company Lotos published its new project on Reddit aiming to create a decentralized religious community, supporting Buddhism and meditation, based on the Ethereum blockchain. According to the company’s white paper, the community’s structure will be segmented into three parts: “an off-blockchain software platform” connecting the teachers and the students; “an internal economy supported by ERC20 tokens purchased by subscription fees and a central banker smart contract;” and “a website and
database backend connected to the network with Swarm.”

The ERC20 compatible Karma (KRM) token will be used for on-platform exchanges and for crowdfunding the development of the platform. In addition to that, if users are able to grow the network, they will receive KRM as a reward.

The company believes they can create a blockchain-based community by combining science and religion in a radical way. There is even a statement from Tenzin Gyatso, the 14th Dalai Lama, included in the whitepaper:

“If scientific analysis were conclusively to demonstrate certain claims in Buddhism to be false… then we must accept the findings of science and abandon those claims.”

The Lotos community will be divided into two parts: students and teachers. Teachers will be either elected or assigned by the company’s owner. They offer religious services for the students including “facilitating student retention and progress,” creating content for the network and “recruiting” new students. The teachers will earn Karma tokens for their activities.

On the other hand, the students can freely register into the community, although, for a price. Lotos will allow students to join “temples” and classes but they have to pay KRM tokens to do so. Furthermore, there is “Karma-gated” content, which is only available if certain students pay a flat monthly subscription fee. Students can also earn KRM bonuses if they meditate, the more regular their activity is, the more bonuses they can earn, the whitepaper detailed.

When Lotos published its whitepaper in the Ethereum community on Reddit, they received hard criticism. Most of the users argue that Buddhism does not comply with materialism.

“I think ‘searching meaning beyond materialism’ and material ‘reward of spiritual practice’ don’t mix together very well. Just a thought,” one user wrote.

“Dude what you are doing is not Buddhism it’s Opportunism. Buddhism is about Simplicity, you are leading people into Complexity. Basically with your System people’s Incentive to meditate IS TO MAKE MONEY (NOT LIBERATION),” another user wrote on Reddit.

Others in the community suspect that the whole project, which is planning to launch an ICO, is a scam or some sort of money grab.

“Here’s the problem man: you are coming out with an ICO right at a time when the inherent corruption in ICOs is very much a public thing. I like the idea of a decentralized meditation app, I really do. However the fact that you are doing an ICO for ‘decentralized religion’ on something that isn’t non-profit ESPECIALLY BUDDHISM screams scam, and I believe it is one. If this is really your passion to help people around the world learn to meditate and become spiritual, you wouldn’t have a for-profit business model. Without a non-profit, you really don’t have a leg to stand on when it comes to spirituality,” a user named “PJBRed27” said about the project.

Surprisingly, it seems the negative opinions on the project made Lotos change some of the concepts of the project:

“We are changing direction a bit now:

1. Remove ICO mention from all marketing material / stop the crowd-fund campaign and work on building our community.

2. Start playing the slow and steady ‘snowball going down a mountain’ game.

3. Write blog posts at least once per week, each post highlights one of the community’s biggest concerns with our project (like why we need ERC20 tokens).

4. This also gives us time to find both blockchain and buddhist advisors.

5. Move away from ‘Buddhist’ to ‘Secular Meditation’.”

The Enterprise Ethereum Alliance (EEA) was recently joined by 34 new members, including Mastercard, Cisco, Scotiabank and the Government of Andhra Pradesh, bringing the total membership of the consortium to over 150 organizations.

On July 18, 2017, the Enterprise Ethereum Alliance published a press release claiming that — with the 34 new members and the total size of 150-plus participants — the EEA became “the world’s largest open-source blockchain initiative.” According to the consortium, which focuses on developments on the Ethereum blockchain, the newest members of EEA represent a “wide variety of business sectors, including technology, banking, government, healthcare, energy, pharmaceuticals, marketing, and insurance, as well as a number of fast-growing Ethereum startups.”

The main concept of the nonprofit is to “build, promote, and broadly support Ethereum-based technology best practices, open standards, and open source reference architectures.”

There was a bit of confusion in the Ethereum Reddit community since Mastercard was not listed among the new members in EEA’s press release. However, Andrew Keys, head of global business development at ConsenSys, cleared up the issue.

“Mastercard is indeed a new member of EEA. They asked not to be in the press release document but approved being on the EEA official website. They may be doing their own communications on this,” he wrote.

CEOs and representatives of many of the newly joined members of the EEA expressed their gratitude and commitment toward the project.

“As Fintech Valley Vizag in Andhra Pradesh aims to become a vital financial technology hub, it is working on adopting more robust systems that are cost-effective. With security issues all over the world, there is no doubt that blockchain technology is set to be the biggest disruptor not only in the financial world, but also [in] a number of online and offline sectors. We are keen on integrating blockchain technology into governance and look forward to our collaboration with Enterprise Ethereum Alliance and provide market access to the community,” J. A. Chowdary, special chief secretary and IT advisor to the chief minister at the Government of Andhra Pradesh (India), stated.

“OTP Bank keeps focusing on innovative technologies. Nowadays we think that the most valuable asset is the trust between the bank and the customers. Blockchain technology gives several advanced solutions in [the] security industry. OTP Bank has chosen Ethereum as a partner, because we consider it a state-of-the-art blockchain technology. Via joining the Ethereum community, OTP will be able [to] achieve its goals smoothly. Through the common standards and best practices evolving in Ethereum Enterprise Alliance, our IT systems will be more secure and highly developed,” László Popovics, head of IT innovations at OTP Bank — the leading bank in Hungary and one of the largest independent financial service providers in Central and Eastern Europe — wrote.

The Enterprise Ethereum Alliance was formed in late February by a group of financial institutions, blockchain startups and innovators. The consortium — with J.P. Morgan and Intel as the most prominent names among the founding members — aims to standardize blockchain tech for enterprise settings. At the time of the EEA’s launch, the participants created a reference architecture for their project, called “EntEth 1.0,” which has a stronger focus on privacy.

Excluding Mastercard from the list, the newest members of the Enterprise Ethereum Alliance include:

2Advise; Amalto Technologies; Antibiotic Research UK (ANTRUK); Aquilon Energy Services, Inc.; ASSETH; BLOCKO Inc.; Bloq; Cisco Systems; Cybersoft Digital Services Corp.; Enter Corporation Co., Ltd.; Equities.com, Inc.; Finclusion Labs, Inc. (WeTrust.io); Government of Andhra Pradesh; HashCash Consultants; HEAL Alliance; iEx.ec; Lazarski University; Loyyal Corporation; MadHive; Mattr; NetObjex Inc.; OTP Bank Plc.; QIWI Blockchain Technologies LLC.; Revelry; RISKebiz; Scotiabank; Streami Inc.; Talkcrypto.org; Technical University of Munich; Texcent Asia Pte Ltd; TIS R&D Center, Inc.; TokenCard/Monolith; Ventured and Ypse IT Solutions.

London-based startup Colony is building an infrastructure based on the Ethereum blockchain that aims to revamp the way organizations and companies work and collaborate, promising to make human resources and project management more open, fair and efficient.

Think of Colony as the merger of Trello and Upwork, but running on a blockchain. Colony essentially brings the organization and human capital together onto a decentralized and transparent platform, and adds a monetary system that rewards freelancers and contributors alike based on their contributions to the success of the organization.

“Colony brings about a new ‘Nature of the Firm’ by significantly reducing both the transaction costs of the market exchange mechanism for labor, and trust required for people to work together,” Jack du Rose, co-founder of Colony, told Bitcoin Magazine.

“We see Colony as infrastructure for the organizations of the future. We believe infrastructure should be reliable and impartial; one organization should not be reliant on the existence or permission of another to operate.”

Instead of being managed by fallible individuals, “colonies” running on the platform harness the wisdom of the crowd to make sure that things get done by the right people and at the right time.

Each colony has its own token that represents a share of the ownership of the organization. Smart contracts are programmed to distribute ownership tokens according to the value each individual contributes. Contributors can later trade their tokens on the open market for cash.

Colony also comes with a reputation system that allows people to review and grade others’ contributed work. This system allows companies to choose the best candidates while enabling freelancers and experts to build influence and demonstrate their skills.

Colony: The “People Layer for the Decentralized Protocol Stack”

While Colony is building a reference client for its platform, the team very much thinks of the Colony protocol as infrastructure upon which other developers will build applications.

The Colony protocol, which is built as open-source smart contracts on the Ethereum network, is designed to enable developers to integrate decentralized and self-regulating division of labor, decision-making and financial management into their applications.

Du Rose described it as “the people layer for the decentralized protocol stack” and said he expects many companies and products to be built based on the software.

In the future, he hopes to see the protocol being integrated into a variety of applications. It can be used, for instance, to form the basis of a decentralized ride-sharing service, to handle claims in an insurance decentralized app or to provide the framework by which a merchants’ guild coordinates in a virtual world, he said.

Moving forward

Colony released its beta in February of this year. The Colony Beta allows teams to create their own “collaboration network” and combines task management with payments and tracking features.

These features include automated cryptocurrency payments; USD, GBP and EUR payments with Stripe; integrations with popular tools including Slack, Xero and GitHub; a reputation system and a voting system.

Du Rose said that the team’s immediate focus is to continue to build out the network and client library, and “get them in the hands of as many people as possible.”

He said that an ongoing part of Colony’s medium- and long-term goals is focused on polishing the platform and improving the software in order to increase blockchain adoption, “not just for developers building on top of the Colony Protocol, but for the Ethereum developer community as a whole.”

He continued, “We see many challenges to usability in [the] blockchain space, and we don’t believe we’re going to achieve mainstream adoption of blockchain technology until we are able to offer the same quality of experience as centralized services provide.”

Companies and organizations around the world are beginning to explore the use of blockchain technology in project management. Russian government–owned development bank Vnesheconombank (VEB) is reportedly looking to launch a prototype for such a platform.

Speaking to Sputnik at the St. Petersburg International Economic Forum in May, the bank’s chairman, Sergey Gorkov, said:

“When we started to think about how to manage projects efficiently, we realized that there is no platform. Everything that we had became obsolete. We realized that the blockchain is a good fundamental and qualitative platform for the future. […] We have established a qualification center and a pilot project was launched. We are launching the first prototype in terms of project management this fall.”

The Scaling Bitcoin Workshops will land in Stanford come November.

Scaling Bitcoin, the conference where innovations like Segregated Witness and TumbleBit made their public “debut,” has quickly grown to become a central stage for Bitcoin’s global academic and engineering communities. After editions in Montreal, Hong Kong and Milan, Stanford University will host the fourth edition of the Scaling Bitcoin Workshops on the 4th and 5th of November of this year.

“We want to aid the technical consensus-building process, in a domain where performance and security are crucial trade-offs,” Ferdinando M. Ametrano, a Bitcoin and Blockchain Technology professor at Politecnico di Milano and Scaling Bitcoin Planning Committee member, told Bitcoin Magazine.

Born out of the early days of Bitcoin’s very public scaling debate, the first two Scaling Bitcoin conferences or “workshops” were organized shortly after one another in Montreal and Hong Kong in the second half of 2015. It was here that many developers actually met face to face for the first time, and the workshops resulted in the well-known scaling roadmap supported by the Bitcoin Core development team.

A third edition of Scaling Bitcoin was organised in Milan in October 2016. That time around, the workshops increased in scope from scaling-only to also include privacy and fungibility improvements, as well as broader technical development.

This line will be continued in Stanford, where the theme of the event has been dubbed “Scaling the Edge.” While the exact agenda is yet to be established by a dedicated committee, overlapping topics for the Stanford edition should once again include fungibility, and there should also be increased focus on simulations and tests.

Plus, as a relatively new topic of interest, Scaling Bitcoin Stanford will expand its scope once again: this time to also include game theory and governance of the technology.

“This has never gotten much of the spotlight at previous editions of Scaling Bitcoin. But recent events like BIP148, BIP91, user activated soft forks are proving that we are learning more and discovering how Bitcoin’s economic incentives are aligned,” Ametrano said. “Moving forward, we’d like to discuss what might be the process for protocol evolution.”

Notably, with the event taking place in early November, it looks like Scaling Bitcoin Stanford will once again take place against the backdrop of a looming contentious hard fork. Where the first two events were a direct response to Bitcoin XT and its hard fork proposal, BTC1 is scheduled to hard fork an increase in Bitcoin’s block weight limit by late November.

It, therefore, seems likely that this potential hard fork will be part of the discussion in Stanford in one way or another, Ametrano acknowledged.

“Block size proposals are included as topics of interest for Stanford. And of course a potential hard fork will be, implicitly or explicitly, part of the conference debate,” he said. “Looking ahead, many — probably most — agree some on-chain scaling will have to happen. But how and when requires unanimous agreement. Which brings us back to the topic of game theory and governance.”

Scaling Bitcoin is currently accepting technical proposals for improving Bitcoin performance including designs, experimental results and comparisons against other proposals. Submissions must be in by September 25th. Click here for more information.

Over the course of three days, BTC-USD managed to climb $1,100 in value — a near 60 percent growth. Shortly after reaching a local high in the mid $2,900s, it immediately retraced down to the mid $2,700s where, at the time of this article, it is currently sitting. Is this price growth sustainable? Is there more bull left in this rally? I’ll attempt to break down this recent market move from both sides of the fence and show why investors should or shouldn’t be wary of a move of this magnitude.  

Full disclosure: This analysis will not attempt to speculate on the value implications within this ongoing scaling debate. This will be an objective, raw analysis of the data at hand.

Figure 1: BTC-USD, 12-hr Candles, Bitfinex, Macro Bull Run

If we put this entire bull run into perspective, we see that upon the completion of the Head and Shoulders Reversal Pattern, the market retraced down to the 50 percent Fibonacci Retracement values before ultimately bouncing and immediately climbing toward the previous all-time high.

At the moment, BTC-USD has yet to see any significant pullback from its latest move to justify any semblance of considerably strong support. The importance of establishing support levels is crucial for a sustained, healthy bull run. A support level sends out a signal to investors that basically says, “Hey, the market is not likely to drop below ‘x’ value — your risk is lowered by buying at ‘y’ price.”  

However, without these firm support levels, investors don’t know where the price currently stands in the grand scheme of the market. Thus, uncertainty can be injected into the market even in times of strong bull rallies. This uncertainty often leads to early profit taking, panic selling and long-position capitulation (also known as a “long squeeze”).

To play devil’s advocate, one can make an argument for a bullish continuation of yesterday’s massive bull run:

Figure 2: BTC-USD, 30-min Candles, Bitfinex, Price Consolidation

If we take the current trend out of the context of the entire market, it would appear to display characteristics of a bullish continuation pattern known as a “Bull Pennant.” Bull Pennants are characterized by having lower highs, higher lows and decreasing volume along the length of the pennant. A pennant of this magnitude would have a price target somewhere around $3,400. (For the sake of time, I won’t explain why that’s the price target. You’ll just have to take my word for it.)  

However, when we put the Bull Pennant into the context of the entire market, we see signs of market divergence starting to form on the higher timescales:

Figure 3: BTC-USD, 4-hr Candles, Bitfinex, Bearish Divergence

On the 4-hr MACD, we see bearish divergence during the market move to $2,900. Divergence is an indication that the market has begun to lose momentum and is likely to pull back before any more uptrending will continue.  

In regard to a bullish continuation of this rally, something to keep an eye out for are the tests of the key Fibonacci Retracement values shown in Figure 1. A retest and strong rejection of the Fibonacci lines will show strong market confidence in the eyes of investors who are currently sitting on the sidelines. Before any sustained, healthy uptrend resumes, the market will have to prove itself at the lower values to establish firm support.

During massive rallies it’s important to always keep in mind that large price movements often come with a large cost. It is still unclear what the immediate future of BTC-USD will be, but it’s important to remain levelheaded when entering trades and always look at the market objectively.  

Summary:

1. Over three days, the BTC-USD market gained 60 percent in value.

2. No firm support has been established to justify remaining at this price level.

3. Because there is no firm support, volume is beginning to taper off while the market decides the next direction to head to next.

Trading and investing in digital assets like bitcoin and ether is highly speculative and comes with many risks. This analysis is for informational purposes and should not be considered investment advice. Statements and financial information on Bitcoin Magazine and BTC Media related sites do not necessarily reflect the opinion of BTC Media and should not be construed as an endorsement or recommendation to buy, sell or hold. Past performance is not necessarily indicative of future results.

Make no mistake. We are witnessing a high-stakes protocol standards battle play out in real time. And it is just as important as last century’s battle for the internet’s TCP standard. 

Current capacity constraints on the Bitcoin blockchain have brought us to this impasse.

The Bitcoin protocol, as the dominant value transfer “network effect” leader, battles against upstart cryptocurrency protocols like Ethereum and Monero. But it also battles with itself as divergent forces push for either on-chain scaling or off-chain scaling, hard fork or soft fork, SegWit transaction format or original transaction format.

The so-called nuclear option is a prolonged, contested hard fork of the Bitcoin blockchain because it risks splitting the network into two competing chains, which is to no one’s benefit. Therefore, it should be reserved as a planned formality or a last resort for extreme situations rather than a perpetual form of “live” dispute resolution.

With so much individual and institutional wealth essentially stored on the Bitcoin blockchain, it can be extremely disconcerting when others try to “fork” around with your money. Chronic forking is not synonymous with wealth management and prudent capital accumulation, which require stability and predictability. Importantly, smart contracts and non-monetary applications will also rely upon relative stability since the same native digital token also facilitates the proof-of-work security model.

This article will examine how open-source governance was designed to work within the Bitcoin protocol and how users, miners and developers are locked in a symbiotic dance when it comes to potential forks to the immutable consensus. Solutions will be proposed and analyzed that maintain the decentralized nature of the resulting code and the blockchain consensus, while still permitting sensible protocol upgrades. Governance is not only about the particular method of change-control management, but also about how the very method itself is subject to change.

Let’s not deploy the nuclear option for every protocol upgrade.

Open-Source Protocols and Bitcoin

Generally referred to as FOSS, or free and open-source software, this source code is openly shared so that people are encouraged to use the software and to voluntarily improve its design, resulting in decreasing software costs; increasing security and stability, and flexibility over hardware choice; and better privacy protection.

Open-source governance models, such as Linux and BitTorrent, are not new and they existed prior to the emergence of Bitcoin in early 2009; however, they have never before been so tightly intertwined with money itself. Indeed, as the largest distributed computing project in the world with self-adjusting computational power, Bitcoin may be the first crude instance of A.I. on the internet.

In “Who Controls the Blockchain?” Patrick Murck confirms that Bitcoin is functioning as designed:

As a blockchain community grows, it becomes increasingly more difficult for stakeholders to reach a consensus on changing network rules. This is by design, and reinforces the original principles of the blockchain’s creators. To change the rules is to split the network, creating a new blockchain and a new community. Blockchain networks resist political governance because they are governed by everyone who [participates] in them, and by no one in particular.

Murck continues:

Bitcoin’s ability to resist such populist campaigns demonstrates the success of the blockchain’s governance structure and shows that the ‘governance crisis’ is a false narrative.

Of course it’s a false narrative, and Murck is correct on this point. Bitcoin’s lack of political governance is Bitcoin’s governance model, and forking is a natural intended component of that. “Governance” may be the wrong word for it because we are actually talking about minimizing potential disruption.

Where Bitcoin differs from other open-source protocols is that two levels of forking exist. One level forks the open-source code (code fork), and another level forks the blockchain consensus (chain fork). Since there can only be one consensus per native digital token, chain splits are the natural result of this. The only way to avoid potential chain splits in the future is to restrict the change-control process to a single implementation, which is not very safe nor realistic.

“Collaborate or fork” has become the rallying cry for Bitcoin Core supporters. L.M. Goodman, author of “Tezos: A Self-Amending Crypto-Ledger Position Paper,” writes:

Core development teams are a potentially dangerous source of centralization.

When it comes to Bitcoin Core, the publicly shared code repository hosts the current reference implementation, and a small group of code committers (or maintainers) regulate any merges to the code. Even though other projects may be more open to criticism and newcomers, this general structure reminds me of a presiding council of elders.

Making hazy claims of a peer-review process or saying that committers are just passive maintainers merely creates the facade of decentralized code. The real peer-review process takes place on multiple community and technical forums, some of which are not even frequented by the developers and Bitcoin Core committers. 

The BIP (Bitcoin Improvement Proposal) process is sufficient and it’s working for those who choose to collaborate on Bitcoin Core. Similar to the RFC (Request for Comments) process at the IETF, BIP debates about a proposed implementation can provide technical documentation useful to developers. However, it is not working for many involved in Bitcoin protocol development due to the advantages of incumbency and the false appeal to authority with core developers. If Bitcoin Core no longer maintains the leading reference implementation for the Bitcoin protocol, it will be 100 percent due to this intransigence.

Sensitive to the criticisms of glorifying Bitcoin Core, Adam Back of Blockstream recently proposed an option to freeze the base-layer protocol, but at the moment that will only move all of the politics and game-playing to what exactly the base-layer freeze should look like. It is a nice idea for separating the protocol standard from a single reference implementation and for transitioning the Bitcoin protocol to an IETF-like structure, although it’s extremely premature for now. 

Therefore, by default, that leaves us with several alternative Bitcoin implementations in an environment of continual forking.

Even Satoshi Nakamoto was critical of multiple consensus implementations in 2010:

I don’t believe a second, compatible implementation of Bitcoin will ever be a good idea. So much of the design depends on all nodes getting exactly identical results in lockstep that a second implementation would be a menace to the network.

That prevailing standpoint, however, may be changing, which Aaron van Wirdum addresses in “The Long History and Disputed Desirability of Alternative Bitcoin Implementations.” Wirdum cites Eric Voskuil of libbitcoin, who argues that there should not be one particular implementation to define the Bitcoin protocol:

“All code that impacts consensus is part of consensus,” Voskuil told Bitcoin Magazine. “But when part of this code stops the network or does something not nice, it’s called a bug needing a fix, but that fix is a change to consensus. Since bugs are consensus, fixes are forks. As such, a single implementation gives far too much power to its developers. Shutting down the network while some star chamber works out a new consensus is downright authoritarian.”

Multiple alternative implementations of the Bitcoin protocol strengthen the network and help to prevent code centralization.

Politics of Blockchain Forking (or How UASF BIP 148 Will Fail)

Contentious hard forks and soft forks all come down to hashing power. You can phrase it differently and you can make believe that two-day zero-balance nodes have a fundamental say in the outcome, but you cannot alter that basic reality.

A BIP 148 fork will undoubtedly need mining hash power to succeed or even to result in a minority chain. However, if Segregated Witness (SegWit) had sufficient miner support in the first place, the BIP 148 UASF itself would be unnecessary. So, in that respect, it will now proceed like a game of chicken waiting to see if miners support the fork attempt.

Mirroring aspects of mob rule, if the UASF approach works as a way to bring miners around to adopting SegWit, then the emboldened mob will deploy the tactic for numerous other protocol upgrades in the future. Consensus rules should not be easy to change and they should not be able to change through simple majority rule on nodes, economic or not. Eventually, these attempts will run headfirst into the wall of Nakamoto consensus. 

As far as the network is concerned, it’s like turning off the power to your node.

There is no room for majority rule in Bitcoin. Those who endorse the UASF approach and cleverly insert UASF tags in their social media handles are endorsing majority rule in Bitcoin. They are providing a stage for any random user group to push their warped agenda via tyranny of the nodes.

The prolific Jimmy Song says that having real skin in the game is what matters:

Bitcoin doesn’t care if you post arguments on Reddit. Bitcoin doesn’t care if you put something clever in your Twitter name. Bitcoin doesn’t care if you educate people, write articles, or make clever Twitter insults. Bitcoin doesn’t care about your wishes, your feelings or your arguments.

Let’s keep “majority rule” antics out of Bitcoin. There is no protocol condition that activates “if we are all united” and that is a good thing.

With enough hashing power, the mob-induced UASF BIP 148 will lead to a temporary chain split. However, the probability of a Bitcoin minority chain surviving for very long is extremely low due to the lengthy difficulty re-targeting period of 2,016 blocks. Unlike the Ethereum/Ethereum Classic fork, that is a long time for miners to invest in a chain of uncertainty.

Responding to a Reddit post for newbies who are scared of losing money around the 1st of August due to UASF, ArmchairCryptologist explains:

Your advice is sound, but realistically, the most likely scenario is that the UASF either wins or dies. If it gets less than ~12% of the hashrate, it will not be able to activate Segwit in time, and it will almost certainly die. If it gets less than ~20% I also wouldn’t be surprised to see active interference with orphaning to prevent transactions from being processed.

If on the other hand it gets more than ~40% of the hashrate, the chance for a reorg on the other chain is large enough that most miners will likely jump ship, and it will almost certainly win. At over ~20% block orphaning attacks won’t be effective, as it would split the majority chain hashrate and risk tipping the scale. Which means that the only situation where you will realistically have two working chains for an extended period is if you get between ~20% and ~40% of the hashrate for the UASF.

The collectivist UASF BIP 148 strategy will ultimately fail and that’s a good thing. It is driven primarily by those with very little at stake expecting the miners to stake everything by supporting a minority chain. Pretty soon, you run out of other people’s money. This commenter on Reddit understands:

The entire premise was that it was very cheap to switch, but very expensive to stay. That’s when I realized the folly of it all; [it’s] only cheap because they’re not staking anything. But someone has to stake something.

And that’s what is going to cause it to fail. That and the lack of replay protection. People like this guy flip it around and genuinely believe the mining problem will be solved by massively increased value. If they do somehow put enough pressure on exchanges that list UASF, despite the lack of replay protection, and if we take his logic a step further, UASFers are going to be pushing everyone to “buy, buy, buy” UASF and “sell, sell, sell” Legacy Coin. But without replay protection, they’re going to be obliterated by a few smart people who realize there are huge gains to be had.

Alphonse Pace has an excellent paper describing chain splits and their resolution. He walks us through compatible, incompatible and semi-compatible hard forks, arguing that users do have power if they truly reject a soft-fork rule change:

… users do have power — by invoking an incompatible hard fork. In this case, users will force the chain to split by introducing a new ruleset (which may include a proof-of-work change, but does not require one). This ensures users always have an escape from a miner-imposed ruleset that they reject. This way, if the economy and users truly reject a soft fork rule change, they always have the power to break away and reclaim the rules they wish. It may be inconvenient, but the same is true by any attack by the miners on users.

The Future of Coordinating Protocol Upgrades

What group determines the big decisions in Bitcoin’s direction? Ilogy doubts that it is the developers:

Theymos almost completely foresaw what is happening today. Why? Because Theymos has a deep understanding of Bitcoin and he was able to connect the dots and recognize that the logic of the system leads inevitably to this conclusion. Once we add to the equation the fact that restricting on-chain scaling was always going to be perceived by the ‘generators’ as something that ‘reduces profit,’ it should be clear that the logic of the system was intrinsically going to bring us to the point we find ourselves today.

Years later these two juggernauts of Bitcoin would find themselves on opposite ends of the debate. But what is interesting, what they both recognized, was that ultimately big decisions in Bitcoin’s direction would be determined by the powerful actors in the space, not by the average user and, more importantly, not by the developers. 

The developer role can be thought of as proposing a variety of software menu choices for the users, merchants and miners to accept and run. If a software upgrade or patch is deemed unacceptable, then developers must go back to work and adjust the BIP menu offering. Otherwise, mutiny becomes the only option for dissatisfied miners. 

In “Who Controls Bitcoin?” Daniel Krawisz says that the investors wield the most power, and because of that, miners follow investors. Therefore, the protocol upgrades likely to get adopted will be the ones that increase Bitcoin’s value as an investment, such as anonymity improvements being favored over attempts at making Bitcoin easier to regulate.

In the future, miner coordination via a Bitcoin DAO (decentralized autonomous organization) on the blockchain could be the key to smooth and uneventful forking. Self-governing ratification would allow diverse stakeholders to coordinate protocol upgrades on-chain, reducing the likelihood of software propagation battles that perpetually fork the codebase.

Attorney Adam Vaziri of Diacle supports a system of DAO voting by Bitcoin miners to remove the uncertainty around protocol upgrades. He readily admits that he has been inspired by Tezos and Decred.

Prediction markets have also been proposed as a method to gauge user and miner preferences through public forecasting, the theory being that these prediction markets would yield the fairest overall consensus for protocol upgrades prior to the actual fork.

The question remains: Is coin-based voting based on allocated hash power superior to the informal signaling method utilized today? Are prediction markets or futures markets a viable method to gauge consensus and determine critical protocol upgrades?

I’m not optimistic. On-chain voting and “intent” signaling are both non-binding expressions while prediction and futures markets can be easily gamed. Therefore, while Tezos and Decred represent admirable efforts in the quest for complete resilient decentralization, I do not think Bitcoin protocol upgrades of the future will be managed in this way.

The Bitcoin ecosystem doesn’t need to achieve a social consensus prior to making changes to the protocol. What has clearly emerged from the events of this summer is that Bitcoin has demonstrated an even stronger degree of immutability.

There is no failure of governance and there is no failure of the market. The non-authoritarian forces at play here are functioning exactly as they should. Protocol upgrades in a decentralized environment are an evolutionary process, and that process has matured to the current six stages of Bitcoin protocol upgrading, with some optional variances for BIP 91:

(a) BIP menu choices competing for mindshare, strategic appropriateness and technical rigor;

(b) Informal intent signaling based on miners inserting text into the coinbase for each block mined;

(c) Block signaling period where miners formally signal a designated “bit” trigger for BIP lock-in, based on “x” percent over a “y” number of blocks period;

(d) Block activation period after BIP lock-in, which sets a secondary period of “x” percent over a “y” number of blocks for activation;

(e) Primary difficulty adjustment period (2,016 blocks) where “x” percent of miners must signal for the upgrade to lock in;

(f) Secondary difficulty adjustment period (2,016 blocks) required for the protocol upgrade to activate on the network.

Conclusion

This would not be the first fork in Bitcoin and it won’t be the last. If we believe in the power of Nakamoto consensus and probabilistic security, then the secret to uneventful protocol upgrades is smoother and more reliable signaling by miners.

July has been a tough month for Bitcoin, but it has also been pivotal. Even though I doubt the probability of success for UASF BIP 148, some may say that the threat of the reckless UASF on August 1 played a role in the rapid timeline for SegWit2x/BIP 91, and I agree with that. Game theory is alive and well in Bitcoin.

The design of Nakamoto consensus provides the ultimate method for decentralized dispute resolution by placing that decision with the hashing power and the built-in incentives against 51 percent attacks. In fact, Tom Harding considers miners to be the only failsafe in Bitcoin:

Nakamoto consensus for the win. See you in November.

The views expressed in this op ed are those of its author, Jon Matonis, and do not necessarily reflect those of Bitcoin Magazine or BTC Media.

It looks as if Bitcoin is getting Segregated Witness.

Bitcoin Improvement Proposal 91 (BIP 91) just locked in. Up to 90 percent of all hash power signaled support for this soft fork, which implies miners intend, in turn, to trigger Segregated Witness (SegWit) activation. By extension, this should make BIP 148 obsolete and August 1 a non-event.

But SegWit is not certain. In fact, on a technical level, SegWit is not any closer to activation at all.

BIP 91

Segregated Witness, defined by BIP 141, locks in if at least 95 percent of miners (by hash power) signal support for the upgrade within a two-week difficulty period. To do so, miners need to embed a piece of data called “bit 1” in the blocks they mine.

Importantly, this is technically the only way for SegWit to activate right now. And this threshold has not yet been met.

But there are alternative strategies to try and reach this threshold “indirectly” — like BIP 91.

BIP 91 is a Bitcoin Improvement Proposal proposed by Bitmain Warranty engineer James Hilliard. It is compatible with the New York Agreement and backed by a number of Bitcoin companies and mining pools. It is also compatible with BIP 148, another strategy to meet the BIP 141 threshold indirectly.

Miners have been signaling support for BIP 91 over the past couple of days through another piece of data, “bit 4.” Once 269 blocks within a 336-block window include bit 4, this BIP 91 soft fork gets locked in. This threshold was just met.

This means that after another 336 blocks, a little over two days from now, all BIP 91–compatible nodes will reject any block that doesn’t include bit 1.

As long as a majority of hash power enforces BIP 91, this majority should eventually control the longest valid chain according to all Bitcoin nodes. And as this chain consists of SegWit-signaling blocks only, it would in turn activate SegWit on all SegWit-ready nodes.

In that case, BIP 141 should lock in by mid-August, and SegWit should be live on the Bitcoin network after a two-week “grace period” by the end of that month.

If all goes well …

What Could Go Wrong?

Although well over 80 percent of hash power has signaled bit 4 for BIP 91 activation, this doesn’t actually guarantee anything. Most importantly, it doesn’t in itself mean that these miners will signal bit 1 for SegWit.

Indeed, so far, most miners don’t. Currently, the proportion of miners signaling bit 1 is still far lower than BIP 91 activation would suggest. Indeed, it is even lower than 50 percent.

Moreover, BIP 91 is probably being enforced by hardly any economically relevant nodes; that is, nodes operated by users that accept bitcoins as payment. Almost no Bitcoin users on the network recognize BIP 91 or its bit 4 signaling at all, and will therefore continue to accept blocks with or without bit 1.

BIP 91 is, therefore, enforced by hash power alone. This in turn means that a majority of miners (by hash power) could back out of BIP 91 with little more than reputational damage. They could continue to mine blocks that do not signal bit 1, even after BIP 91 activates in a few days. As long as these miners are in a majority, they will still control the longest valid chain: valid according to most miners, and valid to most users.

Furthermore, any minority of miners and the few nodes that do enforce the BIP 91 soft fork would then be forked off the Bitcoin network. In a few days from now, these miners would mine (on top of) blocks that almost only they themselves would consider valid, while most of the rest of the entire Bitcoin network would completely ignore them. These miners would be wasting their resources.

With this week’s bit 4 signaling, a majority of miners have effectively made a statement that they intend to start to activate the SegWit soft fork within a couple of days. But for now, that’s really all it is: a very public, blockchain-based statement of intent.

Actual SegWit activation should start next week, if miners stick to their stated intent.

At 11:30 a.m. (CDT) on July 19, 2017, a hacker managed to steal 153,000 ETH (approximately $32 million at the time) from three Ethereum wallets by exploiting a vulnerability within the wallets’ multi-signature verification. The affected wallets include the ones using Parity client version 1.5 or later.

According to a tweet by Project Lead Manuel Aráoz, the three multisig wallets first targeted by the hack were using Parity client version 1.5 or later, and included Edgeless Casino, Swarm City and Æternity Blockchain. However, Project Blocktix also reported a loss totaling 3,916 ETH. According to ETHNews, Blocktix.io was hit by a second attacker who exploited the same vulnerability.

A Swarm City blog post revealed that a group of white hat hackers managed to secure the remaining funds from the affected ETH wallets using the same exploit. The swift response of the white hat hackers allowed them to secure the funds of other vulnerable projects. Unfortunately, funds in the wallets of Edgeless Casino, Swarm City and Æternity Blockchain are completely lost, though the “white hat response team” managed to secure 6,272 of 10,188 ETH at Blocktix.io.

The White Hat Group announced on Reddit that they will create “another multisig for you [the affected users] that has the same settings as your [the users’] old multisig but with the vulnerability removed and we will return your [the users’] funds to you [the users].” The response team warned the Reddit community to be careful with donation addresses below their post since there are “a lot of phishers in the community right now.”

On July 19, Parity Technologies published a critical security alert stating there was a vulnerability connected to Parity Wallets. The users affected by the vulnerability included “any user with assets in a multi-sig wallet created in Parity Wallet prior to 19/07/17 23:14:56 CEST.” The company urged users to move all assets from the multisig wallets to a secure address. Wallets seemingly unaffected by the breach include Geth, MyEtherWallet and single-user accounts created on Parity.

Parity updated its post as of today stating that future versions of their multisig wallets are secure:

“Future multi-sig wallets created by versions of Parity are secure (Fix in the code is https://github.com/paritytech/parity/pull/6103 and the newly registered code is https://etherscan.io/tx/0x5f0846ccef8946d47f85715b7eea8fb69d3a9b9ef2d2b8abcf83983fb8d94f5f).”

Swarm City also posted information for users affected by the hack:

“If you do have funds in the multisig contract: carefully move your funds to a new account ASAP. If your funds are no longer in your multisig, please check the Black hat and White hat addresses. They might have been saved by the White hat group.”

To check on funds held by either the black hat or the white hat hackers, see the ETH addresses below:

White Hat Group’s wallet: 0x1DBA1131000664b884A1Ba238464159892252D3a
First hacker’s wallet: 0xB3764761E297D6f121e79C32A65829Cd1dDb4D32
Second attacker’s wallet: 0x1Ff21eCa1c3ba96ed53783aB9C92FfbF77862584

The hacks have not only affected the wallets of the victims but also the overall price of ether. According to Coin Market Cap’s stats, the price experienced a 15 percent drop from $234.94 (at 0:04, July 19) to $199.70 at the end of the day. However, ETH has since recovered to around $227 today.

After darknet market AlphaBay went offline on July 4, many of its users migrated to Hansa Market — and played right into the hands of an “Operation Bayonet,” a coordinated international law enforcement action. Today, both the U.S. Department of Justice and the Europol published press releases stating that Hansa Market has also been shut down.

According to the U.S. Department of Justice, the action was led by the Federal Bureau of Investigation (FBI) and the Drug Enforcement Administration (DEA), with law enforcement authorities in Thailand, the Netherlands, Lithuania, Canada, the United Kingdom, France and the Europol participating in the operation. Bayonet’s focus was takedown of both Hansa Market and AlphaBay in the course of the same multi-agency investigation.

“This is an outstanding success by authorities in Europe and the U.S. The capability of drug traffickers and other serious criminals around the world has taken a serious hit today after a highly sophisticated joint action in multiple countries. By acting together on a global basis the law enforcement community has sent a clear message that we have the means to identify criminality and strike back, even in areas of the Dark Web. There are more of these operations to come,” Rob Wainwright, the executive director of Europol, said today at a joint press conference with the U.S. Attorney General, the acting FBI director and the deputy director of the DEA in Washington, D.C.

According to Europol’s press release, the European agency provided Dutch authorities with an investigation lead on the Hansa Market in 2016. Europol allegedly acquired the information with the help of Bitdefender, an internet security company advising Europol’s European Cybercrime Centre (EC3). Investigators managed to locate the infrastructure of the darknet marketplace in the Netherlands, which resulted in the arrest of two administrators of the site in Germany. Hansa’s servers were seized in the Netherlands, Germany and Lithuania.

Furthermore, Dutch law enforcement acquired information on “high value targets and delivery addresses for a large number of orders.” With the help of Europol, the Dutch National Police collected information on approximately 10,000 foreign addresses of Hansa Market customers. In a covert action, Dutch law enforcement took control of Hansa a month ago, allowing investigators to monitor and gain information on the users of the marketplace without their knowledge.

Casting a Wider Net

It seems authorities planned their actions carefully since Hansa was already under their control when AlphaBay went offline on July 4. Europol stated that the Dutch National Police “could identify and disrupt the regular criminal activity on Hansa but then also sweep up all those new users displaced from AlphaBay who were looking for a new trading platform.”

“The Dutch National Police have located Hansa Market and taken over control of this marketplace since June 20, 2017. We have modified the source code, which allowed us to capture passwords, PGP-encrypted order information, IP-Addresses, Bitcoins and other relevant information that may help law enforcement agencies worldwide to identify users of this marketplace. For more information about this operation, please consult our hidden service at http://politiepcvh42eav.onion,” Dutch authorities wrote on the seized Hansa website.

In total, 38,000 transactions were identified by Europol, who then alerted other agencies in 600 cases. Furthermore, Europol stated they have prepared “intelligence packages” to be sent out to “law enforcement partners across 37 countries, spawning many follow-up investigations across Europe and beyond.”

AlphaBay went offline on July 4. At the time, many users suspected it was an exit scam. Authorities announced the arrest of the Alexandre Cazes, 26, the alleged administrator of the website, who was later found dead in his cell in Thailand. On the day of Cazes’s arrest, law enforcement took down servers of the dark web marketplace in Canada, the Netherlands and Thailand.

Darknet marketplaces have generated massive police heat after dangerous synthetic drugs, such as fentanyl — the substance at the heart of drug epidemics in multiple countries, including Canada and the United States — were constantly offered for sale on the websites. The statements of U.S. Attorney General Jeff Sessions during the joint press release in Washington, D.C., confirm this assumption.

“Among other challenges, our great country is currently in the midst of the deadliest drug crisis in our history. One American now dies of a drug overdose every 11 minutes and more than 2 million Americans are addicted to prescription painkillers. Every day, as a result of drug abuse, American families are being bankrupted, friendships broken and promising lives cut short,” he said.

“As of earlier this year, 122 vendors advertised fentanyl and 238 advertised heroin, and we know of several Americans who were killed by drugs sold on AlphaBay.”

Sessions asserted that his department’s work is not yet finished and issued a warning to people still ready to engage in illegal activity on the dark web. “We will continue to find, arrest, prosecute, convict and incarcerate criminals, drug traffickers and their enablers, wherever they are. The dark net is not a place to hide. We will use every tool we have to stop criminals from exploiting vulnerable people and sending so many Americans to an early grave.”