Just two days after Gyft founder and Civic CEO Vinny Lingham’s warning about a Bitcoin hard fork devastating bitcoin’s value, 21 different Bitcoin exchanges have clarified their position on Bitcoin Unlimited (BU) trading. The exchange coalition stated in a hard fork contingency plan that they will trade any BU cryptocurrency as an altcoin alongside bitcoin, thwarting any plan for BU to replace Bitcoin.
In software engineering, a fork happens when developers take a copy of source code from one software package and start independent development on it, creating a distinct and separate piece of software. The term often implies not merely a development branch, but also a split in the developer community.
The development of Bitcoin Unlimited required forking Bitcoin's code. Once the fork is released, there will be two separate blockchains, even though they contain identical transaction histories. The BU developers hope that BU will quickly acquire all of the miners that are currently mining the existing, 'Bitcoin Core' blockchain. If it were to do so, the latter would then be unable to secure its network, and therefore the original Bitcoin would quickly cease to be of value. If instead, only some of the current miners left to start mining BU's blockchain, two coins could exist side by side. This is what happened in June when Ethereum forked, resulting in two competing cryptocurrencies. This is also the fate that Lingham said Bitcoin must avoid at all cost.
“We have decided to designate the Bitcoin Unlimited fork as BTU (or XBU). The Bitcoin Core implementation will continue to trade as BTC (or XBT) and all exchanges will process deposits and withdrawals in BTC even if the BTU chain has more hashing power.”
- Statement on Potential Bitcoin Hardfork Event
The first of three announcements on Friday was sent to the media as well as posted on the Bitfinex website. It contained signatures of some of the biggest exchanges by trading volume, including Bitfinex, Bitstamp, BTC China, Bitsquare, Bittrex, Coinfloor, itBit, Kraken, ShapeShift, Zaif, and nine others.
The announcement states that the exchanges are collectively faced with addressing the very real possibility that a Bitcoin network split may occur in the future, and that bitcoin miners have a right to choose an alternative implementation of Bitcoin. “We do this not out of judgement or philosophical reasons but rather for practical and operational considerations,” the group declared.
“As exchanges, we have a responsibility to maintain orderly markets that trade continuously 24/7/365,” the announcement reads. “We cannot suspend operations and wait for a winner to emerge [...] Due to operational requirements alone we are compelled to label an incompatible fork as a new asset.”
However, when a fork of this nature happens, there is a danger of coins from one blockchain being spent on the other coins' blockchain, known as a “replay attack.” The exchanges have agreed to not list BTU until this threat has been addressed.
“We insist that the Bitcoin Unlimited community (or any other consensus breaking implementation) build in strong two-way replay protection. Failure to do so will impede our ability to preserve BTU for customers and will either delay or outright preclude the listing of BTU.”
- Statement on Potential Bitcoin Hardfork Event
A second announcement on Friday came from Poloniex, which has yet to decide if they will be listing BTU coins. The exchange reiterated many of the same points raise in the first announcement. “We will support Bitcoin Core continuously as BTC,” the exchange states, adding the same stipulation about replay attacks. “Poloniex agrees that any contentious hard fork must include replay attack protection. Without this, exchanges cannot continuously and properly operate.”
A few hours later, the co-founder and CTO of international Bitcoin exchange BitMex, Samuel Reed, issued the final statement of the day. “As proposed in the multi-exchange hard-fork contingency plan, there is significant doubt that a BU hard fork could be done safely without additional development work,” states Reed. “In the case of a fork, we support the plan as proposed by Bitfinex, Bitstamp, BTCC et al.”
Reed further added that “it will not be possible for any exchange, including BitMEX, to support both chains separately.” The exchange will not even consider listing the coin until the replay attack protection is in place and BU is not “at risk of a blockchain reorganization if the Core chain becomes longer.”
The news rattled traders, sending Bitcoin’s price dropping sharply throughout the day, from a high of $1160 to a low of $1052. However, the solidarity of so many exchanges on the issue has calmed a lot of the Bitcoin community, while enraging others.
Jihan Wu, the co-founder of Bitmain, the largest Bitcoin ASIC chip manufacturer and mining pool operator in the world, is a known BU supporter. Wu recently switched over 75 percent of his mining pool's power to support BU. Since the exchange’s contingency plan was announced, Wu has referred to the exchanges as “not world class level.” Meanwhile, BitGo engineer and Bitcoin Core developer Jameson Lopp tweeted, “It appears that BU devs have no intention of adding replay protection - their plan is to kill the Core chain instead.”