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Dmitri Solodki

ICO Advisor at ITO.SG

The market of cryptocurrencies witnessed a long-awaited and important event on August 1, 2017. The blockchain of the most widely circulated cryptocurrency, bitcoin, split into two chains (the hard-fork). Dmitri Solodki, an expert on cryptocurrencies, commented on the issue explaining “the hard-fork” in layman’s terms using the example of Russian currency.

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The hard-fork is a normal occurrence which will further recur in the world of cryptocurrencies. Cryptocurrencies are constantly developing, Their architecture is far from perfection and may well never reach it. There are different reasons compelling some groups to start the process: a lack of anonymity or impossibility of deanonymization, hash algorithm detection, a wish to increase the block size or equip the currency with new properties, which had not been characteristic of it before, and so on. In fact, cryptocurrencies serve as codes no one can claim to be in possession of, and the debate over their development paths is entwined with a clash of interests of different user-groups, let alone divisions within the developer community.

The value of each currency (protocol tokens – those currencies which acquire their properties in and of themselves, not due to the fact that they are secured on goods or services; as distinct from asset tokens used to raise funds for projects in ICO campaigns) is determined by the code it is based on (and by the team(s) maintaining/developing the code), as well as its circulation, which is connected to a range of factors. Bitcoin owes its widespread circulation, inter alia, to the fact that it was the first cryptocurrency of its own kind. At the end of the day, it is the usability of a currency by different groups of users that leads to an increase in transactions and, most likely, to a rise in its value.

The Russian national currency is the ruble. Despite its wide circulation, the dollar is of little practical importance in Russian everyday life, e.g. one cannot buy goods with dollars in a shop. If the whole world were the Russian Federation, the ruble would be the prevailing currency (let’s forget the new ones with a prefix “crypto” for a moment). You would willingly use rubles, plastic cards with accounts in rubles and every payment instrument connected to rubles. Imagine that one day you get up and say, “I want any man to have a right to drink at my expense in a pub on the opposite side of the street paying with any banknote I sign”. That is a great idea, many endorse it. However, another group of users of the ruble suggests that the signature should give the right to buy only hard liquors. Another one advises setting one's seal to a banknote instead of signing it. Members of the former strongly oppose that. If all the groups do not reach a compromise after a heated discussion, they may well end up with a hard-fork.

Creating a functionless hard fork is not difficult – this can be accomplished by anyone who possesses certain skills. But that person should bear in mind that he will hardly get on the news or become the focus of discussion on forums. The main problem, purpose and, broadly speaking, reason of the hard-fork is to receive mass support from holders of the cryptocurrency that is undergoing the hard-forking process. It is the broad support for the project (although not as broad as the one for the original solution) that caused a hype around Bitcoin Cash as an alternative path of development for the Bitcoin cryptocurrency.

The very core of the process is the following. In the case of Bitcoin Original, the block size for transactions in bitcoin net was increased from 1 to 2 MB and the process known as SegWit was simultaneously introduced. Now, the block size has been increased to 8 MB and SegWit has been removed. Both decisions are aimed at increasing the transaction throughput of the Bitcoin network, which is in fact one of its weak points – information on every transaction is sent to every full client of the network, which, on the one hand, increases safety of transactions, and on the other, substantially decreases its capabilities.

It is difficult to say, which of the solutions will prove to be better. However, in both cases the measures are only the first steps on the long path of bitcoin development.

As far as such imperfect and partial solution as bitcoin is concerned, the only right track is development. And it is not so important whether it will take place along one or several avenues. An absolute drawback for the bitcoin net will be the dispersion of attention and capital between many cryptocurrencies (Bitcoin Cash for obvious reasons attracts sufficient funds from Bitcoin Original and, therefore, decreases its networking effects). A real advantage will be dynamic development and a pluralism of proposed solutions. Here there are prospects for the capitalization of both cryptocurrencies.


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