I am very rich. Would I buy a gun to commit suicide?

“If I were rich, would I buy a gun and kill myself?” That’s the question a miner asked developers at the Scaling Bitcoin conference last December.

This time I will not talk about technology, but only about investment. Why do people care so much about the expansion issue? Let's not talk about ideals. Let's be honest. In the end, isn't it all about getting a good return on investment? Would people who have no investment in Bitcoin argue about this? Of course, investment is not just about money, it also includes time and energy, but it can basically be simplified to a matter of money investment.

Investing in Bitcoin can be direct investment (holding coins), industrial investment, and service investment. Industrial investment is represented by mining, and service investment generally refers to services that rely on the Bitcoin system, such as exchanges, payment systems, wallets, etc. Direct investors basically take the price of the coin as their main goal; miners consider the cost issue in addition to the price of the coin, but now that is only a small part; and service investors pay more attention to indicators such as customer volume and transaction volume, but rising coin prices will also bring more customers. So overall, the price of the coin is the common interest of all participants in the ecosystem.

What is the impact of a forced hard fork on the price of a currency?

Let's start with the price of the currency. BitcoinXT was released on August 15, 2015, and the price on Bitfinex plummeted 37% from $258 to $162 three days later. Bitcoin Classic was released on January 11, 2016, and Mike Hearn declared Bitcoin a failure, so the price of the currency fell 22% from $450 to a low of $352 in six days. There is no doubt that every time someone tries to force a hard fork and hype up the expansion issue, it will have a serious negative impact on the price of the currency. Because forced hard forks lead to great uncertainty, there may be two currencies circulating at the same time, and investors will sell Bitcoin to avoid risks.

What is the impact of a forced hard fork on exchanges?

Forced hard forks lead to price fluctuations. Small fluctuations lead to increased trading volume, which may be beneficial to exchanges. However, excessive fluctuations will pose risks to exchanges, especially leveraged trading. Large-scale margin trading will cause a domino effect, and exchanges with insufficient risk control will face losses. What is more dangerous is that forced hard forks will lead to two types of Bitcoin circulating in the market at the same time, and at different prices. If the futures market contracts span before and after the fork, there will be serious disputes in terms of delivery pricing and delivery items.

What is the impact of a forced hard fork on wallets and financial products?

When users expect that two types of Bitcoin will circulate in the market at the same time, since they do not know which Bitcoin will be valuable in the future (or both Bitcoins will be valuable), in order to get both Bitcoins, users will withdraw money to their local wallets before the fork and stop buying financial products. This large-scale redemption requirement may cause some services with insufficient liquidity to go bankrupt; even services with sufficient liquidity will lose a large number of customers.

Will not expanding the capacity limit user growth and affect the price of the currency?

Whether a commodity currency is valuable depends on many factors, such as scarcity, interchangeability (anyone's Bitcoin can be exchanged equally), security, acceptance, etc. The number of users only represents the degree of acceptance, not the only determinant of value. Salt is needed by all mankind and was once a currency in history, but it is not scarce in modern times, so it loses its monetary value.

If it is possible to expand without affecting security, then of course the more users the better. But if security and decentralization are sacrificed in order to accommodate more users, investors need to think clearly about what kind of system is in line with the best long-term investment interests. You can refer to my other article: "Don't trust me, verify it yourself" (http://www.8btc.com/do-not-trust-verify)

Will too many people using sidechains and lightning networks harm the interests of miners?

There is a saying that if too many people use off-chain transactions, miners will get less fees. This is a misunderstanding. The so-called side chain is also a blockchain, and it also needs computing power to maintain security; the most reasonable method is to use merged mining, so that miners can choose different side chains according to their processing power to earn more fees. This will not increase the pressure on the main chain full node, and can accommodate more users at the same time, and miners will also have more income.

As for the Lightning Network, there are also many situations where main chain transactions are needed. First, when the balance in the channel is used up, new transactions need to be issued on the main chain to supplement it; and when the balance in the channel is too much, people need to clear on the main chain for cold storage; and if one party in the channel loses contact, the other party must also end the channel on the main chain. If the Lightning Network really becomes popular, it can bring more new Bitcoin users, which will increase the demand for main chain space. At the conference in Hong Kong last year, the developers of the Lightning Network also mentioned the need for more block space, so this is not a competition issue, but a win-win relationship.

If we replace Bitcoin Core, we can expand the capacity and solve the problem?

Recently, there has been a voice that other plans to replace BitcoinCore can expand the capacity. As an open source project, it is normal to have different development teams, but when it comes to replacing Bitcoin Core, I don’t see any team that has the ability to do so. Taking the latest version 0.12 as an example, the transaction verification speed has been increased several times, which is an update that many mining pools are looking forward to. The full node is the backbone of the network and it is extremely necessary to have a reliable team to maintain it. Otherwise, when problems arise, they cannot be solved in time, which will only cause damage to all investors.

Let the user decide?

Recently, Bitcoin Classic is very keen to use their voting website to make decisions, claiming that it is the voice of users. This is a very dangerous and naive approach. Not to mention that those users may just be sock puppets, those users may not have or have very little investment in Bitcoin. Even if the decision is made by users, they must be real investors. Soft forks are mainly decided by miners, while hard forks should include coin holders and service investors in addition to miners.

Is hard fork really useless to the market?

The problem is the forced hard fork, but if there is broad consensus and it is safe, hard forks are not a problem. In 2013, a hard fork (BIP50) was forced because of a design flaw that existed from the beginning. That hard fork was not controversial, did not affect the market, and did not cause two types of Bitcoin to circulate at the same time.

What about the hard fork for expansion? If there is broad consensus, security, and sufficient preparation time, the hard fork will not cause problems. In terms of time, I have communicated with some major miners and developers, and they also think that about a year is more reasonable. But in addition to time, it is more important that after the fork, two types of Bitcoin cannot be allowed to circulate at the same time. Merchants and exchanges must completely refuse to accept and pay old coins, and miners must unanimously abandon the old chain, making the value of the old coin zero, so that the above crisis will not occur.

How can we reach a consensus?

It is not easy to reach such a consensus, but it is not impossible. Many people are now shouting about eliminating this or that, using some means to make the other party surrender, or questioning others' motives, which will only make it more difficult to reach a consensus. What we need is a peaceful discussion, a safe solution, and convincing people with reason.

The word "hard" in English not only means "hard", but also "difficult". A hard fork is a difficult fork, not as easy as some people say. But it is also because of the difficulty that the system is safe. Otherwise, everyone can hard fork at will, and users are constantly forced to update, which is more likely to be controlled by a few people.

As an investor, what really matters is short-term and long-term returns; whether to expand capacity and how to expand capacity are only means to increase returns, not the goal. Improper expansion methods will not only fail to increase value, but will bring disastrous consequences. Don't forget one thing: no matter what expansion plan is supported, the investment return represented by the currency price is the common interest of everyone, and it is definitely not a life-and-death competition game.

If you are rich, would you buy a gun and commit suicide? I wouldn't, and I hope you won't.

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The author, jl2012, is a Bitcoin technology enthusiast from Hong Kong and the drafter of three Bitcoin Improvement Proposals (BIP141-143) related to Segregated Witness.