Coinbase CEO: We misjudged the Ethereum hard fork, but it was still a success

It’s been an exciting few weeks for the cryptocurrency industry. Ethereum’s hard fork was completed, and Coinbase finally announced support for it.

I can say with certainty that we underestimated how far things would go, and the weaker chain still had some support after the fork.

There are a lot of parodies on reddit using my tweets as references, and I have to say, they are pretty well made :)

I think for some people, they would like to know our thoughts on this hard fork, both before and after it happens.

Preparation before going online

The Coinbase team has been preparing for months to support Ethereum, and our initial launch date was set for July 19, 2016.

As we approached the launch date, the Ethereum community was planning their hard fork (on July 20th). I was originally planning to launch on the 19th. I was ready to get into the Ethereum game (I felt we were late). But based on the advice of team members (especially Charlie Lee), we decided to postpone the date and wait until the hard fork was completed. It turned out to be a good decision (I will talk about it later).

At that time, we also discussed the possibility of重放攻击. Many other exchanges had already created smart contracts to separate ETH and ETC (they realized the problem before us, so kudos to them). We knew that most ETH was stored in cold wallets (protected from replay attacks), and furthermore, the price of ETC would be low, and we thought that a small number of users (roughly equal to the percentage of hashrate) would be interested in acquiring it.

We felt there was nothing wrong with it, so we decided to go ahead and list Ethereum.

Ethereum listed

The launch went very smoothly, and within the first day, Ethereum trading volume reached $1 million.

In the following week, as we expected, some replay attacks started to appear, and the ETC chain got a little more attention than we expected. I thought it would get about 1% of the share (including computing power and price), but it actually got closer to 15% .

Now, we have more time to think about what kind of strategy we should launch regarding ETC. Later, many customers emailed us saying that they needed ETC.

For Coinbase, this decision was a fairly easy one. Since we listed Ether after the Ethereum hard fork, no customers had “pre-fork” Ether stored at Coinbase. We also never supported ETC, and here we put out an official statement telling customers that they should not transfer their ETC to Coinbase.

For GDAX, an exchange for professional traders, the decision was somewhat difficult. Since GDAX added Ether trading before the Ethereum fork, some customers had their Ether stored on the exchange and now wanted to receive the corresponding amount of ETC. We have never supported ETC, but we realize that customers want to transfer their ETC, which is their right and we should not take it away. First, we did some work to eliminate replay attacks, and although the vast majority of funds are in cold wallets, we still have enough Ether (and corresponding ETC) to cover the losses of hot wallets, but we don’t want this situation to continue for a long time. We also went ahead and created a function for GDAX customers (customers with Ether balances before the hard fork) to withdraw their ETC. We do not have any plans to support ETC, so we explicitly stated that customers may not issue additional ETC for trading.

So, was this Ethereum hard fork successful?

I think the experiment is still going on, and it's clear that this hard fork was not very clean, but there are also some positive points.

Some friends who are more eloquent than me summed it up today:

1. Persistent chain splits are bad, and network effects are depleted.

2. However, the current total value of ETH + ETC is higher than the value of ETH before the fork.

3. When irreconcilable differences occur, it may make sense to split, and then you will get a net gain.

If ETC continues to exist, there is nothing wrong with that. I am not ideologically opposed to multiple coins existing and people having their own choices. If there is really a lot of interest in ETC, I think we will add it in the future. But at this moment, I don't think it provides anything special. Ethereum's implementation of a hard fork to recover funds to solve the attack problem does set a precedent for all digital currencies, not just one chain.

I don’t have a strong opinion about this particular fork. I’m more interested in hard forks as a general concept and how they are used (or not used) in the development of cryptocurrencies.

I can say for sure that my estimates for this hard fork were wrong, and probably a lot of people make fun of me for what I deserve :) I had guessed that a few hours after the fork, the weak chain's hashrate and value would be less than 1%, and apparently that didn't happen. According to Vitalik, a large portion of people who bought ETC were Bitcoin enthusiasts who insisted on small blocks. I can't prove if this is true, but even so, it's an interesting result that I didn't expect. Some people should make a bet with me (if this happens to Bitcoin, then I lose).

It may prove that I was right in direction, but wrong in timeline. Will ETC die down next month? Next year? Only time will tell.

I will say that I am glad to see this hard fork happen. I think the Ethereum developers will learn a lot from this experience and future hard forks will be improved and avoid the replay attack problem. I admire their willingness to move the code forward so quickly even if it is not perfect. I like to say that "actions make sense". In the end, if we do nothing, nothing will happen, and I think the Ethereum network will continue to grow, so in that sense, this hard fork was a success.

in conclusion

I always like to take a long-term view of cryptocurrencies. I don't care too much about the price increases or decreases that occur in any given week, month, or even year. I don't even care which currency will ultimately "win" (there will likely be multiple winners). What I want to see is a world that embraces an open financial system where everyone has equal opportunities for financial services. This vision may take more than 10 years to achieve, and I want to help it happen as soon as possible. Most decisions at Coinbase and GDAX are made with this goal in mind. For example, we would rather give more people access to cryptocurrencies than argue about which one is best.

We still have a long way to go to create an open financial system. Today, less than 1% of the population on this planet can benefit from digital currency. Most people have no idea what digital currency is, let alone the difference between ETH and ETC. They just want to send money to their family in another country, sell their products to more customers, or borrow some money for their business.

It’s great to see the industry continue to move at a rapid pace. It feels like cryptocurrencies have gained momentum over the past 6 months (we were probably at the bottom of the hype cycle over the past 6 months) and now we’re trending upward. “Blockchain” as a concept is probably earlier in the cycle, but it’s going to recover after the dip. I look forward to seeing more interesting moments.