A Change of Circumstance

Due to a change of circumstance, Parallel Industries will enter an indeterminate period of dormancy. Pre-existing commitments are to be honoured but it will not be possible to accept new engagements. Thankyou for your understanding and support of Parallel Industries over the years.

Further information is available here regarding Wassim’s new role.

What the ForkGov! Does staying together tear you apart even more?

Fork-governance of cryptocurrencies and decentralised networks examined

[Note: This text written in January 2019 follows on from “Towards an Analytical Discipline of Forkonomy” and “Forkonomy Revisited” and was first included in the Decentralised Thriving Anthology]

First, some definitions.


In open source software, project codebase forks are commonplace and occur when existing software development paths diverge, creating separate and distinct pieces of software. Torvalds’ original Linux kernel from 1991 has been forked into countless descendant projects. In the case of blockchain-based cryptocurrency networks implementing ledgers, there exists the prospect of both codebase and ledger forks. A cryptocurrency codebaseforkcreates an independent project to be launched with a new genesis block which may share consensus rules but with an entirely different transaction history than its progenitor — e.g. BTC and LTC. A ledger fork creates a separate incompatible network, sharing its history with the progenitor network until the divergent event, commonly referred to as a chain split — e.g. BTC and BCH.

Consensus rule changes or alteration of the network transaction history may be the cause of such a fracture, deliberate or unplanned. Often when networks upgrade software, consensus rules or implement new features a portion of the network participants may be left behind on a vestigial timeline that lacks developer, community, wallet or exchange support. In the summer of 2018 a fifth of nodes running Bitcoin Cash (BCH) — a minority ledger fork of BTC with significantly relaxed block size limitations — were separated from the BCH network and a non-trivial number of would-be nodes remained disconnected from the BCH network weeks later.

Governance: Decision making process between multiple parties.

Blockchain governance: Decision-making process by mutually distrusting entities in a multi-party distributed system.

On/off-chain governance (aka governance by / of the network): Decisions are made either explicitly through the network’s ledger and UTXOs/balances possessed therein, or via some other (in)formal mechanism such as rough or social consensus.

Read these articles collated by CleanApp for a detailed discussion of key considerations in formally governed blockchain networks.

Immutability: An attribute primarily observed at the protocol layer in the decentralised networking stack — upon which the monetary layer depends for persistence — ensuring the inability of stakeholders or adversaries to alter the transaction record and thereby balances. With this in mind, the oft-quoted concept of ‘code is law’ which refers to immutability in cryptocurrency networks, typically referring more to preserving the intended use and function of a system and its ledger rather than a blind adherence to a software implementation regardless of flaws or vulnerabilities.

By Kevin Durkin for In The Mesh. Source: https://inthemesh.com/archive/reaching-everyone-pt-ii/

What Maketh a Fork?

The distinction between what constitutes a vestigial network and a viable breakaway faction is unclear and difficult to objectively parameterise. There is a significant element of adversarial strategy, political gamesmanship and public signalling of (real or synthetic) intent and support via social media platforms. The notions of critical mass and stakeholder buy-in are ostensibly at play since ecosystem fragmentations would be characterised as strongly negative sum through the invocation of Metcalfe’s Law as regards network effects and hence value proposition. Any blockchain secured thermodynamically by Proof-of-Work (PoW) is susceptible to attack vectors such as so-called 51 % or majority attacks, leading to re-orgs (chain re-organisations) as multiple candidates satisfying chain selection rules emerge. These can result in the potential for double-spending the same funds more than once against entities such as exchanges who do not require sufficient confirmations for transaction finality to be reliable in an adversarial context. Should a network fragment into multiple disconnected populations, adversaries with control of much less significant computational resource would be in reach of majority hashrate either using permanent or rented computation from sources such as Nicehash or Amazon EC3.

A striking example of this was the divergence of the Ethereum developer and leadership cadre (ETH) from the canonical account-oriented Ethereum blockchain (ETC) due to the exploitation of a flawed smart contract project resembling a quasi-securitised decentralised investment fund known as The DAO (Decentralised Autonomous Organisation). In this case the Ethereum insiders decided to sacrifice immutability and by extension censorship-resistance in order to conduct an effective bailout of DAO participants which came to exercise Too-Big-To-Fail influence over the overall Ethereum network, insider asset holdings, token supply and mindshare. A social media consultation process in conjunction with on-chain voting was employed to arrive at this conclusion though both methods are known to be flawed and gameable. During the irregular state transition process akin to a rollback, a co-ordinated effort between miners, exchanges and developers took place on private channels, exposing the degree of centralisation inherent in the power structures of constituent network participants.

The key event which transformed the canonical Ethereum blockchain (where the DAO attacker kept their spoils) from a vestigial wiped out chain to a viable if contentious minority fork was the decision by Bitsquare and Poloniex exchanges to list the attacker’s timeline as Ethereum Classic (ETC) alongside high-profile mining participants such as Chandler Guo, well resourced financial organisations such as Grayscale Invest (a subsidiary of Digital Currency Group) and former development team members such as Charles Hoskinson to publically declare and deploy support, developers and significant hashrate to defend the original Ethereum network. ETC now exists as an independent and sovereign network with diverging priorities, characteristics and goals to the larger Ethereum network ETH.

Forks and network governance: the case of Bitcoin and SegWit (excerpt from Forkonomy paper)

For a range of reasons, there is often strident resistance to hard forks — irreversible protocol upgrades or relaxing of the existing consensus ruleset — in “ungoverned” trust-minimised cryptocurrency networks such as BTC. The lack of controlling entities may lead to a chain split and lasting network partition if the delicate balance of stakeholder incentives fails in the presence of a divergent event. The implementation of SegWit (Segregated Witness) by the BTC network was eventually achieved in 2017 as a backward-compatible soft fork following several years of intense political and strategic maneuvering by the constituent stakeholders in the BTC network. This off-chain governance process of emergent consensus requiring supermajority or unanimity measured by miner signalling has proven to be an inefficient and gameable mechanism for administering the BTC network. Certain stakeholder constituencies such as the developers maintaining the reference Bitcoin Core software client implementation of BTC could not easily reach agreement with mining oligopolists and so-called big block advocates over the optimum technological trajectory for the BTC network.

Major stakeholders of the mining constituency strongly opposed SegWit as it would render a previously clandestine proprietary efficiency advantage known as covert ASICBoost ineffective on the canonical BTC chain. A grassroots BTC community movement campaigning for a User Activated Soft Fork (UASF) for SegWit implementation and a face-saving Bitcoin Improvement Proposal (BIP91) facilitated the eventual lock-in of the SegWit upgrade in the summer of 2017. A contentious network partition took place in August 2017, giving rise to the Bitcoin Cash (BCH) network which rejected SegWit and opted instead for linear on-chain scaling. By changing the block size and loosening the consensus ruleset without overwhelming agreement from all constituencies of the BTC network, it is difficult to find a basis for BCH proponents’ claims to be the canonical Bitcoin blockchain without invoking appeals to emotion, authority or other logical fallacies. The continuing presence of Craig S. Wright and his claims to be a progenitor of Bitcoin are an example of these attempts at legitimacy.

What the #forkgov? Fork-resistance and governance

Given the significant downside potential of real and perceived threats to the resilience and legitimacy of a fragmenting network and loss of associated network effects, the ability of a blockchain-based protocol network to demonstrate fork resistance provides significant strength to its value proposition and two notable examples of networks attempting to utilise such a mechanism are Tezos and Decred. Decred is an example of a hybrid PoW/PoS monetary network which is implementing a proposal and governance mechanism termed Politeia. Since coin-holders have voting rights based on stake weight, they have the ability to keep miners and developer constituencies honest through the mechanism to reach decisions by majority stakeholder consensus on matters including hard forks. These lessons were ostensibly learned through the developer team’s experiences in writing a BTC client which they felt was not appraised objectively by the Bitcoin Core developer ecosystem. Decred’s fork resistance is effectively achieved by the fact that most stakeholders would be non-voting on a minority chain, it would remain stalled as blocks would not be created or propagated across the upstart network.

Taking a high-level perspective, let’s address the most general question: are these two notions meaningfully compatible? If we think of any natural process in the Universe — from the celestial to the tribal — as accretions and communities grow in size and complexity, scalability challenges increase markedly. Minimising accidental chain splits during protocol upgrades is a worthy goal. However, denying a mechanism to allow factions a graceful and orderly exit has upsides in preserving the moat of network effect but at the cost of internal dissonance, which may grow over time and lead to second-order shenanigans. Sound familiar?

One can look at ledger forks in a few different ways as good, bad or neutral:

[Good] A/B/…/Z testing of different technical, economic or philosophical approaches aka “Let the market decide, fork freedom baby!”

[Bad] Deleterious to network effects of nascent currency protocols with respect to Metcalfe or (IMO much more relevant) transactome-informed network capital theory as discussed by Gogerty.

[Neutral] An inevitability of entropy and/or finite social scalability as these networks grow and mature it is not realistic to keep all stakeholders sufficiently aligned for optimal network health.

As such, protocol layer fork resistance and effective public fora with voting mechanisms can certainly be helpful tools, but there is a question as to whether democracy (the tyranny of the majority) should be exercised in all cases. If there was a “block size” style civil war in Tezos or Decred with no acceptable compromise in sight, would the status quo still be the best situation in all cases?

My perspective is that fork-resistance will largely redistribute the manifestations of discontent rather than provide a lasting cure to ills, and the native network governance mechanisms may be gamed by either incumbents or ousters. More time is needed to see how decision-making regarding technical evolution unfolds in both networks. Decred seems to be sitting pretty with a fairly attack-resilient hybrid PoW/PoS system, but there are some “exclusionary forces” in the network leading to the escalating DCR-denominated costs of staking tickets necessary to receive PoS rewards and participate in proposal voting, denying access to the mechanism to smaller holders.

Demand for tickets and staking rewards naturally increases with ongoing issuance, as the widening pool of coin holders wanting to mitigate dilution also does. As the ticket price is dynamic and demand-responsive, it creates upwards pressure which would make tickets inaccessible for a growing proportion of coin holders. At time of writing, “ticket splitting” allowing smaller holders to engage in PoS is available from some stake pools and self-organised collectives but the process is not yet automated in reference clients. On the other hand, the ongoing bear market has seen the USD ticket price fall from ~$8–10k USD at January and May 2018 peaks to ~$2k USD today in late January 2019 so those entering Decred with capital from outside the cryptocurrency domain would likely be undeterred. Data from dcrdata.org and coincap.io.

50 day moving average of DCR staking ticket prices. Source: https://explorer.dcrdata.org/charts#ticket-price

Further, as per Parallel Industries’ TokenSpace taxonomy research, staking rewards resemble dividends and token-based governance privileges resemble shareholder rights which make Decred appear a little closer to the traditional definition of a capital asset than pure PoW systems. This may or may not be an issue depending how regulation unfolds. Tezos has those potential issues plus the regulatory risk from the token sale. Decred’s airdrop may not have distributed the coin as fairly as possible but will undoubtedly attract a lower compliance burden than a token sale or premine.

“Activist Forks” & “Unfounder Forks”

Can you appreciate the technology utility but dislike the economic, human and compliance issues packaged together with a project?

Taking this a step further, these dissonant groups may conduct a guerilla campaign inside a network to focus attention on their cause. Last summer, a few anti-KYC factions of Tezos had appeared on social media outlets prior to network launch, however since the mainnet launch things have quietened down somewhat. One faction which still apparently intends to create a fork of Tezos changed tact and became a delegated staker within the network whilst continuing to voice dissent — perhaps this “fork activism” can be interpreted as a response to the “fork-resistance” of Tezos.

So, what else could a fork activist do? Take a look around at the ongoing ICO bonfire of the vanities which is largely due to poorly thought out sales of high-friction futility tokens infringing upon / attempting to circumvent various regulations around the world. The prospect of removing the token issuers and the tokens themselves once treasuries are liquidated (by themselves, or by lawmakers) and development ceases is quite attractive indeed — will we see a wave of “unfounder forks” as in this example? Perhaps operating in reverse to Simon de la Rouviere’s “Tokenised Forking” where both tokens and founders are excised.