Can Bitcoin Gold Shrug Off Its Rocky Start?

by Tanzeel Akhtar

BTGUSD 60 Minute Chart

Last week's Bitcoin hard fork gave birth to Bitcoin Gold (BTG). So far, the post-birth recovery has been painful and not altogether successful. The newly minted cryptocurrency had a very inauspicious start that, according to some, may have played a part in driving Bitcoin (BTC) prices down.

BTCUSD 300 Minute Chart

The previous Bitcoin hard fork occurred back in August and was far less fraught. At that time the split created Bitcoin Cash (BCH) which had a smoother adoption.

This latest cryptocurrency split was initiated on Tuesday, October 24 when the Bitcoin Gold technical team generated a snapshot of the Bitcoin blockchain, creating Bitcoin Gold at block 491,407 on the original blockchain. The stated aim of the split was to improve bitcoin technology and to "free the network from large companies that command undue influence on the network." In other words, to preserve the decentralized nature of the digital currency.

But this time, when the split occurred a tweet was sent out warning the community of a “Massive DDoD attack:

Since then the Bitcoin Gold team has confirmed the issue has been resolved. There is now a soft deadline of November 1 to “launch" Bitcoin Gold properly at which time the team will release code and allow people to mine it. As of this past Sunday, the Bitcoin Gold blog posted the following message: “We want you to know that we expect the public testnet to be started on November 1st!"

So how much of an impact has Bitcoin Gold actually had on Bitcoin and Bitcoin Cash prices? During October, BTC's price fluctuated from a high of $6,146 where its currently trading, to a low of $4,100.

BCHUSD 300 Minute Chart

BCH's volatility mirrored that of Bitcoin: Bitcoin Cash hit a low of $285 earlier this month but made a high of $460 late last week. It's currently trading marginally below it's high, at $446.

David Henderson, founder of Sweetbridge, a network that leverages blockchain technology, said he would attribute the drop in BTC price in the days following the fork to traders moving in and out of BTC in order to benefit from the fork. If you owned BTC at the fork, you would automatically acquire Bitcoin Gold as well, he explained. Therefore, many traders may have jumped in to get the new digital currency, driving the coin higher, then sold out quickly, which would explain the drop.

More broadly, Henderson points out, this change represents competition for BTC, but additional transaction processing power is still needed to scale the concept. He notes:

“This update also does nothing to address other barriers to mainstream adoption, such as anonymity and price volatility. A stable coin traded between customers who have undergone the KYC [know your customer] process is needed to give people confidence to perform cryptocurrency transactions over a longer timescale, such as happens in trade and commerce.”

Udi Wertheimer, a blockchain researcher says:

“Regarding the perceived drop in BTC price after the BTG fork: I try to refrain from trying to predict or explain price movements - it's complicated - but it's possible that the BTG fork is related to recent price action.”

According to Wertheimer, BTC buyers also need to be aware of the changes wrought by the birth of Bitcoin Gold. Prior to block 491,407, BTC buyers could expect to receive BTG as well. Now that the block has been mined, new BTC buyers will no longer receive BTG too.

He sees Bitcoin Gold's difficult start not as a stillbirth, but rather as an opportunity for future cryptocurrency splits:

“The BTG chain doesn't exist yet, but in futures markets BTG trades around 2% of current BTC prices. Generally on forks like Bitcoin Gold, I expect we'll have more of those as long as they are deemed profitable. It seems to me that while Bitcoin Cash succeeded in creating profit for some due to its active community, Bitcoin Gold hopes to succeed by enlisting commercial partners, perhaps incentivized by the project's premine.

Forks are difficult for exchanges and wallet developers, but the upside is that BTG is planned to be released with replay protection and a new address format, making things easier. I hope that other teams working on future forks will realize this approach is good for everyone involved.”

No such thing as a 'bad fork'

There have been years of fear, uncertainty, and doubt within the Bitcoin community about the risk of hard forks, says Bob Summerwill, Sweetbridge's chief blockchain developer. He believes there is no such thing as a bad fork. Rather, experimentation and competition are good for the cryptocurrency market.

But is there a strong case for BTG? CoinDesk's Director of Research, Nolan Bauerle, believes that Bitcoin Gold represents an attempt to “shake up the bitcoin mining industry” and level the playing field.

“Since bitcoin mining boomed in 2013, bitcoin mining rigs became more sophisticated and evolved into bespoke rigs called ASIC (application specific integrated circuit) miners. These ASIC miners separate bitcoin mining from the mining of other cryptocurrencies like Ethereum, which use GPU (graphic processing units) miners. Bitcoin Gold is an attempt to level this playing field and allow this fork of bitcoin to be mined along with other alt-coins.”

The need for changes to the Bitcoin protocol are clear, adds Henderson. He believes seven transactions per second simply doesn't scale, or even allow BTC a seat at the captain’s table, in terms of being taken seriously as either a payment or settlement method. He adds:

“In addition, autonomy is often equivalent to ‘mob rule.’ If you have 51% or more of the mining power, then you rule! Many groups had worried about this when ASIC chips were introduced, which were controlled by a few and proceeded to dominate BTC mining.

That meant that individuals could no longer take part in performing the mining calculations effectively, and more worryingly, a few ‘pools’ (large mining companies or groups) dominate the Proof-of-Work calculations for BTC today. The new Proof-of-Work for Bitcoin Gold attempts to bring mining more in line with Satoshi Nakamoto’s vision of one CPU per miner, where everyone could be a node for tiny rewards. The new ‘equihash’ algorithm runs on GPUs and not ASICS, meaning today’s giant industrial mining outfits will not be able to mine Bitcoin Gold with existing equipment.”

There have indeed been postnatal problems. But Bitcoin Gold has been created; it's available on a few exchanges and there's no turning back. Last week, based on data from CoinMarketCap, it was within the top 15 most-traded cryptocurrencies. It may be too early to declare it a success or failure, but it will surely have lessons to teach both traders and miners about the path to future digital currency hard forks and even ICOs.