The Fork-Merge and Bitcoin Private
What is a fork merge?
In my previous article, I discussed the two most prominent cryptocurrencies focused on anonymous and private transactions. Within the last few weeks, there has been news about a new cryptocurrency called Bitcoin Private (BTCP) that tries to achieve similar goals. In this article I will describe the distribution method and briefly discuss the viability of BTCP.
Bitcoin Private will be created through something called a “fork-merge”. This is the first time I have heard of a fork-merge, but after learning about it I am certain it wont be the last. However, before I go into fork-merging I will give a quick summary of hard forks.
Forks
In order for a blockchain to work, all the members of the network (miners/nodes) need to all follow the same rules. A hard fork occurs when the rules that miners follow are changed, making transactions/blocks that would have been previously considered invalid, now valid. This means that it is not backwards compatible — if you don’t upgrade to the new rules you will be playing a different game.
Hard-forks primarily occur during one of two situations: 1) when the community agrees to upgrade the software or 2) when a subdivision of the community intentionally creates a new blockchain. When it is used to upgrade the software, it is considered non-contentious because we assume that everyone upgrades to the new rules and abandons the old chain. But if it is done to create a new blockchain, then the new chain will split and run in conjunction with the old chain.
Perhaps the most famous contentious hard fork is when Bitcoin Cash forked off of Bitcoin. While I wont go deep into the weeds, essentially a group of nodes on the Bitcoin network changed the consensus rules and created a new blockchain called Bitcoin Cash. While both Bitcoin and Bitcoin Cash are separate blockchains, they share all blocks up to August 1st, 2017 (block 478,558). This means that if you had Bitcoin before that date, you now have an equal amount on both chains.
From an outside perspective, it may be difficult to see the benefit in forking off of an existing chain. One might ask why the Bitcoin Cash developers simply didn’t start from scratch? The primary reason has to do with distribution. Since the main chain (especially Bitcoin) has the most users, a fork of Bitcoin would put the new forked coins in the hands of as many people as possible. This greatly helps the potential adoption for the new coin. If a brand new blockchain were formed instead, the coins would most likely aggregate into the hands of those mining it initially, hindering its potential growth.
Fork-Merge
Bitcoin Private is planning on performing a fork-merge of both the Bitcoin and ZClassic blockchain. But first, what is ZClassic?
In my last post, I explained Zcash at a somewhat detailed level. ZClassic is simply a hard fork of ZCash that removed the 20% founders reward. I actually consider this to be a viable change, considering how immense the amount of the Zcash founders reward is.
Additionally, we know that Zcash (and in turn ZClassic) has the exact same supply schedule as Bitcoin (total amount of coins is both 21M). They also have the same transaction format as Bitcoin, which is called UTXOs (or Unspent Transaction Outputs). UTXO is just a fancy way to describe unspent Bitcoins, so all the Bitcoin you own is just a collection of UTXOs that only you can spend. Identical transaction formatting is important for the purposes of performing a fork-merge. (Technically Zcash is a fork of Bitcoin without existing UTXOs, but I won’t go into that). A fork-merge essentially combines two existing blockchains UTXO sets into a single chain.
Bitcoin Private at a technical level, is a hard fork of ZClassic, which combines the UTXOs of ZClassic and Bitcoin into a new blockchain called Bitcoin Private. This means that the addresses and their Bitcoin amounts will be combined with ZClassic addresses and their amounts. The total supply then of BTCP will be the combined current supply of Bitcoin and ZClassic at the time of the fork, or about 20,300,000 (~3,400,000 ZCL + ~16,900,000 BTC). And since the cap of 21 million will be maintained, 700,000 BTCP remains to be mined.
For example, if you had 5 Bitcoin and 10 ZClassic before the Bitcoin Private fork, you will have 15 Bitcoin Private after the fork. Below is an image of the different chains and their forks.
Whats the Point?
Now that I have covered the fork-merge, I will discuss now the properties of BTCP. To pitch it simply, you can think of BTCP as Zcash without a founders reward, and with ~97% of the coins already owned by those who previously owned Bitcoin.
I actually find this use case somewhat viable due to two of Zcash’s issues being the absurd founders reward, and its extremely high inflation in the short-to-mid term. ZClassic fixed one of these issues but was additionally faced with very low adoption. Therefore, bringing Bitcoin users to the party should provide a significant chance of improved adoption.
Depending on how much attention Bitcoin Private gets, I think it has the potential to compete with Zcash. The removal of the large founders reward could be a fairly substantial incentive for users. In contrast to Monero, I think that BTCP suffers from the same issue as Zcash, which is its optional privacy.
However, most articles talk about Bitcoin Private’s potential to compete with Bitcoin. With the addition of Bitcoin’s UTXO set, BTCP will join the likes of Bitcoin Cash & Bitcoin Gold as competitors to Bitcoin. BTCP boasts the privacy of Zcash, with an ASIC resistant hash algorithm, and larger block sizes.
While I wouldn’t consider myself a maximalist, I don’t think any fork can be a competitor to Bitcoin. What people don’t realize is that Bitcoin’s greatest strength is the exact reason why there are so many forks “fixing” things: Bitcoin is VERY hard to change. And with the Store of Value use case becoming its primary focus, that is a good thing.
Conclusion
Overall I find the concept of the fork-merge fascinating and I tend to think this won’t be the last time we will see it. As far as BTCPs competition, I see it more as a (fairly negligible) threat to Zcash, rather than to Bitcoin.
Disclaimer: The views expressed in this article are solely the author and do not represent the opinions of the author on whether to to buy, sell or hold shares of a particular cryptocurrency, cryptographic asset, stock or other investment vehicle. Individuals should understand the risks of trading and investing and consider consulting with a professional. Investors should conduct their own research independent of this article before purchasing any assets. Past performance is no guarantee of future price appreciation.