Bitcoin Begets Bitcoin

For our sins, the universe has given us a new and better bitcoin.
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When the apocryphal Satoshi Nakamoto released his legendary white paper Bitcoin: A Peer-to-Peer Electronic Cash System, he described the invention as “a system for electronic transactions without relying on trust.” As the thinking went, a decentralized web currency built on an immutable code would free users from the tyrannical whims of powerful institutions and the inherent instability of fiat currencies based, fundamentally, on trust.

munch-scream-bitcoin-tall

Years went by, the idea took off, and eventually bitcoin became the victim of its own success. Heavy trading led to delays of hours or even days for a single transaction to settle. Since one chief benefit of currencies is that you can transact them, changes had to be made to the immutable code. But standing in the way were (uh oh) powerful institutions, miners who get paid to process trades and who'd profit less under the proposed changes. The inability to hash out the politics of it all resulted Tuesday in the ultimate final irony for the trust-free currency: what is essentially a currency-wide trust fall.

On Tuesday bitcoin split into bitcoin classic (BTC) and the brand-new Bitcoin Cash (BCC), the default solution to the internal dispute. As BI reports:

"There seems to be some technical issues that might be slowing it down, but yes, the fork has happened," Peter Borovykh of Blockchain Global, a blockchain technology company, told Business Insider. "Bitcoin cash is here."

After months of arguing whether and how to transition bitcoin from its delay-riddled current state to a more functional structure – in the parlance, a bitcoin with a larger block size – the bitcoin community more or less threw up its hands and said fuck it, let's have two. If all goes right, every current bitcoin owner will also have an equivalent amount of BCC. Bada-bing bada-boom.

But there's no guarantee the new currency-like thing will take off. Miners have to mine it and people have to transact for there to be a market. That could take hours or even days. And for those worried that BCC may lose some of what made bitcoin so special and beloved in the first place, fret not. As it turns out, BCC's birth was likely marked by a rash of two-bit scams. As a Cornell professor-slash-hacker explains:

In particular, imagine our favorite player Alice. Suppose that she has 1 BTC, and she deposits it at Bitfinex. Stuart (the Scammer) reads the rules above, and creates an account on Bitfinex. He then margin-shorts 1 BTC. That is, he borrows Alice's 1 BTC, and sells it. He now owes 1 BTC to Alice. Stuart then, in a funny trade, buys his own margin-short with cash. He now owns 1 BTC, and owes 1 BTC to Alice. His position is market neutral and he carries no risk. Alice also owns 1 BTC. Then the split happens. Bitfinex decides to credit both Stuart and Alice with 1 BCC, each! That is, Bitfinex erroneously creates a liability of 2 BCC. Meanwhile, they only actually own 1 BCC.

Here's a pithier version of all that:

So maybe bitcoin cash is coming into the world debased by human greed and technical error. But that doesn't make it illegitimate. After all, what would currencies be without a little greed and error?

UPDATE: It's official: Bitcoin Cash lives.

Bitcoin splits in 2 [Business Insider]
Bitcoin's Impending Accounting Disaster [Hacking, Distributed]

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