Why soft fork is a very bad idea and should be avoided at all costs

[pawel7777]

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I dealt with alot of cases where i had to inform users taking part in a project or shareholders in an investment. It is practically impossible to reach everyone. Often after months you still have many open cases.

So in theory, an exchange who only does this, might be in real trouble since the user could claim he trusted that they hold his bitcoins and they didn't. Or something like that. At least when they switch to another chain. Though then the bitcoins on the other chain should still lay in their wallet. No one could take them except the exchange. So in fact it would only apply to new deposits i guess. And that is something people have to check before.

From the legal point of view, it doesn't really matter whether you reach everyone or not. What matters is that you tried and took all the steps you reasonably could have taken to communicate with your customers. In terms of online exchange it's pretty straight forward: send emails to all, put disclaimer on log-in page, pop-up warnings while depositing/withdrawing + announcements on your official social media channels. Do all that in reasonable time-frame and you're safe.

The thing is, you cannot really escape the risk no matter what you do. You risk when moving to the new fork, you risk by staying on old one and you risk when temporarily closing (especially when BTC price crashes after the fork and people can't sell due to their funds being locked).

[1714704063]

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[SebastianJu]

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I dealt with alot of cases where i had to inform users taking part in a project or shareholders in an investment. It is practically impossible to reach everyone. Often after months you still have many open cases.

So in theory, an exchange who only does this, might be in real trouble since the user could claim he trusted that they hold his bitcoins and they didn't. Or something like that. At least when they switch to another chain. Though then the bitcoins on the other chain should still lay in their wallet. No one could take them except the exchange. So in fact it would only apply to new deposits i guess. And that is something people have to check before.

From the legal point of view, it doesn't really matter whether you reach everyone or not. What matters is that you tried and took all the steps you reasonably could have taken to communicate with your customers. In terms of online exchange it's pretty straight forward: send emails to all, put disclaimer on log-in page, pop-up warnings while depositing/withdrawing + announcements on your official social media channels. Do all that in reasonable time-frame and you're safe.

The thing is, you cannot really escape the risk no matter what you do. You risk when moving to the new fork, you risk by staying on old one and you risk when temporarily closing (especially when BTC price crashes after the fork and people can't sell due to their funds being locked).

Hm, i wonder how far this information given policy can reach. I mean it would not work to announce a move to another server and if not all users claimed their coins till then then they are waived and taken by the exchange. The exchange has a liability to the user. So chosing to let go of the coins that, at the end, proofed being the right coins, might be problematic.

Oh and regarding that exchanges cannot escape the risk... i'm an escrow and i will face similar risks as exchanges will do. My solution so far is that i will receive coins on the escrow address. My wallet will run on the chain that i chose to be the winning one. BUT i will have a wallet running on the other chain too. And i will import all privkeys from one chain into the other chain. That way i can know what happened in the other chain. As long as the bitcoins were lying on the output address on both chans i will receive the bitcoins on both chains too. Then the escrow trade can start. If not, if i receive them only on one chain, then i will either return them or i will ask to fund the escrow address on the other chain too. Since everything else would mean a risk that i could not take. I would rather stop being escrow then otherwise.

But i think with this setup i can completely eliminate the risk. I have the coins on both chains. No risk anymore.

[sturle]

Not how it works.  You cannot create an altcoin based on bitcoin, and convince everyone to switch to the altcoin by telling them they are stupid.  Especially when the altcoin is a retardation compared to the real coin, and has alsmost no developers behind it.  I don't think the users will care much about what the majority of the miners are doing at that point.  They will just keep using their superior coin.

Well that is a very biased opinion. The original bitcoin went through a couple of forks already and following what you said then we would have lost the real bitcoin long ago already. Still, what decides what the real chain is is the believe of the people because they give the coins the value. If the fork wins then the new chain is the chain with advanced settings and the losing chain the one with the outdated tech that was upgraded. Pretty normal.

The previous forks has happened due to fixing simple and obvious bugs.  Nobody wants software with bugs.  If you want to run a version where you can generate 18446744073709551566 BTC in your coinbase due to an integer overflow, you are welcome, but most people would consider that an unintended bug and want to upgrade.

Anyway, mining in the losing fork means blocks being found every 25 minutes?, which lowers potential reward even more. And this mining can take weeks. Deadly for a mining business. On the winning chain instead the blocks will be found every 13 minutes or so. (Obviously i'm no mathematician. )

Obviously..  For a given hashrate, the chance of finding a new block, and therefore the reward, will be the exactly same in both forks.  After difficulty readjustment the success rate will increase.  So miners don't have any economic reasons to switch.

The chance is the same, sure, but the hashrate not anymore. The hashrate can't double like the chains double. 75% of the hashrate is in the winning chain then.

For a given hashrate.  The hashrate of my hardware will stay exactly the same after a fork, and my production will therefore stay exactly the same after the fork.  The global hashrate won't affect my chance of finding a block until after a difficulty adjustment.

The weakness of the forks is the fact that if the standard bitcoin chain overtake the fork, all mining effort and transactions on the fork will be wasted and lost forever.  The standard Bitcoin chain can not be overtaken by a fork however, since the blocks from the forks will be invalid.

Though that would be correct for the standard bitcoin chain too. If a fork reaches 75% and miners would still mine on the standard chain and the fork becomes the new real bitcoin then all mining on the standard chain after the fork will be gone to waste since the standard bitcoin chain blocks found after the fork happened would be invalidated. Additionally blocks would be found way way less often. Mining there would be economical suicide because the difficulty only would change each 2 weeks.

Again, this is based on your mining profit fallacy above.  The profit in terms of coins per day for a given hashrate, will be exactly the same after a fork as before, until a difficulty adjustment.  After the adjustment the chain with the lowest hashrate will pay the most.

Though only theoretically since the 10 minutes are not hard set but dynamically created by the diff adjustment, judging from the amount of hashpower. And the hashpower will be way less in a losing chain.

And therefore mining the losing chain will pay more if the price is the same.  Since most exchanges haven't signaled any support for a blocksize increase, and merchants seem to be with the majority of users and developers who want to scale by other means, standard Bitcoins are going to have higher value than the altcoin, and what happens then?  The Bitcoin blockchain will overtake the altcoin again after the first difficulty adjustment.

I think the Number of nodes can be completely forgotten. It can be faked easily and it most probably is faked since there are obviously fanatics who would do such things. There are not only cool headed discutants on each side.

You mean by running Bitcoin Core and pretend to be "Classic" or vice versa?  Sure, but why would anyone do that?  It has so far only been done for mining.  Some blocks are mined as "BitcoinXT" blocks, but those have been shown to be created with Bitcoin Core with a small change to the coinbase transaction.  Since "Classic" has based their fork on an old version of Bitcoin Core, without many of the improvements for block generation, I think miners will do the same in the future as well, unless "Classic" get developers who are capable of rebasing their patches against 0.12.

I meant that some people create nodes just to show that their side has the most support. Setting up a node an a vpn or so and voila they have an argument of being backed. Though it is not a real hard argument in fact.

Yes, of course.  The number of "BitcoinXT" nodes has gone down for a while with no similar increase in other nodes until now.  I suspect many of them are just cheap VPS nodes the owner has stopped paying for.  The number of Bitcoin Core nodes has been very stable for a long time.

I don't see any majority for raising the blocksize via a hard fork.  Quite the opposite.  It seems the majority is very clear on maintaining backwards compability, and increase the capacity by moving the signatures outside the 1 MB blocks.  Especially among the developers of Bitcoin and various bitcoin wallets.  Most of them have implemented segregated witness already.  It is very simple, and will be faster to deploy.

Yeah, segwit has broad support. I think it's a good thing. Though it is stil limited and can not solve adoption hindrance in the long run as far as i understand. The solutionat after that is the interesting thing.

I think segwit is a very good thing, because it solves a lot of problems without a hard fork.  I think adoption will be quicker than many people think.  Most libraries which are used by wallets have it implemented already.  A hard fork won't be usable at all until everyone have switched.

[pawel7777]

Hm, i wonder how far this information given policy can reach. I mean it would not work to announce a move to another server and if not all users claimed their coins till then then they are waived and taken by the exchange.
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Of course not. But it's completely different case, as it would be an internal decision made by the exchange, so they'd have to take full responsibility for that (pretty sure some jurisdictions have specified timeframes on when funds can be waived if not claimed, ie unclaimed bank balances of deceased people). And HF would be an external condition, to which exchange have to react, so not quite the same.

Not the best example, but it's a bit like bank deciding on their own to convert your balance to Euro Vs. bank converting your balace to Euro because the whole country is switching to Euro.

[SebastianJu]

Though only theoretically since the 10 minutes are not hard set but dynamically created by the diff adjustment, judging from the amount of hashpower. And the hashpower will be way less in a losing chain.

And therefore mining the losing chain will pay more if the price is the same.  Since most exchanges haven't signaled any support for a blocksize increase, and merchants seem to be with the majority of users and developers who want to scale by other means, standard Bitcoins are going to have higher value than the altcoin, and what happens then?  The Bitcoin blockchain will overtake the altcoin again after the first difficulty adjustment.

Now i see what you mean. Less miners will find blocks faster. But the problem is until that comes through you will have to go through a hard time since this only will take effect once the difficulty updated. Only then blocks can be found faster. Until then every miner would find the same amount of blocks which means less blocks are found in the same timeframe in that chain. Until diff update.

Or do you think the chains bitcoin will suddenly rise to a 4 times value? I really doubt. The more likely outcome, when classic really could fork because they reached 75%, would be that bitcoiners either switch to the winning chain, giving this bitcoin it's real value. But more likely is that both bitcoins lose value until they are halved or are similar to the hashrate. Since it would be not possible that somehow alot of value was created that would give bitcoin a bigger market cap. Though this is up for debate since it is a thing that never happened.

I think segwit is a very good thing, because it solves a lot of problems without a hard fork.  I think adoption will be quicker than many people think.  Most libraries which are used by wallets have it implemented already.  A hard fork won't be usable at all until everyone have switched.

I think so too. I think segwit is a good step for now. I did not find real disadvantages yet. If classic forks before that then they likely will lose. If they fork after segwit came to the end of it's wisdom but before lightning network becomes needed because segwit blocks are too small still or again then they probably will succeed.

[SebastianJu]

Hm, i wonder how far this information given policy can reach. I mean it would not work to announce a move to another server and if not all users claimed their coins till then then they are waived and taken by the exchange.
...

Of course not. But it's completely different case, as it would be an internal decision made by the exchange, so they'd have to take full responsibility for that (pretty sure some jurisdictions have specified timeframes on when funds can be waived if not claimed, ie unclaimed bank balances of deceased people). And HF would be an external condition, to which exchange have to react, so not quite the same.

Not the best example, but it's a bit like bank deciding on their own to convert your balance to Euro Vs. bank converting your balace to Euro because the whole country is switching to Euro.

To stay with your example... when the whole country switches ok, but if an exchange would make the error to switch to the losing chain then i'm really not sure about the liability. I mean if i imagine an escrow switches to the chain he thinks will win and it loses at the end, i'm pretty sure people would go after him because they gave him a certain value and he had not been give the right to exchange it to something less valuable. Similar to a bank exchanging to pesetas because they think they will go up. they go down and people will sue. They only gave the bank the order to hold their fiat in the way they gave it to them.

[pawel7777]

Hm, i wonder how far this information given policy can reach. I mean it would not work to announce a move to another server and if not all users claimed their coins till then then they are waived and taken by the exchange.
...

Of course not. But it's completely different case, as it would be an internal decision made by the exchange, so they'd have to take full responsibility for that (pretty sure some jurisdictions have specified timeframes on when funds can be waived if not claimed, ie unclaimed bank balances of deceased people). And HF would be an external condition, to which exchange have to react, so not quite the same.

Not the best example, but it's a bit like bank deciding on their own to convert your balance to Euro Vs. bank converting your balace to Euro because the whole country is switching to Euro.

To stay with your example... when the whole country switches ok, but if an exchange would make the error to switch to the losing chain then i'm really not sure about the liability. I mean if i imagine an escrow switches to the chain he thinks will win and it loses at the end, i'm pretty sure people would go after him because they gave him a certain value and he had not been give the right to exchange it to something less valuable. Similar to a bank exchanging to pesetas because they think they will go up. they go down and people will sue. They only gave the bank the order to hold their fiat in the way they gave it to them.

I used that example only to show there's a big difference between taking actions because "I feel like it" and reacting to external conditions (when you have to decide either way).

Off course people would lynch you if you were to move their funds to fork that dies out afterwards, but the same would happen if you chose to stay on current chain (if it loses after the split). So the best and only thing you can do is to keep all the parties informed on what you intend to do. Same goes for exchanges.

[sturle]

Though only theoretically since the 10 minutes are not hard set but dynamically created by the diff adjustment, judging from the amount of hashpower. And the hashpower will be way less in a losing chain.

And therefore mining the losing chain will pay more if the price is the same.  Since most exchanges haven't signaled any support for a blocksize increase, and merchants seem to be with the majority of users and developers who want to scale by other means, standard Bitcoins are going to have higher value than the altcoin, and what happens then?  The Bitcoin blockchain will overtake the altcoin again after the first difficulty adjustment.

Now i see what you mean. Less miners will find blocks faster. But the problem is until that comes through you will have to go through a hard time since this only will take effect once the difficulty updated. Only then blocks can be found faster. Until then every miner would find the same amount of blocks which means less blocks are found in the same timeframe in that chain. Until diff update.

No, I don't think you get it...

Before difficulty adjustment, it will take longer time between blocks.  Since there are fewer miners to divide the profit between, the profit per miner, or more correctly per hashrate, will stay exactly the same as before the fork.  No matter how many miners there are on each side of the fork, or how this fluctuates.

It is the same when many miners join or leave between difficulty adjustments.  During one period of 2016 blocks, the income per hashrate will stay the same.  Only a difficulty adjustment will change that.  And variance ("luck"), of course, but variance goes both ways with the same probability.

[SebastianJu]

Though only theoretically since the 10 minutes are not hard set but dynamically created by the diff adjustment, judging from the amount of hashpower. And the hashpower will be way less in a losing chain.

And therefore mining the losing chain will pay more if the price is the same.  Since most exchanges haven't signaled any support for a blocksize increase, and merchants seem to be with the majority of users and developers who want to scale by other means, standard Bitcoins are going to have higher value than the altcoin, and what happens then?  The Bitcoin blockchain will overtake the altcoin again after the first difficulty adjustment.

Now i see what you mean. Less miners will find blocks faster. But the problem is until that comes through you will have to go through a hard time since this only will take effect once the difficulty updated. Only then blocks can be found faster. Until then every miner would find the same amount of blocks which means less blocks are found in the same timeframe in that chain. Until diff update.

No, I don't think you get it...

Before difficulty adjustment, it will take longer time between blocks.  Since there are fewer miners to divide the profit between, the profit per miner, or more correctly per hashrate, will stay exactly the same as before the fork.  No matter how many miners there are on each side of the fork, or how this fluctuates.

It is the same when many miners join or leave between difficulty adjustments.  During one period of 2016 blocks, the income per hashrate will stay the same.  Only a difficulty adjustment will change that.  And variance ("luck"), of course, but variance goes both ways with the same probability.

I think I now know what error in thinking I had. I watched the whole hashrate on the losing chain. Though that doesn't matter to the individual miner since his time to find a block is the same as it was before. The whole chain will find less blocks only.

So in theory as long as there are enough users supporting that chains bitcoin then the reward should stay the same. Though I think uncertainty will lead to a big drop in price on both chains. People will cash out and watch what is happening out there. Though that risk applies to both chains then. Maybe a bit less to the winning chain because... it looks like being the winner.

But i think i see now what you meant.

[johnyj]

Although the individual miner's reward does not change, but the total amount of miners on the minority chain will dramatically decrease, so all the miners on minority chain will only be able to find a block every 40 minutes,  to get a transaction well confirmed on that chain would take 240 minutes, this basically drives out all the transactions on that chain. And when no one is using that chain, the exchange rate will crash, and miners become underwater and moved to majority chain

[sturle]

Although the individual miner's reward does not change, but the total amount of miners on the minority chain will dramatically decrease, so all the miners on minority chain will only be able to find a block every 40 minutes,  to get a transaction well confirmed on that chain would take 240 minutes, this basically drives out all the transactions on that chain. And when no one is using that chain, the exchange rate will crash, and miners become underwater and moved to majority chain

It will be about 30 minutes between blocks, due to the intentional trick which makes the hard fork trigger long before it has 75% hashrate.  (And it will likely be even lower, since basic game theory says you should cheat this one by announcing support for it, and then not mine on the fork.  So there is no way to know if the fork has a mining majority at all before the fork is supposed to happen.)  30 minutes is common today.  Even an hour is quite common.  I don't think 30 minutes between blocks will stop anyone from using bitcoin.  It didn't in 2010 when someone pushed up the difficulty, and then suddenly stopped mining to show Bitcoin's weakness, and why should it this time?

[johnyj]

Although the individual miner's reward does not change, but the total amount of miners on the minority chain will dramatically decrease, so all the miners on minority chain will only be able to find a block every 40 minutes,  to get a transaction well confirmed on that chain would take 240 minutes, this basically drives out all the transactions on that chain. And when no one is using that chain, the exchange rate will crash, and miners become underwater and moved to majority chain

It will be about 30 minutes between blocks, due to the intentional trick which makes the hard fork trigger long before it has 75% hashrate.  (And it will likely be even lower, since basic game theory says you should cheat this one by announcing support for it, and then not mine on the fork.  So there is no way to know if the fork has a mining majority at all before the fork is supposed to happen.)  30 minutes is common today.  Even an hour is quite common.  I don't think 30 minutes between blocks will stop anyone from using bitcoin.  It didn't in 2010 when someone pushed up the difficulty, and then suddenly stopped mining to show Bitcoin's weakness, and why should it this time?

This is only technically, and you have financial measure: First make sure non of the major exchanges support the exchange of the minority coin, and then using millions of pre-fork coin to crash the value of minority coin if there is any exchange for that coin, so when the value of that coin goes to single digits, it will be less valuable than even litecoin, no hash power will stay, and that chain will die in a few days maximum

[sturle]

This is only technically, and you have financial measure: First make sure non of the major exchanges support the exchange of the minority coin,

Yeah, and then we can make it rain gold, and travel in time, and profit!

Most exchanges and merchants are with standard Bitcoin.  I think the exchange with the most users is Localbitcoins, and Localbitcoins are not going with any of the forkers.  This is more than enough to make sure Bitcoin will still be liquid.  I will never switch to a fork myself.  If I try to sell an altcoin as Bitcoin, I am going to get sued and ruined on the first attempt.

AFAIK only Coinbase has stated support for one of the hard forks ("Classic").  BitPay has it's own fork, but not publicly stated they will try to force anyone into using it instead of Bitcoin.  A couple of others have stated support for larger blocks, but not specified any specific solution to the problem.

[johnyj]

This is only technically, and you have financial measure: First make sure non of the major exchanges support the exchange of the minority coin,

Yeah, and then we can make it rain gold, and travel in time, and profit!

Most exchanges and merchants are with standard Bitcoin.  I think the exchange with the most users is Localbitcoins, and Localbitcoins are not going with any of the forkers.  This is more than enough to make sure Bitcoin will still be liquid.  I will never switch to a fork myself.  If I try to sell an altcoin as Bitcoin, I am going to get sued and ruined on the first attempt.

AFAIK only Coinbase has stated support for one of the hard forks ("Classic").  BitPay has it's own fork, but not publicly stated they will try to force anyone into using it instead of Bitcoin.  A couple of others have stated support for larger blocks, but not specified any specific solution to the problem.

Ultimately, it is those who have the most coins decide. It does not matter if localbitcoins would support the minority coin, the price there will be single digits due to the millions of coins' sell pressure

Of course if the exchanges can not reach a consensus (basically they follow the major hash power), then it means the consensus is not yet enough strong, it must come from enough users , exchanges and miners together, so 75% hash rate is enough strong, given enough support from exchanges and users

Imagine an extreme situation: A person with 1% of hash power but holds 90% of coins and billions of dollars, he can destroy any fork he does not like and force all the hash power move to his fork by pumping the exchange rate of his fork

I think it is wrong to think that you are still running standard bitcoin, it is not bitcoin anymore, it is already forked so many times and now it is very different than original bitcoin, and after the implementation of segwit, the architecture had major change, I think that version should change name to Pietercoin

[sturle]

This is only technically, and you have financial measure: First make sure non of the major exchanges support the exchange of the minority coin,

Yeah, and then we can make it rain gold, and travel in time, and profit!

Most exchanges and merchants are with standard Bitcoin.  I think the exchange with the most users is Localbitcoins, and Localbitcoins are not going with any of the forkers.  This is more than enough to make sure Bitcoin will still be liquid.  I will never switch to a fork myself.  If I try to sell an altcoin as Bitcoin, I am going to get sued and ruined on the first attempt.

AFAIK only Coinbase has stated support for one of the hard forks ("Classic").  BitPay has it's own fork, but not publicly stated they will try to force anyone into using it instead of Bitcoin.  A couple of others have stated support for larger blocks, but not specified any specific solution to the problem.

Ultimately, it is those who have the most coins decide. It does not matter if localbitcoins would support the minority coin, the price there will be single digits due to the millions of coins' sell pressure

In that case the numbers are currently 99.36% on Bitcoin's side, with only 0.64% on the fork's side.

Of course if the exchanges can not reach a consensus (basically they follow the major hash power), then it means the consensus is not yet enough strong, it must come from enough users , exchanges and miners together, so 75% hash rate is enough strong, given enough support from exchanges and users

Consensus is important among nodes, not miners.  Miners who don't follow the consensus rules are simply mining invalid coins, and ignored by the nodes.  No matter how much hashrate they have.  Miners aren't important in that regard.

Imagine an extreme situation: A person with 1% of hash power but holds 90% of coins and billions of dollars, he can destroy any fork he does not like and force all the hash power move to his fork by pumping the exchange rate of his fork

Well, you have pumps and dumps of altcoins all the time.  It is pretty much what defines an altcoin.  In the past it was common for Bitcoin as well, but the economy is too large now.  I don't think anyone will be willing to risk that much money on pumping some fork.

I think it is wrong to think that you are still running standard bitcoin, it is not bitcoin anymore, it is already forked so many times and now it is very different than original bitcoin, and after the implementation of segwit, the architecture had major change, I think that version should change name to Pietercoin

There have been some bugfixes and improvements which achieved consensus.  Segwit is a small change, and a large improvement.  Coinbase doesn't like it, since it improves privacy and make their chainanalysis much more difficult, but fortunately Coinbase only make up a very small part of the global Bitcoin network, and many Bitcoin users dislike Coinbase's practices. 

I am only aware of one hardfork after Satoshi, and that one was a small bugfix to overcome limitations of a database library.  The hardfork is theoretical.  The other side of the fork has never mined a block that I am aware of, but if you run Bitcoin 0.6 on a node today, with no changes to the configuration, it will eventually stop syncing because it fails to validate a block due to too many DB changes.  (I don't remember the exact height.)  If wou want to, you can start mining from there using 0.6, and you will make an actual hard fork.  Other pre-fork nodes (if any) will pick it up.

[SebastianJu]

It will be about 30 minutes between blocks, due to the intentional trick which makes the hard fork trigger long before it has 75% hashrate.  (And it will likely be even lower, since basic game theory says you should cheat this one by announcing support for it, and then not mine on the fork.  So there is no way to know if the fork has a mining majority at all before the fork is supposed to happen.)

I think that the biggest pools are often enough serving other miners or have customers. Claiming to do one thing and doing another would actually result in a huge customer loss. So I doubt that will actually come into play.

Of course if the exchanges can not reach a consensus (basically they follow the major hash power), then it means the consensus is not yet enough strong, it must come from enough users , exchanges and miners together, so 75% hash rate is enough strong, given enough support from exchanges and users

Consensus is important among nodes, not miners.  Miners who don't follow the consensus rules are simply mining invalid coins, and ignored by the nodes.  No matter how much hashrate they have.  Miners aren't important in that regard.

Even when the majority of nodes would promote different blocks, which assumes that the fork already happened and that miners would accept these different blocks as valid, the miners simply would need to make sure that they connect to nodes that give them the blocks they want and all the other nodes would not matter much anymore.