Bitcoin Rallying into HardFork

Why is Bitcoin Price Rising into HardFork

Although Bitcoin is currently trading at an all time high, people are trying to understand why this is so.

There is indeed mass acceptance in the promise of Bitcoin and many people seem to want to get involved and purchase some coins before they head for new highs. However, this is quite a dangerous tactic especially when Bitcoin is about to head for a contentious fork in November.

Unlike to Ethereum hardfork, this has not been par for the course. It has been quite adversarial with many people who are wedded to their positions no matter what. You had two competing factions who actively viewed the others as trying to sabotage the network.

In terms of how contentious this split is, there are no previous examples to go by. If there is a split then you will have two competing technologies that try to kill the other chain through a number of methods.

Bitcoin Traders are Irrational

Bitcoin traders seem to be getting into Bitcoin because of the Fork and not in spite of it. They want to be able to hold the coins going into the fork. This is puzzling to some of the core developers who don’t know how people can invest so much money in an upgrade that even the developers themselves don’t know the effects of.

However, what seems to be driving these investors is the view that the previous hardfork in August was a success and resulted in two new coins. These were the original Bitcoin chain and Bitcoin cash. Bitcoin rallied in price and you had another coin that was also valuable.

Bitcoin Price is Rallying

This, to the traders is a great asset. Instead of being worried about the price of the Bitcoin after the fork, they were emboldened by the fact that the price of the combined holdings was worth much more than the single Bitcoin prior to the fork.

Harry Yeh, who is a managing partner at an Investment firm, Binary Financial, says that investors are only looking at the resulting impact of the two coins. Moreover, these are not newbies to the cryptocurrency scene but are well versed in the nature of these protocols.

Different Fork

Although these investors may be making interesting points about the upcoming fork, there are many who claim that these notions of value are misguided. This is because the fork of Bitcoin cash was considerably different from the one that is upcoming.

The Bitcoin cash fork was done so that those who were in favor of it could create a competing cryptocurrency with a 8mb block limit. The SegWit2X hardfork is quite different. It is a contentious split among two groups both of whom want to make their vision the actual Bitcoin.

Yet, this is where the traders are still interested. Although there is a risk that it could be an ugly split, traders are fans of more risk as it can increase their returns. This is what they are looking for prior to the split.

Bitcoin Cash HardFork in August

Yeh claimed that in traditional finance, people hold the view that if your asset splits into two, then they would be worthless. However, in the cryptocurrency world things just don’t work like that. When there is a split it can indeed create value.

He uses the example of the fork in Ethereum last summer where you had Ethereum branch off from the Ethereum classic. They both fell right after the split but seemed to rise after that and have now created a great amount of wealth for their holders.

This thinking of creation of value is the reason that many investors are betting that there could be an increase in value of Bitcoin and hence the reason that they are buying large amounts of it.

Just Bitcoin Optimism

Although there is the view that many investors are buying into the fork, others think that this could just be general optimism in the market about buying Bitcoin. These would just be the new investors who want to be able to join the action.

For example, Arthur Hayes who used to trade at Citigroup and now runs a large digital exchange claimed that there is a general feeling of market optimism as more and more people want to get involved in Bitcoin.

They saw the impact of the Chinese attempt to shutter exchanges and the subsequent recovery as proof of the robustness in Bitcoin. Hence, investors are not too concerned about the hardfork.

Should you Trade the Fork?

What could indeed be profitable going into the fork is trading on the volatility of Bitcoin. When you hold the coins, you will have to deal with the split and managing the two resulting coins. However, when you are trading the coins you can make money on pure movements in the asset.

If you are trading on an exchange like coinbase, you are actually holding the underlying coin into the split. However, when you are trading CFDs and futures on the coins then you can make the most of the volatility.

High Bitcoin Volatility

There are numerous CFD brokers who are regulated and will allow you to trade any amounts of cryptocurrency. IQ option is probably one of your best choices. You can read more about IQ Option in this review.

Once you have an account, you can trade the Bitcoin fork and the volatility. Due to the fact that they also have altcoins, you can trade the Etheruem hardfork this Monday as well.

All eyes on the Miner Support

One of the most important metrics as to whether there will indeed be a hardfork is the amount of miner support for SegWit2X. As more miners stop signaling their support, the likelihood of a fork decreases.

Already, the support has fallen quite a bit this week with some mining pools pulling out. If there is no fork, this could also be positive for Bitcoin as it will mean more certainty and more belief that there is only one real Bitcoin.

Ethereum HardFork

People Believe Ethereum Won’t Split

There is indeed a lot of confidence in the view that the Ethereum blockchain is unlikely to split in the next hardfork on Monday.

For those who may not know, Ethereum is about to update its protocol with a range of changes that could improve the secure, cheaper and faster. These updates are part of the Byzantium hardfork that will happen at block 4,370,000.

Usually, when there is a hardfork, there is usually some concern as this could lead to a chain split. People are generally worried with this as these two competing chains then have different coins which creates confusion.

Nothing to Worry About

Given that the price of Ether seems to be rising and rising, people appear to be unfazed by the upcoming fork. Indeed, it seems as if they don’t think that the fork will lead to a chain split. This seems to also be reiterated by some of the Ethereum developers themselves.

Alex Van, who is one of the Ethereum developers said that he expects nothing to happen. He also brought up all of the previous hardforks where nothing appeared to happen either.

The only time that there was ever a contention in the hardfork occurred because of an emergency fork in the code last year. This was done when the DAO was hacked and a considerable amount of Ether was stolen.

Some of the miners continued mining on the original chain. This created a competing cryptocurrency called Ethereum classic. This still exists today although is worth much less than Ethereum proper.

Why the Optimism?

Some of the many reasons that people are optimistic about this update is because it has been in the works for quite some time and has been planned long in advance. It forms part of the Ethereum Metropolis roadmap that was laid out in 2015 as a means to scale the network.

The fork was also tested effectively on the Ethereum Rosten test network. There were no problems as everything moved forward as planned. Although there were some spam attacks that forced some developers onto their private networks. It largely worked effectively.

One of the Ethereum Improvement protocols that many people are interested to see implemented was the use of Zk-snarks. This would allow for Ethereum holders to send coins using technology that is in use with Z Cash.

Explanation ZK-snarks

Zk-snarks are zero knowledge proofs and can hide information about the transaction from the rest of the public blockchain. There is no doubt that this could be of benefit to some of Ethereum holders.

Another initiative was a decrease in the difficulty that is required to mine Ethereum as well as a drop in the reward for mining the blocks. This would have the benefit of increasing the transaction speed as well as reducing the cost.

Also, this is seen as the first move towards the implementation of Ethereum proof of stake mining. Officially called the Casper POS protocol, this will help make mining less centralised.

Some Opposition

This is not to say that there are no dissenting voices. There are some participants such as miners who are not in favour for reducing the block reward. One can of course understand why they would have taken this position.

The protest against this move is from a movement called “Etherite”. They want to implement all of the proposed changes from the Byzantium hardfork but keep the mining rewards the same. They believe this change could turn the miners off of the new Ethereum chain.

One of the proponents of this, Dylan Young, is of the view that this reduction is not known by most of the miners and they merely take what is being given to them by the Ethereum developers.

This is indeed the sentiments that were echoed by a representative of a mining pool called Nanopool. He stated that the Block reward was now a secondary issue and that most of the control was in the hands of the Ethereum foundation.

Resistance from Some Miners

If anyone was worried about the prospect that Etherite may gain momentum and threaten the Byzantium hardfork, they should rest easy. As is currently, there is only one forum post on Reddit and one Github contributor.

It seems though, that many miners have realised that although there is reduction in the block reward from 5 ETH to 2 ETH, the overall number of blocks that will be propagated will increase substantially with the difficulty reduction. Hence, the miners that continue to mine both chains may discover that they can make the same amount of money on both of the chains.

There is also the point that was raised about the difficulty bomb that is built into the Ethereum protocol. With this, the Ethereum developers can slow down the rate of Ethereum blocks that are created on its blockchain. This will convince users to move over to a new chain.

Conclusion

Unlike the contentious debate that there was over the Bitcoin hardfork, the Ethereum Byzantium hardfork was so far pretty orderly and well planned. Developers, users and even miners appear to be in agreement and are falling well in line.

This hardfork was a result of lots of planning and cohesion in the community. It is no doubt a great vote of confidence in the Etheruem project. We are therefore likely to see the price of Ether reaching new highs next week.