Bitcoin Gold, the first fork in the blockchain’s world

7 years ago - Published in Finance, Fintech Land, Technical Analysis

Another Bitcoin split is in the works, with a group of developers planning to establish an off-shoot called Bitcoin Gold (BTG). On October 25, Bitcoin Gold (Bgold) will split off from Bitcoin to create an ASIC-resistant cryptocurrency. A few weeks later, a significant group of Bitcoin companies wants to hard fork according to the SegWit2x plan as defined in the “New York Agreement” (NYA), which will probably result in yet another new coin. According to Bitcoin developer Jimmy Song, the aim is for BTG to become “a better gold than Bitcoin“.

Back in August, analysts at Morgan Stanley made an interesting appraisal of the similarities and differences between the two assets. The aim of Bitcoin Gold developers is to level the playing-field somewhat for Bitcoin mining. Currently, mining is dominated by what’s called Application Specific Integrated Circuits (ASICs).

Song explains that ASICs are similar to the central processing unit (CPU) in a computer. However, “they’re different from CPUs in that they only do one thing, but they do it really, really well”, Song said.

In this case, what they do really well is mine Bitcoin. Song explained that on the present network, ASICs produced by companies such as Bitmain and Bitfury can mine Bitcoin around 1 million times faster per second than a standard computer.

The Bitcoin platform is set up so that each time a new block is mined and added to the blockchain, the miner provides a “proof-of-work” function which is approved by all other participants in the blockchain.

That ensures the network isn’t corrupted and right now, the proof-of-work function is relatively simple which gives big miners with lots of processing power a big advantage. Bitcoin Gold advocates want to use a more complex proof-of-work algorithm, which will reduce the big miners speed advantage to around 100 times per second.

The rationale is that by taking the mining power out of the hands of a few dominant players, the Bitcoin Gold network will be more decentralised and resistant to unexpected shocks or manipulation. In other words, safer and more like gold.

Song said it wasn’t clear how much Bitcoin Gold will be worth after the fork, although he implied that the value is likely to be small — perhaps 0.01 of a Bitcoin. He added that cryptocurrency exchanges will only get involved if the new version sees some demand. “If you have your Bitcoins on an exchange, the exchange will likely credit you with your Bitcoin Gold eventually. This will especially be true if BTG has value above 0.01 Bitcoin,” Song said.