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.

Forks:

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.

Ethereum Classic: The Ungoverned Blockchain?

How does anything get done if there are no leaders? Why hasn’t ETC died by being abandoned by the Ethereum Foundation after TheDAO hard fork? The ecosystem of participants and stakeholders working in and around the ETC network is examined in outline below.


So, where and how does ETC “governance” happen?

Making changes to Ethereum Classic consensus rules is “ungoverned” in a similar way to Bitcoin and Ethereum with little appetite for large numbers of consensus-breaking upgrades. Currently it is an ad hoc process where ECIP proposals are raised on Github, discussed in public/semi-public fora and should they be widely supported without contention locked-in to the nominally canonical “Classic-Geth” client with the other clients (Parity Labs’ eponymous software and IOHK’s Mantis) merging in response. In the case of a contentious proposed upgrade some arbitrary signalling criteria could potentially be set (i.e. % of miners upgrade/signal, on-chain carbon vote as used by ETH to justify DAO hard fork) though this has not occurred in ETC since the events which led to the creation of the network.

Source: https://medium.com/@TokenHash/the-star-improvement-proposal-standard-for-ethereum-classics-ecip-process-df20453de8e6
On-chain “Carbon Vote” for TheDAO fork on Ethereum. Source: https://elaineou.com/2016/07/18/stick-a-fork-in-ethereum/

As with other networks based on the original Ethereum design, some parameters such as adjustments to the gas limit per block — restricting the amount of EVM computation in a similar way to block size / weight in Bitcoin-derived networks — can be enacted in small increments on a per block basis via miner signalling. There is currently some discussion to motivate a decrease in the gas limit per block in order to avoid the chain growth rate issues which make running ETH full nodes a challenge in terms of burdensome resouce requirements. The likely aggregation of ETC hashrate among a small number of big mining farms, cooperatives and pools presents issues with reliance on miner signalling, as recently evidenced in Bitcoin when the merge-mined EVM Rootstock sidechains went live with 80% of network hashrate signalling. The naive downstream adoption of “default” Ethereum settings such as ETH’s 8 million gas limit per block is also a potential issue for ETC’s ungovernance to navigate.

ETC Gas Limit versus Block Height. Source: http://etcsummit.pllel.com

Two hard fork network upgrades have taken place in the ETC network — ECIP-1010 to remove the “difficulty bomb” and ECIP-1017 to institute a supply cap with asymptotic supply curve.

The decision-making process could be better organised, more transparent and clearly defined and refinements to the ECIP process are currently being discussed. At present most informal community discussion takes place on ETC’s Discord server, with ECIPs themselves posted on the nominated Github account (ethereumclassic) following a power struggle and takeover of the previous canonical Github account (ethereumproject), ostensibly related to the situation with ETCLabs discussed below. ETCLabs appear to be preparing to implement their own proposed parallel “ECLIP” improvement proposal scheme though this may be a mis-communication rather than a “consensus hostage situation” — situation is unclear at time of writing. Below are a few links to recent discussions and proposals relating to how Ethereum Classic reaches decisions relating to network upgrades and changes.

Ethereum Classic (ETC): Putting Together the New Decentralized ECIP Process

Ethereum Classic Improvement Proposals

ethereumclassic/ECIPs

Some stakeholders in ETC want to see closer collaboration with ETH, some are ambivalent and others are opposed. The recent announcement of Bob Summerwill as ETC Cooperative Executive Director is noteworthy as he was instrumental in founding the Enterprise ETH Alliance, was involved in the Ethereum Foundation, was a senior figure at Consensys. There are some existing collaborative projects between ETH and ETC, including Akomba Labs’ “Peace Bridge” to allow cross-chain transactions, Kotti unified PoA testnet and some recent discussions regarding ETC considering the adoption of aspects of the Ethereum 2.0 roadmap.

The last few months have seen a change in the composition of the ecosystem around Ethereum Classic, as a the previously pre-eminent privately funded core development team “ETCdev” collapsed due to lack of funds with another entity “ETCLabs” forming a new developer team “ETCLabs Core” with significant overlap of personnel. Some community members have described the sequence of events as a corporate takeover attempt, others do not seem so worried.

“The ETC community is still small and, in this bear market, lacks funding from volunteer investors or other sources to initiate new core maintenance and development projects or pay new core developers quickly. This is because there are no leaders, foundations, pre-mines, treasuries, protocol taxation or any other financing gimmicks that so much contaminate other centralized projects.”


ETC History and Network Characteristics

The Ethereum blockchain launched on 30th July 2015. When the Ethereum Foundation conducted a hard fork as part of TheDAO’s exploit recovery (“irregular state transition”) on July 20th 2016, they kept the name and ticker symbol Ethereum / ETH. The canonical chain branch in which TheDAO exploiter kept their spoils survived against most observers expectations and attracted community, developer, exchange and mining support. The unforked chain came to be known as Ethereum Classic (ETC).

Ethereum Classic (ETC) is pure Proof of Work utilising the Ethash (Dagger Hashimoto) algorithm. It is the second largest network using this algorithm, marshalling approximately 15–25x times less hashrate than Ethereum (ETH). Due to its situation as a minority PoW network without 51% attack mitigations at the protocol or node levels it has been deemed to be vulnerable to thermodynamic attacks and this has been observed recently. Mining is permissionless so the identities and extent of participation of block producers are not necessarily known. Some network and blockchain analysis of the ETC mining ecosystem is being undertaken currently. There is a high degree of suspicion that covert FPGA and/or ASIC mining was employed leading to the recent majority attacks. Most of the hashrate employed in the recent attacks is suspected to be of exogenous origin to the existing Ethash ecosystem and marketplaces such as Nicehash.

Ethereum’s whitepaper was first circulated in late 2013 and there was a “token crowdfunding” (= ICO) in 2014. Approx 72 million of the 105 million supply issued were distributed in the ICO. Mining providing block and uncle rewards has distributed the remainder. Work is ongoing currently to compare the movement of balances either side of the ETC/ETH fork. Inflation was set to “5M20”, reducing mining rewards by 20% every 5 million blocks which corresponds to approximately 5% annual supply increase. The same hard fork in 2017 (ECIP-1017) also installed a fixed supply cap.

Ethereum “became” Ethereum Classic because the Ethereum Foundation asserted intellectual property rights over the “Ethereum” name despite branching away from the canonical chain. This is still a point of contention and some prefer the name “ETC” as a subset of stakeholders look for alternative nomenclature to “Classic”.


How are Development and Ecosystem Activities Funded in ETC?

What is the reference node implementation?
This is also a bone of contention in ETC. When ETCdev ceased operation, the hitherto canonical client Classic-Geth written in Golang stopped being reliably maintained. ETCLabs Core maintains Multi-Geth but not all stakeholders in the ETC ecosystem are currently comfortable using their software given their ostensible desire to have an independent ECLIP improvement proposal pathway which appears more hard-fork than soft-fork oriented.

Are there any other full node implementations?
Parity Labs maintains their Parity client written in Rust.

IOHK maintains their Mantis client written in Scala.

How is client development funded?
Development is funded by private organisations — ETCLabs, Parity and IOHK fund client development following the demise of ETCdev. ETC Cooperative (partly funded by DCG/Grayscale and DFG) also support protocol development.

There has been resistance to adopt an on-chain treasury as proposed by IOHK, some stakeholders see this as inherently centralising but given the collapse of ETCdev due to funding shortfalls and absence of alternative funding models / “build it and they will come” the status quo is at risk of prolonging a continuing tragic commons scenario. There are some grants and funding opportunities via ETCLabs but at present are focused on business/startup incubation.

Most funds are controlled by companies but ETC Cooperative is now a 501(c)(3) non profit based in the USA. There is also a small community fund controlled by a multi-signature wallet but there are no current plans to disburse this.

What other software does the entity(ies) which funds the reference node produce?
Hard to answer conclusively since there is a lack of agreement over what the reference implementation currently is.

Parity — Rust ETH client, Polkadot/Substrate, Bitcoin client, Zcash client.

ETCdev — defunct, Emerald application development framework and tools, Orbita sidechains.

ETC Cooperative — developer tooling and infrastructure e.g. recent Google BigQuery integration.

IOHK — a lot of software for Cardano, ZenCash, ETC.

ETCLabs — ?

What else do the entities which develop or fund the reference node do? (not software)

Parity — Web3 Foundation

ETCLabs — VC/Startup incubator

ETC Coop — General PR, community and ecosystem development, conference organisation, enterprise & developer relations

IOHK — PR, summits, art projects (Symphony of Blockchains), academic collaborations, VC partnership and research fellowships with dLab / SoSV / Emurgo….

DCG/Grayscale/CoinDesk — PR, financial instruments e.g. ETC Trust, OTC trading…


How is work other than development (e.g. marketing) funded?
It in unclear how funding and support for non-development activities is apportioned.

DCG/Grayscale and DFG fund ETC Cooperative

DFG funds ETC Labs


Related projects — Are there any significant projects which are related? For example, is this a fork of another project? Have other projects forked this one?
Ethereum (ETH) was a ledger fork of this project, Callisto (CLO) was a ledger fork of this project. There may have been more minor codebase or ledger forks.


Significant Entities and Ecosystem Stakeholders

ETCLabs is a for-profit company with VC/Startup and core development activities funded by DFG, DCG, IOHK and Foxconn.

ETC Cooperative is a 501(c)(3) non profit based in the USA funded by DCG and DFG.

ETCdev (defunct)

IOHK (Input Output Hong Kong) is the company led by Charles Hoskinson who previously worked on BitShares, Ethereum and now Cardano.

DCG (Digital Currency Group) is Barry Silbert’s concern which contains in its orbit Grayscale Investments, CoinDesk, Genesis OTC Trading amongst other organisations.

DFG (Digital Finance Group) is Chinese diversified group concerned with investments in the blockchain and cryptocurrency industry, OTC Trading, Venture Funds.


Wassim Alsindi directs research at independent laboratory Parallel Industries, analysing cryptocurrency networks from data-driven and human perspectives. Find him at www.pllel.com and @parallelind on Twitter.

Wassim on “Let’s Talk ETC” Podcast (Autumn 2018)

Recently re-uploaded to our YouTube Channel is a conversation Wassim had with Prof. Christian Seberino of Let’s Talk ETC podcast, following his appearance at the 2018 Ethereum Classic Summit. Among the topics covered were Wassim’s background, Forkonomy as an analytical lens to understand possible futures of blockchain-archtected networks and the Reaching Everyone initative to widen access to cryptocurrencies with particular emphasis on the economically and politically disadvantaged.

Forkonomy Revisited: Where Are They Now?

51% of a year has passed, let’s check back in on our plucky and hopeful minority networks.

[Note: This is a follow-up commentary after the original Forkonomy paper (now on Hacker Noon) was written and self-published on pllel.com in summer 2018 with last revision 10th August. Figures come from #forkonomy tweets, original manuscript and presentation slides from ETC Summit Forkonomy talk in September 2018.]


Introduction: ELI5 Forkonomy

Forkonomy” was a shower thought and though the idea initially seems awkward and quirky, in retrospect it was simply the concrescence of my previous and current proclivities in the domains of time (small)time (large)lightspace (small)space (large) and cryptocurrency. Thinking about a proof-of-work cryptocurrency network as a thermodynamic system with its own internal synchronicity (target interblock time, deterministic coin supply schedule) in energetic balance ’twixt enthalpy (mining) and entropy (forks, time) is pretty straightforward.

The approach of studying codebases and ledgers fragmenting into incompatible but similar network factions doubtless diffused across from Parallel Industries’ TokenSpacecryptographic asset taxonomy research. Combining these with the astronomical observation of stale light from faraway objects and stellar taxonomic tools such as the Hertzsprung-Russell diagram which use a star’s physical properties to understand probable fates, and there’s the makings of misspent summer weekends seeking further conceptual parallels and predictive tools through the joining of celestial and cryptographic dots in the hope of catching glimpses of possible futures through family resemblance.

Writing the paper and crudely crunching chain data looking for patterns and potential heuristics was a great deal of fun, and in the course of doing so inadvertently put my neck on the line a few times. One might call them forkcasts (groan), making some forkward-looking projections (groan again) as to the likely fates of PoW cryptocurrencies unable to attract the majority of hashrate for their particular hashing algorithm, activist fork campaigns fomenting inside discontented growing networks and potential mitigations thereof. In September 2018 I spoke at the second Ethereum Classic Summit in Seoul about forkonomy with speculation on positive and negative possible futures for ETC in addition to discussion of the BTC/BCH situation and the ongoing BTCP clusterfork (okay enough, sorry) with particular emphasis on susceptibility of minority chains to thermodynamic attacks as the bear market extended. Let’s take a look at our three pairs of sibling stars — BTC/BCH, ETC/ETH, ZCL/BTCP — and see how they’ve been getting on in their thermodynamic tugs of love.


Where Are They Now?

i) BTC/BCH

Since we last met, two have become three! Who would have thought that a raggedy ensemble of protesters bandying together for various reasons might not see eye-to-eye? After another network fragmentation, further division of already slim hashrates and assorted hostilities on either side of the chain split have left prospects for both BSV and BAB (aka the “new BCH”) looking rather dour. There was an expected amount of drama around the fork event as it was planned and contentious, with threats of inter-chain attacks and aggressive market actions. At time of writing, each of BCH’s spawn command ~1 EH/s in comparison to BTC’s 30–50 EH/s long-term range with market pricing BTC $3500, BSV $75 and BAB $125. Data from www.blockchair.com and www.coincap.io.

BCH (grey), BAB (Orange) and BSV (red) network hashrates. Source: cash.coin.dance

Whereas the difference in price and hashrate between BTC and BCH in August 2018 was approximately 10–15:1, the BSV/BAB split and resultant negative sum implications have lengthened this out to 30–40:1 at time of writing in late January 2019. What was then a marginally vulnerable network to 51% attacks is now at serious risk. Regardless of the amount of SHA-256 hash available on distributed marketplaces such as Nicehash and Amazon EC3, it is feasible that a single entity could amass 3% of BTC’s hashrate and perform a solo attackespecially given the amount of shelved / unsold ASIC inventory available at this time.

Fun story: I wrote an even bleaker forecast for BCH’s future in an earlier draft but pared it back after receiving comments that it may be going too far. Ha! Still, some summer ’18 predictions regarding the increasingly uncomfortable situation that the BCH family find themselves in — between chain security and miner bribes — have not yet come to pass (see below tweet) other than checkpointing on BAB. Both networks are exhibiting ever increasing centralisation of network infrastructure, hashrate and human leadership so expect further mandatory “upgrades”. A lot of them, sometimes at very short notice.

As for Bitcoin, the bear market has had an impact on BTC hashrate, ending a parabolic trend that extended much further than the price. Though the price of BTC today is around half of that in the summer (~$7000 versus ~$3500), network hashrates then and now are both in the 30–40 EH/s range. The security model of Bitcoin’s PoW remains largely untested in the ASIC era, with the only obvious network weaknesses being external entities’ political, technical and regulatory actions, miner / foundry oligopolies, cryptographic vulnerabilities and consensus-breaking code errors in implementations such as CVE-2018–17144. Still some time to go before miner subsidy attenuation becomes a pressing concern with respect to fee market development, with everything depending on BTC price to provide the necessary incentives.

The question remains open as to how L2 appendages such as sidechains and off-chain payment channels will affect this by offering alternative transaction pathways which minimise writing to the blockchain and consequentially demand for block space. Side note on the recent launch of Grin — a network based on the novel MimbleWhimble blockchain construction —with a constant, indefinite coin issuance rate (60/min) which may better mitigate against a lack of a transaction fee market in Bitcoin’s subsidy halving regime, by exhibiting a smoothed and steeper initial decline in effective inflation rate.

Monetary Policies of BTC (blue) and Grin (orange) as demonstrated by effective annual supply increase. Source: https://plot.ly/~Bobby_Digital/1/

ii) ETC/ETH

It’s been an eventful few months in the land of Ethereum-based networks. The expected Ethash FPGAs and ASICs have not been spotted in the wild by any great number but their effects may be being felt already. It will be interesting to see if nonce fingerprints will eventually be evident as has been the case for BTC and XMR.

There have been 51% attacks and deep chain reorgs on minority Ethash chains MUSIC, ELLA and PIRL, with exchange double-spending the typical approach for attackers to ROI. PIRL has taken an approach to mitigate these hazards with client-based solutions which would penalise offline nodes for attempting to rejoin the network and broadcast a rapid series of blocks (PIRLguard). UBQ instead changed its hashing algorithm to avoid Nicehash / ASIC susceptibility.

Although a big theme of this work has been looking at the vulnerabilities of minority PoW chains to attack and defensive strategies — and also that this work was presented at the ETC Summit in autumn 2018 — it was a surprise to see Ethereum Classic itself fall prey to these attacks as well. Read the below articles by Phyrooo and Pyskell to put the temporarily disruptive nature of a majority attack into context. However, in these early innings of cryptocurrency, exploits against exchanges provide a strong disincentive for listing minority PoW networks unless precautions are taken with confirmations required for transactions to be considered final. Seeing altcoin exchanges like Cryptopia listing small PoW networks getting constantly exploited (and suspending operations recently) is a universal warning sign, especially for projects with little value proposition other than speculation and trading.

51% attacks aren’t a network failure
In regards to recent events on Ethereum Classic blockchain, I’ve decided to write a bit about 51% attacks since there’s…medium.com

Your Exchange Needs More Confirmations: The BitConf Measure
In cryptocurrency we regularly advise against accepting zero-conf transactions but are entirely happy to accept…medium.com

It remains to be seen what path ETC will take in order to mitigate attacks, the usual gamut of options are being discussed by stakeholders in a rational way — I was present for the post-mortem call and reiterated my opinion that changing mining algorithm in a knee-jerk response is probably sub-optimal to penalising attackers withholding blocks. It appears that the continued delays of ETH’s attempted transition to a sharded, proof-of-stake network — thereby bequeathing the Ethash majority to ETC or another as-yet-unborn timeline — has exacerbated the issue alongside the protracted bear market and abundance of marshallable hashrate.

There is also discussion of ETH adopting an “ASIC-resistant” algorithm (ProgPoW) while waiting upon Casper and prior to the recent failed Constantinople network upgrade a pro-ProgPoW activist fork faction appeared with the ostensible goal of rejecting the EIP-1234 reduction in mining reward from 3 to 2 ETH per block in addition. It seems inevitable that either (or both) ETH-ASIC and ETH-ProgPoW factions would attempt a fork should the network not move in their favour. Additionally, due to the 11th hour cancellation of the Constantinople upgrade, the so-called “difficulty bomb” has now activated on ETH, having been repeatedly delayed by previous hard forks.

In terms of social layer network politics, both ETH and ETC have had issues of differing types. ETH’s diverse stakeholders are pulling in different directions regarding key technological design choices such as state rent and allegations of insider asymmetry / opacity at crucial meetings. ETC may be suffering from a “tragedy of the commons” scenario as hitherto leading core development company ETCDEV shut its doors due to a funding crunch, with accompanied suspicions of power struggles for prized network resources such as the Github repositories and experienced core developers.

Ratios of hashrate and price between ETH and ETC are approximately 20–30:1, similar to BTC/BAB-BSV ratios discussed above but ETC has an additional light at the end of the tunnel — or is it a “friendly ghost” who will remove incentives for miners to stay on ETH? Data from www.blockchair.com and www.coincap.io.

Just going to leave the below few tweets documenting my ETC Summit talk here. We’ll have to wait and see what happens with ETH regarding PoW to observe the effects downstream in the Ethash ecosystem.


iii) ZCL/BTCP

The disconnect between market cap and miner incentives for ledger forks such as BCH/BSV/BAB, BTG and BTCP has been discussed widely in recent months (here for example) but it wasn’t as blindingly obvious last summer. Indeed I received some stern criticism from a reviewer on my claim that market caps for minority ledger forks were heavily inflated in comparison to codebase forks. The below tweet sparked the realisation that all was not well in the land of BTCP.

By combining the UTXO sets of ZCL and BTC, BTCP aimed to leverage the Bitcoin name whilst heavily incentivising ZCL holders and buyers. It worked too, in the final “junk rally” of 2018 ZCL pumped 100x in USD terms before beginning a protracted and decline in price of >99%. ZCL is still bumbling along as a semi-zombified chain, with other spin-off ledger forks and fork-merges attempted. The client software got rather out of date and broken, making it hard to run a node over winter, and indeed to find peers and sync the chain.

With only half a million coins remaining unsupplied from the 21M cap, BTCP finds itself effectively a halving ahead of Bitcoin. With a low token fiat price, miners are not sufficiently incentivised to defend the chain and since there is an abundance of Equihash resource available launching thermodynamic attacks would be trivial. Indeed the hourly cost estimates in the paper had to be continually revised downwards, from >$600/hr initially, to <$50/hr now. As the supply schedule of ZCL, BTCP and BTC are directly comparable (4x factor in block time and subsidy to convert) we can think of BTCP as a time machine taking us forwards to the most pessimistic possible future of any Bitcoin-like network with a halving subsidy and fixed supply limit. This is the timeline in BTTF2 where Biff makes it bigtime.

As expected, attacks were inevitable. ZCL has <5% of the ZEC hashrate and BTCP a further order of magnitude less. With Equihash ASICs on the scene they are sitting ducks. Both tokens are in the $1–1.50 price range, with a ZCL pre-fork ATH around $200. Data from coincap.io and www.coinmetrics.io.

BTCP forkcast: REKT with a high likelihood of upgrades .What’s next for this white dwarf chain? Pretty much every mitigation you can think of has been discussed — Horizen’s chain selection rule update seems to be working for them.

Something else interesting and related! The wizards at CoinMetrics who I had badgered to run BTCP and ZCL nodes last summer, recently uncovered a grand heist with ~2 million coins secretly added to BTCP’s shielded pool at the time of inserting the BTC UTXOs into the ledger. Indeed I had a great deal of problems getting the BTCP client to play nicely, as the few thousand blocks around the time of the operation were enormous and often crashed my workstation when parsing data for analysis. BTCP is the worst of all possible worlds.


iv) Miscellany

Assets atop forked networks

There was a brief note in the paper on security risks of “top heavy” networks, where for example Ethereum can allow for a greater “value” of issued non-native tokens than the base protocol token. Read the great article below by Joe Looney to get a fuller understanding of the various hazards subsumed within this. Let’s think about how non-native assets could be used as bargaining chips by forkers. Offering to honour assets on a ledger fork network may skew hodler’s incentives in ways that are hard to predict.

The Real Cost of Cryptogoods
The “realness” of these tokens is, in many ways, the most important facet to consider as both a token issuer and a…medium.com


#forkgov: Fork-resistance and governance

In the original paper Tezos and Decred were discussed as networks addressing network governance by inhibiting forks in different ways. 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. 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 after 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 price. 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”

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 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 on / 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?”


Conclusions & Future Directions

As with astronomy, there are no conclusions in forkonomy. Only endless observations as entropy drives time along. More work needs to be done analysing blockchain data harvested from nodes, especially on ZCL and BTCP. The quest for candidate network heuristics and tools continues. Studies of Decred’s Politeia proposal & voting system now that it’s operational would be interesting too.

Which is your favourite fork?

Acknowledgements

Thanks to Richard Red for details and resources regarding Decred’s PoS and ticketing mechanism.