![\"\"](https://www.ycombinator.com/"https://ycombinator.wpengine.com/wp-content/uploads/2017/10/Bitcoins-Many-Lives.png/")
https://en.wikipedia.org/wiki/Bitcoin_Cashhttps://segwit2x.github.io/segwit2x-announce.htmlhttps://en.wikipedia.org/wiki/List_of_bitcoin_forkshttps://a16z.com/2017/09/28/cryptocurrencies-networks-tokens/https://en.bitcoin.it/wiki/Majority_attackhttps://motherboard.vice.com/en_us/article/newk7m/the-ethereum-network-is-ddos-ing-itselfhttps://www.amazon.com/Antifragile-Things-That-Disorder-Incerto/dp/0812979680https://99bitcoins.com/bitcoinobituaries/page/9/https://www.foreignaffairs.com/articles/africa/calm-stormBitcoin could help. Coinbase, a digital wallet and platform that lets anyone with a US bank account buy and trade Bitcoin currency, announced last week that it is now supporting instant, free micropayments, in Bitcoins, with none of these drawbacks. In a blog post, Coinbase CEO and founder Brian Armstrong <a target=\"_blank\" href=https://www.ycombinator.com/"http://blog.coinbase.com/post/57483182558/you-can-now-send-micro-transactions-with-zero-fees/" title=\"Link: http://blog.coinbase.com/post/57483182558/you-can-now-send-micro-transactions-with-zero-fees\">wrote that Coinbase would start handling small – typically under $1 – Bitcoin transactions</a> “off-blockchain”. That means each one wouldn’t have to go through the algorithmic validation process across the whole Bitcoin network, which can take a few minutes or more, but would instead be sent directly between two Coinbase accounts and validated later.</p>\n<p>These microtransactions could let users read the rest of a <i>New York Times</i>article for a few cents instead of signing up for a full monthly subscription, Armstrong wrote, or “pay for Wi-Fi internet metered by the minute (or second!) if you just need to check one email” or “support your favorite artists or coders with a tip”.</p>\n</blockquote>\n</div>\n<!--kg-card-end: html-->","comment_id":"595940","feature_image":null,"featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2013-08-19T10:53:00.000-07:00","updated_at":"2021-10-20T14:34:18.000-07:00","published_at":"2013-08-19T10:53:00.000-07:00","custom_excerpt":null,"codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"/blog/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a71173","name":"YC News","slug":"yc-news","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/yc-news/"}],"primary_author":{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/coinbase-yc-s12-in-the-new-scientist-launching-instant-bitcoin-micro-payments-off-blockchain/","excerpt":"\n \n ","reading_time":1,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a71a17","uuid":"e7e794d8-36fd-4a73-914d-5c57279802e6","title":"Building for the Blockchain","slug":"building-for-the-blockchain","html":"<!--kg-card-begin: html--><h2>Introduction</h2>\n<p>If you’re here, we assume that you’re a developer/hacker who’s intrigued by the blockchain. You’re convinced that you understand how it works and now you’re itching to figure out what the blockchain means for you and your developer skill set.</p>\n<p>If you need more of a primer we’d recommend starting with the <a href=https://www.ycombinator.com/"https://bitcoin.org/bitcoin.pdf/">bitcoin white paper</a> and <a href=https://www.ycombinator.com/"https://github.com/ethereum/wiki/wiki/White-Paper/">Ethereum white paper</a>.</p>\n<p>Our goal in this post is to:<br />\n1. Explain how blockchain development differs from existing development paradigms<br />\n2. Provide context for the opportunities and challenges in this space<br />\n3. Point you to resources that will give you the foundation to start developing in this new paradigm</p>\n<h2>Paradigm Shifts for Developers</h2>\n<p>Internet applications benefit from network effects because they maintain centralized silos of information. Built upon shared, open protocols (e.g. TCP/IP, HTTP), companies like Yelp, Facebook, and Amazon benefit from having all of their users – and, as a result, data – in one place. This way they not only have an advantage over competitors with less data but also complete control over the way they monetize the data. <a href=https://www.ycombinator.com/"http://www.usv.com/blog/fat-protocols/">In the words</a> of crypto investor Joel Monegro, the current Internet paradigm captures most of its value through <em>fat</em> application layers, whereas the <em>thin</em>, underlying communication protocols capture minimal value.</p>\n<p>Alternatively, the distribution of value in the blockchain paradigm can be described with <em>fat</em> protocols and a <em>thin</em> application layer. This paradigm shift is possible due to the innovation of cryptographic tokens, which are described well by Albert Wenger of USV:</p>\n<p>“Historically the only way to make money from a protocol was to create software that implemented it and then try to sell this software (or more recently to host it)… With [cryptographic] tokens, however, the creators of a protocol can ‘monetize’ it directly and will in fact benefit more as others build businesses on top of that protocol.”</p>\n<p>Previously, the creators of open communication protocols for the Internet, largely <a href=https://www.ycombinator.com/"https://en.wikipedia.org/wiki/DARPA/">DARPA researchers and non-profit contributors, could not align financial incentives with protocol development. In contrast, protocol creators today can issue “tokens”, like Bitcoin and Ethereum, that represent the value of their decentralized protocols.</p>\n<p><a href=https://www.ycombinator.com/"http://www.usv.com/blog/fat-protocols/">Monegro believes</a> that this paradigm shift affects the way that developers should think about their applications: “The combination of shared open data with an incentive system that prevents “winner-take-all” markets changes the game at the application layer and creates an entire new category of companies with fundamentally different business models at the protocol layer.”</p>\n<h2>Ethereum</h2>\n<p>We’ve come to the understanding that in the blockchain paradigm, developers can capture value through protocol innovation. To continue our discussion, we review how blockchain technologies evolved to eventually cater to developers. Eight years ago, Bitcoin was conceived as a virtual currency that removed the need for centralized financial systems. Initially, developers actually tried building applications upon the Bitcoin blockchain by storing data in the blockchain itself, but it turned out to be pretty inefficient (as described in <a href=https://www.ycombinator.com/"http://joel.mn/post/104755282493/the-shared-data-layer-of-the-blockchain/">another old Joel post</a>!). One of these developers, Vitalik Buterin, was frustrated by Bitcoin’s immobilism and risk averse culture for adopting new developer-friendly features. So, he built his own platform, Ethereum.</p>\n<p>While Bitcoin was originally intended to serve as a new medium for financial store of value, Ethereum was invented to serve as a Turing complete developer environment. In Ethereum, developers write smart contracts in the Solidity programming language, and those smart contracts are run in the Ethereum Virtual Machine (EVM). Here, we observe an opportunity for developers to fork and implement their own blockchains to serve different purposes. To do so, however, would require rekindling developer support and network effects that existing blockchain technologies had previously achieved. Today, building on top of existing networks like Ethereum allows developers to become stakeholders in not only their own applications, but also the underlying protocol.</p>\n<h2>Dapps, App Coins, and Smart Contracts</h2>\n<p>Today’s blockchain developers often build decentralized applications, or dapps, on top of existing protocols to address specific markets and end users. In doing so, developers can issue <a href=https://www.ycombinator.com/"https://blog.0xproject.com/the-difference-between-app-coins-and-protocol-tokens-7281a428348c/">tokens, or app coins</a>, that are used to execute certain “functions” of the dapps themselves, not unlike Chuck-E-Cheese tokens are used for specific purposes like skeeball. These “functions” are the “smart contracts” that promise a dapp’s services in return for a digital asset, thereby removing the need for a middle-man to ensure the transaction. In other words, smart contracts promise that for one Chuck-E-Cheese token, you can exchange one game of skeeball.</p>\n<p>As the functionality of the dapp becomes more sought after, the fixed number of app coins increase in value as a function of supply and demand. In other words, if it turns out that the Chuck-E-Cheese experience is truly remarkable and highly-demanded, the fixed supply of tokens become more valuable. This is the underlying principle that informs all ICOs (initial coin offerings), in which dapp developers solicit investment by offering app coins in return for capital to fund their projects.</p>\n<p>But wait, you might ask, “Why not use an existing token as opposed to issuing your own, dapp-specific token in the first place?” Dapp-specific app coins enable small-scale economies that facilitate the application’s purpose. These <a href=https://www.ycombinator.com/"https://ycombinator.wpengine.com/the-token-effect//">tokens serve as scarce resources that can be regulated and governed to more closely align with the functionality of a dapp. This is where Ethereum comes back into the picture — with Ethereum, developers can very easily issue their own tokens for the specified use of their own dapps.</p>\n<h2>Early Opportunities</h2>\n<p>With an understanding of the underlying mechanisms of dapps, it’s important to think carefully about how decentralization would benefit your end users. Rather than jumping into a list of side projects, swapping relational databases for blockchain implementations, we urge you to consider the benefits of decentralization. For instance, <a href=https://www.ycombinator.com/"https://augur.net//">Augur creates prediction markets by relying on decentralized participants to make correct predictions because they share financial incentives.</p>\n<p>At a meta-level, there are also opportunities for innovation in the developer stack. Many blockchain developers liken the maturity of the blockchain tools and frameworks to those of the web during early days of the Internet. We spoke to Ben Yu of <a href=https://www.ycombinator.com/"https://streamtoken.net//">Stream, who described this as a new opportunity for developers: “There is extremely low-hanging fruit in making the field more accessible, and a lot of technical infrastructure needs to be built up to bring blockchain from 1994, in internet terms, to 2017.”</p>\n<p>With the innovation of the blockchain, many have identified the opportunity to build a new, decentralized web stack that does not depend on centralized government or corporate entities. The traditional web stack is composed of building blocks like TCP/IP, DNS, databases, web servers, authentication systems and CDNs, and we are in the midst of replicating these components by using platforms like Ethereum as the base layer.</p>\n<h2>Challenges of Immutability</h2>\n<p>Unfortunately, a technology that is likened to the early iterations of JavaScript almost certainly comes with challenges, the most apparent of which is related to the immutability of new protocols. Developers cannot change the underlying blockchain or higher-level smart contracts. Libraries or contracts cannot be easily versioned. The recent Parity bug that <a href=https://www.ycombinator.com/"http://mashable.com/2017/11/08/ethereum-parity-bug//">locked 150MM USD in funds</a>, among many other similar incidents, reminds us of the urgent need to build “future-proof” architectures.</p>\n<p>Brandon Millman, an <a href=https://www.ycombinator.com/"http://0xproject.com/">engineer at 0x</a>, described how blockchain immutability affects the way he thinks about security concerns: “Being in this space means being a lot more careful, especially because people’s money is at risk. Part of the benefit of the blockchain paradigm is that if you’re holding onto your private key, it’s hard for people to take money from you, but a lot of scams are getting you to willingly send your money to the wrong place instead of reaching in to steal money from your wallet.”</p>\n<p>Developers, especially those accustomed to the fast pace of the startup world, are forced to consider tradeoffs between speed and security. As Ben Yu of Stream describes, “You have to move extremely fast, because the space is going enormously fast, but you can’t move fast and break things, which is the traditional philosophy for development being done now. If you break things, you lose hundreds of millions of dollars.”</p>\n<p>Building on the blockchain requires a different level of planning. Developers can no longer apply hot-fixes or overnight patches, because they no longer have centralized control over entire systems. Instead, introducing system changes often involves hard forking entire protocols, or in some cases, providing separate sources for protocol parameters that aren’t tied directly into the blockchain.</p>\n<h2>Ethereum’s Limitations</h2>\n<p>Beyond the general challenges of immutability, Ethereum includes several limitations that blockchain developers might encounter. For one, Ethereum is unable to access real time data from outside the blockchain. Developers need to rely on trusted third party data providers, <a href=https://www.ycombinator.com/"http://www.oraclize.it//">called oracles</a>, to provide smart contracts with outside information like weather, random numbers, or currency values.</p>\n<p>Moreover, Ethereum’s specification prevents real-time computations. Processing of block transactions takes upwards of 15 seconds (which is lightning fast compared to Bitcoin’s 10 minutes). As a result, developers need to write asynchronous code with front-end frameworks that can update states accordingly (like React).</p>\n<p>With Ethereum, you are also tied to paying for your transactions by the operation with gas that translates into Ethereum’s ether. As a result, using the current version of Solidity, you could very feasibly find yourself hitting a transaction limit if the computation you intend to perform is too expensive (like verifying checkmate in a <a href=https://www.ycombinator.com/"https://medium.com/@graycoding/lessons-learned-from-making-a-chess-game-for-ethereum-6917c01178b6/">game of chess</a>). As a result, on-chain computations because become costly in terms of money and network bandwidth. There are interesting alternatives like <a href=https://www.ycombinator.com/"https://truebit.io//">Truebit to perform more intensive computation off-chain.</p>\n<h2>Getting Started</h2>\n<p>In general, it can certainly feel overwhelming getting into this space. It’s an interdisciplinary field, spanning domains of economics, game theory, finance, computer science, math, cryptography, and more. However, that also means that there’s a lot of surface area to contribute.</p>\n<p>Brandon of 0x recommends diving into areas where you have some interest or experience instead of trying to learn everything at once: “If you’ve done JS development beforehand, there are a lot of JS libraries that you can contribute to. While you will definitely need to know [how everything fits together] eventually, you don’t need to feel like you need to take an entire course initially.”</p>\n<p>In the spirit of decentralization, most of the code for projects on the blockchain are also available through open-source. There are a number of good resources to get your hands dirty:</p>\n<ul>\n<li>The <a href=https://www.ycombinator.com/"http://solidity.readthedocs.io/en/latest//">official Solidity docs</a> are a good place to start. </li>\n<li>The <a href=https://www.ycombinator.com/"http://truffleframework.com//">Truffle Framework</a> is one of the best solidity frameworks. </li>\n<li>See how tokens and token sales are developed in the <a href=https://www.ycombinator.com/"https://github.com/OpenZeppelin/zeppelin-solidity/">zeppelinOS repo</a>, one of the most trusted libraries to build dApps. </li>\n<li>Blockgeeks also provides an in-depth <a href=https://www.ycombinator.com/"https://blockgeeks.com/guides/ethereum-token//">Ethereum token guide</a> with code samples and high-level concepts. </li>\n<li>You can even learn from Crypto Kitties and <a href=https://www.ycombinator.com/"https://medium.com/loom-network/how-to-code-your-own-cryptokitties-style-game-on-ethereum-7c8ac86a4eb3/">create your own digital game on the blockchain</a>. </li>\n</ul>\n<p>In addition, the developer communities are remarkably receptive and helpful. Check out:</p>\n<ul>\n<li><a href=https://www.ycombinator.com/"https://www.reddit.com/r/ethereum//">/r/ethereum </li>\n<li><a href=https://www.ycombinator.com/"https://www.reddit.com/r/ethdev//">/r/ethdev </li>\n<li><a href=https://www.ycombinator.com/"https://blockgeeks.com//">https://blockgeeks.com//n/nIf you learn primarily by coding up your own projects, here are some ideas to get started:</p>\n<ul>\n<li>Build your own wallet. It can be a be a web, mobile app or desktop app. </li>\n<li>Create your own ERC-20 token and deploy it on the test net. </li>\n<li>Modify crypto kitties (dogs, tanks, zombies…) and deploy it on the test net.</li>\n</ul>\n<h2>Looking Forward</h2>\n<p>In its current state, yes, blockchain development is messy. No, there aren’t clean frameworks and tools analogous to those that exist for modern web development. But why not see the blockchain’s nascent state as an opportunity to impact a paradigm-shifting technology?</p>\n<p>On the blockchain, you don’t need to deploy any centralized servers, which means that there’s no single point of failure. If your whole stack is decentralized, there is no trusted third party involved making it censorship resistant, and your database is publicly verifiable. As the new paradigm offers opportunity to publicly share data, we observe a supreme advantage to decentralizing databases. This is the future we’re building towards on the Blockchain— where information and power are distributed systematically by cutting out the middleman.</p>\n<p><a href=https://www.ycombinator.com/"https://news.ycombinator.com/item?id=16107597\%22>Comment on Hacker News</a>.</p>\n<hr />\n<p><em>Thanks to Ben Yu (Stream) and Brandon Millman (0x) for lending their time to be interviewed, and thanks to Niharika Bedekar, Craig Cannon, Claire Shu for reading drafts of this post.</em></p>\n<!--kg-card-end: html-->","comment_id":"1101697","feature_image":null,"featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2018-01-09T03:28:17.000-08:00","updated_at":"2022-02-03T16:40:50.000-08:00","published_at":"2018-01-09T03:28:17.000-08:00","custom_excerpt":"If you’re here, we assume that you’re a developer/hacker who’s intrigued by the blockchain. You’re convinced that you understand how it works and now you’re itching to figure out what the blockchain means for you and your developer skill set.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710cf","name":"Vincent Chen","slug":"vincent-chen","profile_image":"/blog/content/images/2022/02/vincent-chen.jpg","cover_image":null,"bio":"Vincent Chen is a student at Stanford University studying Computer Science. He is also a Research Assistant at the Stanford AI Lab.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/vincent-chen/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a7118d","name":"Paths","slug":"paths","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/paths/"}],"primary_author":{"id":"61fe29e3c7139e0001a710cf","name":"Vincent Chen","slug":"vincent-chen","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/vincent-chen.jpg","cover_image":null,"bio":"Vincent Chen is a student at Stanford University studying Computer Science. He is also a Research Assistant at the Stanford AI Lab.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/vincent-chen/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/building-for-the-blockchain/","excerpt":"If you’re here, we assume that you’re a developer/hacker who’s intrigued by the blockchain. You’re convinced that you understand how it works and now you’re itching to figure out what the blockchain means for you and your developer skill set.","reading_time":8,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a719ae","uuid":"77d497e2-a40b-445d-90f6-bbcc35a101b3","title":"Blockchain Investing with Olaf Carlson-Wee and Aaron Harris","slug":"blockchain-investing-with-olaf-carlson-wee-and-aaron-harris","html":"<!--kg-card-begin: html--><p>Olaf Carlson-Wee is the founder and CEO of <a href=https://www.ycombinator.com/"http://polychain.capital//">Polychain Capital</a>, a blockchain investing hedge fund.</p>\n<p><a href=https://www.ycombinator.com/"http://twitter.com/harris/">Aaron Harris</a> is a Partner at YC.</p>\n<hr />\n<div id=\"backtracks-player\" data-bt-embed=\"https://player.backtracks.fm/ycombinator/ycombinator/m/19-blockchain-investing-olaf-carlson-wee-and-aaron-harris\" data-bt-theme=\"orange\" data-bt-show-art-cover=\"true\" data-bt-show-comments=\"true\">\n</div>\n<p><script>(function(p,l,a,y,e,r,s){if(p[y]) return;if(p[e]) return p[e]();s=l.createElement(a);l.head.appendChild((s.async=p[y]=true,s.src=r,s))}(window,document,\"script\",\"__btL\",\"__btR\",\"https://player.backtracks.fm/embedder.js\"))</script></p>\n<p><script>\n(function(p,l,a,y,e,r,s){if(p[y]) return;\nif(p[e]) return p[e]();s=l.createElement(a);\nl.head.appendChild((s.async=p[y]=true,s.src=r,s))\n}(window,document,'script','__btL','__btR',\n'https://player.backtracks.fm/embedder.js'))\n</script></p>\n<p><script>\n!function(n,i,s,c){n[s]||(n[s]=function(i){n[s].q.push(i)}),n[s].q||(n[s].q=[]),\nc=i.createElement(\"script\"),\nc.async=1,\nc.src=\"https://c.bktrks.com/utils-1.0.0.all.min.js\",\ni.head.appendChild(c)}(window,document,\"BTUtils\");\nBTUtils(function(use) {\n var options = {\n autoplayLinks: false\n };\n use('backtracks-autolink', options).init();\n});\n</script></p>\n<hr />\n<h1>Subscribe</h1>\n<p><a href=https://www.ycombinator.com/"https://itunes.apple.com/us/podcast/y-combinator/id1236907421/">iTunes
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Bitcoin has already undergone several forks. A fork defines a moment in time when a specific digital currency gets split into two different currencies. A couple months ago, a Bitcoin fork created Bitcoin Cash1 (BCH). Another fork just created Bitcoin Gold last week. Segwit 2x2 will follow next month3.
At the instant the fork happens, every holder of the first currency also gets the second one in an equal amount. For the casual observer, these forks can be seen as a mere exploit to create money from thin air—a crypto “philosopher’s stone”. However, with proper attention, this process reveals one of the best adaptive mechanisms invented in the digital age. Forks clone the original DNA, i.e programming code, of the currency and then modify it to adapt it better to the demands of the market/community.
Suddenly, many alternative paths can be explored, experienced and measured while preserving the core ownership, idea or belief that originated them.
Why fork?
Cryptocurrencies provide higher liquidity and flexibility to innovators. These incentives are driving an unprecedented rate of innovation and growth in the ecosystem.
Forks, in short, are an evolutionary mechanism for digital networks which allows them to try out many different futures at the same time. What if Facebook could create and explore hugely different versions that shared past data and operated entirely independently from each other? This type of experimentation is A/B testing on steroids4.
This evolution can happen at different times during the cryptocurrency’s life span. Many now famous cryptocurrencies like Litecoin, Dash or Zcash, started as a Bitcoin implementation. Unlike other forks, these cryptocurrencies didn’t preserve any existing data. They started from scratch, from what is called the genesis block of Bitcoin. Each one of them is exploring different futures from the beginning. Litecoin aims to provide faster confirmation after every transaction while ZCash and Dash are focusing on increasing privacy and anonymity.
This evolutionary mechanism can also be utilized later to move forward when there is no unanimous consensus. The ones that happened inside the Bitcoin community are a perfect example. Firstly, there was an enormous clash between people who wanted to scale with bigger blocks (Bitcoin Cash) vs segregated witness (Bitcoin Core). Now, the side that doubled capacity via segwit is arguing about using 1MB vs 2MB base blocks. These forks, unlike the ones mentioned before, split at a much later point in time, preserving all the transaction history (and balance) up to that moment.
Natural Selection
Forks are a digital process for evolution. Just like in genetic programming, in every generation you choose the most adapted organisms and you merge them, combining the code of the most promising ones to create new individuals that will be the starting point of the future generation. The most successful ones, in this case the most supported and accepted, will survive while minority chains will eventually become extinct. This plays out in practice through miner support. Miners provide their computing power (hash rate) to secure the network. Miners choose to support the best/most profitable chain.
So far, this has not been a zero-sum game–the value of the two new forks combined is higher than the original one. At the time of the fork between Bitcoin Segwit (BTC) and Bitcoin Cash (BCH), BTC was valued around $2800. After the fork, BTC didn’t decrease in value while the newly minted BCH reached values up to $900. It still has non trivial support and now it trades around $300. Value of these coins can be compared directly by their price because their coin supply is almost identical.
Some animal species are more resilient if they split up in groups of enough organisms but they become vulnerable if spread too thin or isolated. Decentralized cryptocurrencies exhibit similar behaviors.
There is such a thing as too many forks.
An extreme division would naturally collapse the value of all the resulting networks. Cryptocurrencies depend on participants (miners) verifying transactions to ensure security. If the number of participants decreases drastically, all the minor chains would be vulnerable to attacks and hence, worthless. For example, if after several Bitcoin forks, 10 different chains exist with 10% of the hash rate each, every single one would be extremely vulnerable to 51% attacks5. Brand dilution and loss of consumer trust are other perils that we may explore and test in the following posts.
Offspring & Resilience
Another way cryptocurrencies evolve is by the generation of digital tokens via Initial Coin Offerings (ICOs). These tokens can be seen as the offspring or children of the crypto platform. For example, assets built on top of Ethereum, like Golem, Augur or OMG are part of Ethereum’s ERC20 family. These ICOs choose the best platform for their interests based on support, quickest path to fiat and network transaction output. They are a source of necessary chaos. They test the resilience of the network and push the boundaries of what these networks offer and can handle6.
New cryptocurrencies test out new evolutionary paths as different species do. Then forks evolve some of these species and miners/community support will naturally select the most promising. These two mechanisms get compounded with the ‘breeding’ of these crypto assets or tokens. The resulting rate of evolution is astounding, and the possibilities to explore are vast.
Many of these individual organisms will perish, but the species as a whole would prosper and evolve from it. Species then become antifragile. Cryptocurrencies are no different.
Gaining from disorder
“Recall that the fragile wants tranquility, the antifragile grows from disorder, and the robust doesn’t care too much.”7 Bitcoin (and Ethereum) so far have proven to be anti-fragile. Facing significant battles within their communities, forks provided a way to move forward in difficult times and increase the value of the overall crypto market. It’s also interesting to note how the price of BTC climbed up in anticipation of some of these forks despite the chaos.
Bitcoin has been declared dead countless times8. Mt. Gox collapse, regulation doom, ETF denials or community struggles seemed to mark the end of the currency. It never did die.
In his latest essay, Nassim defends the thesis that volatility and stress both signal stability9. These shocks contribute directly to progress, causing them to experience posttraumatic growth. Like a hydra, Bitcoin came back every time, reaching new price highs under great volatility (although the volatility has been decreasing over the years).
Segwit 2X and Bitcoin Cash happened because of the differences in the community. Both can objectively be considered better alternatives to the previous state of the chain. Many of these individual organisms or currencies are fragile, but Bitcoin chain as a whole gets stronger. The same thing is happening with other major crypto chains like Ethereum. Life always finds a way.
“It is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.”
Charles Darwin & Leon C. Megginson
Thanks to Kat Manalac, Craig Cannon, Yuri Sagalov, Raul San, and Alex Shelkovnikov for reading drafts of this post.
Notes
1. Bitcoin Cash: https://en.wikipedia.org/wiki/Bitcoin_Cash↩
2. Segwit 2x Announcement: https://segwit2x.github.io/segwit2x-announce.html↩
3. List of Bitcoin Forks: https://en.wikipedia.org/wiki/List_of_bitcoin_forks↩
4. Podcast A16z: https://a16z.com/2017/09/28/cryptocurrencies-networks-tokens/↩
5. 51% Attacks: https://en.bitcoin.it/wiki/Majority_attack↩
6. Ethereum Network DDOs by ICOs: https://motherboard.vice.com/en_us/article/newk7m/the-ethereum-network-is-ddos-ing-itself↩
7. Extract from Antifragile by Nassim Taleb: https://www.amazon.com/Antifragile-Things-That-Disorder-Incerto/dp/0812979680↩
8. List of Obituaries: https://99bitcoins.com/bitcoinobituaries/page/9/↩
9. The Calm Before the Storm: https://www.foreignaffairs.com/articles/africa/calm-storm↩
