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Let’s imagine a screenplay where 75% of miners (by hash-power) attempts to switch the rules of Bitcoin with a so called hard fork. How will this affect the network spil a entire?
What will toebijten if some people disagree and want to fight back the switch?
It turns out that miners are not the rulers of bitcoin…
…There is a certain Balance of Power te the bitcoin ecosystem…
…As wij have learned from Ethereum,
A hard fork that is not supported by everyone, can lead to a network split.
Effectively creating two different networks (two blockchains) with two different coins.
Wij call this a Coin-Split and its effect is that the total amount of units will dual.
Both coins are likely to have its own volgers, and both sides will likely keuze to be “The Real Bitcoin”
Developers write the code that makes bitcoin work.
Fresh code can only serve spil suggestions for improvements.
Developers cannot force anyone to run fresh code.
Different types of suggestions are:
Suggestions to add fresh overeenstemming rules. Making previously valid blocks invalid (This does not affect blocks that are already part of the blockchain)
Suggestions to liquidate (or substitute) existing overeenstemming rules. Making previously invalid blocks valid.
Switches that do not affect overeenstemming:
Suggestions to add functionality that will effect how the network treats the transactions that are not yet mined into a block.
Thesis transactions are held ter a mem-pool while waiting for the very first confirmation.
Substitute By Toverfee (RBF) and Child Pays For Parent (CPFP) are examples of this zuigeling.
Miners (including Hashers and Pool-Operators)
Miners are thermodynamically securing the network with Proof of Work (PoW)
They are rewarded with fresh coins ter addition to transaction fees. But high operational costs are forcing the miners to sell off the majority of this prize.
Miners produce blocks that are mathematically linked te a blockchain.
Thesis blocks contain transactions inbetween the bitcoin users.
The blockchain represents the history of all transactions.
Miners are on the supply side te the market, and are therefore putting downward pressure on the price of bitcoin due to inflation.
Pool-Operators construct blocks.
Hashers are paid by Pool-Operators to perform PoW on thesis blocks.
Hashers can leave or join any pool at any time.
A misbehaving Pool-Operator risk that Hashers will leave the pool.
Let’s say that a miner successfully finds block X:
The miner will be rewarded with freshly created coins te addition to fees from all the included transactions.
However, this money does not become spendable until the blockchain have bot extended with an extra 100 more blocks that voorwaarde be built on top of block X.
If other miners don’t agree that block X is a valid block, then they will reject this block by not building on top of it.
But what happens if a majority, let’s say 75% of miners (by hash power) have determined to switch the existing overeenstemming rules?
They may now see block X spil valid, even if the remaining minority (25%) of miners disagree.
The minority miners (the ones who does not want to switch the rules) are only going to build on top of what they see spil the “most work *VALID* chain”
A fresh and otherwise valid block, will also become invalid (te the eyes of this minority) if it is built on top of block X.
This is where the blockchain will split into two different chains / networks.
Difficulty Retargeting is an automatic adjustment of how difficult it should be to find a valid block.
Miners are contesting against each other to find valid blocks.
If the value of bitcoin goes up, this will attract more miners and the combined hash-power of the network will be enlargened. The result of this is a shorter block-generation-time.
If the value of bitcoin goes down, then the opposite will toebijten, and the block-generation-time will become longer.
The Difficulty Retargeting schedule is 2016 blocks and the adjustment will always target a “block-generation-time” of Ten minutes. This means that an adjustment will normally toebijten once every two weeks (approximately)
If 75% of the miners have determined to do a hard fork, then they can basically switch any rule they want, including the Difficulty Retargeting schedule.
But what happens to the 25% minority of miners that are left with a 2016 block schedule?
Their block-generation-time will be extended to 40 minutes which means that their next retargeting may take spil long spil 8 weeks (depending on where they are ter the 2016-block-schedule)
Confirmations will be slow, but for HODLers this doesn’t indeed matter. The coin can still serve spil a store-of-value if its users still have confidence.
When retargeting ultimately occurs, the block-generation-time will be returned to Ten minutes.
Let’s say that a hard fork leads to a voortdurend coin-split (similar to ETH/ETC)…
Users will now own coins on both sides of the fork (on both blockchains / both networks)
Users are te need of fresh software that can treat the two different coins.
Wallet providers determine if they want to develop the needed software.
Wallet providers also determine how they want to display the two different coins ter a wallet.
Depending on which coin they like best, they may display a “Primary Coin” and a “Secondary Coin”
This may influence the perception among some users.
Users who fail to upgrade their wallet-software are likely to lose money.
This is because they lack the implements to treat both sides of the fork (both coins)
When spending money, the transactions are likely to be valid on both sides, so the risk is to lose money on the opposite side of the fork.
Knots are independent validators that checks everything ter accordance with the current overeenstemming rules.
When a knot considers a block to be valid, it will forward the block to other validators, and the other validators (knots) will repeat the same behavior.
Knots can be seen spil accountants who are validating the transactions created by users and the blocks constructed by miners.
Knot Operators may download fresh software if they want to support a switch of the current rules (a hard fork)
Knots that do not want support a hard fork, will simply disregard all blocks that do not obey with its current ruleset.
Even if thesis blocks represents the “most work chain” they will still be overlooked (seen spil invalid) by all knots who have not download the software that implements the hard fork.
Users (including HODLers and Traders)
Users give bitcoin its value by,
A) Perceiving it spil money, and using it spil money.
B) Being willing to exchange their hard earned fiat money for the terugwedstrijd of bitcoin.
C) Acting (for the most part) spil the “demand side” te the market, and therefore putting upwards pressure on the price of bitcoin.
D) Ultimately determines what the value of bitcoin should be, spil a product of how much fiat money they are willing to pay vanaf bitcoin.
E) Having confidence that bitcoin will proceed to be a good store-of-value.
What can toebijten if some other player ter the ecosystem begin acting against the rente of the users?
Users have the power to strike back at everyone ter the ecosystem, simply by losing confidence ter bitcoin spil money.
Loss of confidence will waterput downward pressure on the price of bitcoin, and therefore directly harm the profitability of miners.
Ter the event of a Coin-Split:
Users will now abruptly own 2X the amount of units/coins. An equal amount of coins will be held on each side of the fork.
Let’s distinguish inbetween the two coins by calling them b1 and b2:
Users will collectively determine the value of b1 and b2.
They can choose to:
Save both b1 and b2 / Sell both b1 and b2 / Sell b1 and save b2 / Sell b2 and save b1
Selling will waterput downward pressure on the price of the coin being sold.
Buying will waterput upward pressure on the price of the coin being bought.
Users will establish an exchange rate inbetween the two different coins. This means that users can buy b1 with b2, and vice versa.
Users are likely to very first spend the coin they perceive spil less valuable. And they are likely to save the coin they perceive spil being the best store-of-value
Ultimately, users are going to give more value to one side of the fork compared to the other.
All thesis deeds made by users, will directly affect the incentive structure of miners.
The coin with the highest market value will be more profitable to mine.
Economically rational miners will therefore migrate to the coin with the highest market value.
Exchanges provide a toneelpodium for price discovery where people can buy and sell bitcoin.
Ter the event of a coin-split:
An exchange can determine whether to permit trading of both coin-types, or to only permit trading of the coin they like best.
The latter may be risky, since users might be able to sue the exchange. Many users hold coins on exchanges, and this users are likely to request access to both types of their coins.
Despite the risk of lawsuit, an exchange could technically just confiscate one type of coin, claiming that this is a “fake bitcoin”
They could then choose to dump this coin into the market, thereby crashing the price of the coin they don’t like.
Some exchanges may have written into their “terms and conditions” that they can determine what coin its users can access.
There may also be some delay before exchanges can opoffering the fresh coin after a coin split. Since the exchanges vereiste adapt their infrastructure to permit trading of a fresh coin.
When both types of coin are traded on the same exchange, this will quickly result te an exchange rate inbetween the two different coins.
Merchants are amplifying the perception (amongst users) that bitcoin is valuable. They do this by accepting bitcoin spil payment for goods and services.
Ter the event of a coin-split:
The different merchants vereiste determine whether to accept both types of coin, or to only to accept the coin they choose.
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