In this post we'll be discussing the Difficulty Bomb. However, please note that the Difficulty Bomb's purpose is not ONLY to adjust the inflation rate.

Ethereum Difficulty Bomb: What Is It? (In Detail)

However, finding the key is no easy task. It's much like trying to find a needle in a haystack: You could find it immediately, or it could take you a very long time. The time in takes to find the "key" or block – is known as the Block Time. 

An adjustment to increase the block-time is known as a difficulty bomb

​​​​​​​​​The time it takes a miner to find a block will increase. Hence, it gets more difficult for him to earn his rewards.

Conclusion: Difficulty Bomb, Ethereum Inflation & Prices

The Difficulty Bomb in Ethereum  can/will be used to adjust the time it takes a miner to find a block. This has a direct impact on Ethereum's inflation rate since it reduces the speed at which miners receive rewards. This, in turn, will reduce the total expected supply of Ethereum for the years to come. If supply goes down, prices will go up. If prices go up – then purchasing power  of each Ether increases. 

As of this writing, the average time it takes a miner to find a block in Ethereum is around 14 seconds. Remember, new Ether is issued to the miners as a reward each time a new block is created/validated. A difficulty bomb will decrease the rate at which these rewards are handed out And, in turn, reduce the inflation rate in Ethereum.

Ethereum's Casper was supposed to include a difficulty bomb along with Proof of Stake. As of now, both Casper and the difficulty bomb have been delayed. 

The past thirty days have seen a prolonged debate on an important matter: Ethereum’s Issuance. But be it an important matter or not – few of us seem to understand what’s going on.

To be fair, this issue has complexities that has brought indecision to even the best minds of this space. So, it’s not surprising that many of us have decided to glaze over the issue. However, as a community, we owe it to ourselves to understand at least the basics of this issue.

In this post, I will break down the Ethereum Issuance debate as simply as possible.  This will be an easy read – and by the end of the post you will have a firm understanding of what is going on.

Ethereum is “inflationary”. You hear it all the time. But many don’t seem to understand how the inflation is caused. It’s rather simple.  Ethereum miners get rewarded for mining new blocks. These miners get rewarded/paid in Ether. But this isn’t “existing” Ethereum; this is Ether that is freshly minted/created.

Essentially, miners are rewarded by issuing freshly minted Ether into the system. This “inflates” the existing supply in the market.  Hence the term “Inflation Rate”

The Ethereum inflation rate and issuance rate are pretty much the same thing – for the most part. There’s a tiny ‘difference’ that is worth discussing.  Let’s think about this for a second. There are two factors that will affect Ethereum’s inflation rate:

1. The speed at which fresh Ether is given out
2. The AMOUNT of Ether given out each time

Analogy
I can give you one piece of candy every minute; OR give you ten pieces of candy every ten minutes. Either way, over time I inflate your candy supply  at the same rate. You’ll have 100 candy pieces in 100 minutes.

Speed of Ether Issuance

Currently, the speed at which Ether is issued out is pretty stable. Ether is issued to miners as a reward each time a new block is created/validated. As things stand, the time taken to create a block is relatively stable at ~14 seconds.

However, if Ethereum increases the difficulty of “block creation”, then it will take longer to create each block. This is what people are referring to when they mention the “difficulty bomb”.  If it takes longer to create create blocks, then less Ether will be rewarded over a period of time

Analogy
I stop giving you 10 pieces of candy every 10 minutes, and instead give you 10 pieces of candy every 15 minutes. After 100 minutes, you’ll have only 66 pieces of candy (instead of 100)

Amount of Ether Issuance

The amount of Ether issued for each reward is the next driving factor for Ethereum’s inflation rate. And this is the most debated factor at the moment. Ethereum is currently issuing roughly 5.5 Ether per block (as rewards) If Ethereum decides to reduce the amount of Ether given out per reward, then the inflation rate will drop regardless of the difficulty bomb.

Analogy
I keep giving you candy every 10 minutes. However, I give you only 6 pieces of candy each time – instead of 10. You’ll have only 60 pieces of candy after 100 minutes.

The Problem

Reducing the Ether issued will cut into miner profits. But not reducing Ether issuance will anger the rest of the community (more on why later)

The current inflation rate is around 7.3% annually. The Ethereum community was promised somewhere around 2% - 4% with the release of Casper. (In fact, Vitalik once quoted ~0.5% as a feasible number – leading to even more expectations)

So, the community has been patiently waiting on a reduction in Ethereum’s inflation rate. This was supposed to happen with the release of Ethereum’s Proof Of Stake: Casper. If you’re keeping updated, you know about the delay on the Casper release.

​Casper was also supposed to include a “difficulty bomb” that would increase the time it takes to find a block. This would decrease the ethereum inflation rate

However, since Casper has been delayed, the community wants the matter of issuance being addressed right away.  If Ethereum has to delay the difficulty bomb, then the other course of action is to reduce the amount of Ether being issued per block. Many community members are advocating for a reduction of issuance that would align inflation rate to ~2%.  This would align the inflation rate to what it would be if Proof Of Stake was not delayed.

However the Ethereum Miners don’t like that idea – since it would cut directly into their profits. It’s important to note that Ethereum is still using Proof Of Work – which consumes a lot more power per block than Proof Of Stake would. Many miners claim that they would be forced off the network since the rewards would not be enough to cover their costs.

Miners do more than just process/validate our transactions. Each miner contributes to the security of the network via their hashpower. If overall hashpower drops, the network is easier to attack. (I touch on this in a YouTube video on 1% Shard Attack)

Essentially, the more miners we have, the more security we have. If miners drop off the network, security will begin to drop – and we’re more vulnerable to attacks.

As you may now be noticing, this issue does not have an easy solution. But we can get a better idea of which direction to take. First, let’s quickly go over where we currently stand.

The current Ether that is being issued is roughly 5.5 Ether per block. It’s important to note that unlike Bitcoin, the reward issuance is not straightforward.  Here is a simplified breakdown of the rewards distributed:

• Block Reward:  3 Ether
  Uncle Rewards:  ~2.4 Ether
  
  
• Total Ether issued per block: ~5.4 Ether   (Issuance reduction will decrease this)
  No. of blocks per day:  ~6000 Blocks (difficulty bomb will decrease this)
  ​
  
• Current Annual Increase:  ~7.3% (issuance reduction and/or difficulty bomb will reduce this)

(If you know what are Uncle Rewards , then you can skip this section)

Unlike Bitcoin, Ethereum rewards miners that find blocks that don’t make it into the longest chain. These blocks that are considered “stale” in Bitcoin, and are orphaned. In Ethereum these are called Uncles and are rewarded for their work.

This is primarily because Ethereum has a much lower block-time (the average time required to find a block). This “small window” may result in smaller miners unfairly losing out on potential rewards due to network latency etc. As such, miners are rewarded for their work.

Of course, we cannot predict the exact number of Uncles – but we’re estimating that around 2.4 Ether will be given out to Uncles on average. Uncle Rewards are important because they:

a) Incentivise decentralization (small miners are less likely to join pools)
b) Increase the security of the chain. (more on this in another post)

Alright, now the fun part. There are three proposals – Ethereum Improvement Proposals  (EIPs) to be specific. Here’s a list and summary of each of them:

This would be a significant decrease from 3 ETH to 1 ETH. It would probably put several small/mid-size miners in the negative profitability.  Many miners may drop off the network. However, this would probably benefit miners who have access to cheap electricity since they will be able to accrue more rewards for themselves. Larger miners may probably benefit for the same reasons.

This will be a significant reduction to the Uncle Rewards – from ~2.4 ETH to  ~0.56 ETH. Ouch. This will affect small miners the most since they rely on the Uncle Rewards. Furthermore, this reduces the incentive for them to remain independent; and may lead to larger shift of small miners to joining pools.  Of course, larger miners who aren’t affected by network latency issues do not get affected by this reduction. They benefit the most from this since the issuance will be maintained.

This EIP seems to be receiving the most favour from the community. It serves as a good middle ground. it will still eat into profits of miners, but not as significantly as the reduction that EIP 858 proposes. EIP-1234 does seem to have an air of “compromise”. It will offer developers enough time to develop & release Casper while keeping both sides of the community at bay. Is compromise the best way to go? -shrug-

 A vote took place – that lasted 30 days – where the community voted on their preference. Although the results were leaning significantly toward one side, these results are not binding. The vote was more-so to gauge community sentiment. Quite frankly, this issue is far too important to be decided over a vote like this. It requires serious consideration & research.

There was a core-dev meeting that took place last week where the matter was discussed. It seems like the developers are leaning towards EIP1234 – the reduction to 2ETH. However, I'm not certain if this has been confirmed.  If so, EIP1234 will be included in the upcoming hardfork scheduled for mid October.

I’ll keep you guys posted – and I will be updating this post regularly as news develops.

UPDATE:  Seems like EIP1234 has been accepted – on a conditional basis, however. Furthermore, the proposal still remains in a "draft" state, and minor changes may be made before finalisation

There has been a lot of talk about Bitcoin ETFs recently - So let’s explore the basics of what a Bitcoin ETF really is, and the implications of it. 

Put as simply as possible, an ETF (Exchange Traded Fund) is traded on the stock market just like a stock, but instead of being a share in a public company such as Amazon, it tracks the price of an asset instead. 

There are many types of ETF's that track different things, but for simplicity lets use Gold as an example:

If you think gold is going to rise in price, you could go to a stock exchange and buy shares of a Gold ETF, which can be shares in a Trust which stockpiles physical gold. If gold goes up, the ETF shares will go up similarly. This way, you don’t have to go to a futures market or hold any gold yourself. 

A bitcoin ETF would be similar to the above example: an easily tradable asset that ultimately tracks the Bitcoin price. Traders and investors could go Long (buying in anticipation of increasing price) or Short (selling in anticipation of decline).

It may not matter much at all. We got this far without an ETF after all. However the clearest benefit to a Bitcoin ETF is in opening the market to many more participants and significantly more capital. 

In much the same way as you don’t want barrels of crude oil in your living room, many individuals and institutions don’t fancy getting their hands dirty on the unregulated, uninsured, hackable, dodgy overseas crypto exchanges such as Bitfinex.

Many ETFs have been proposed to the SEC (US Securities Exchange Commision). However, all but one of these were all recently denied by the SEC, killing most of the dreams and leaving one last man standing: The VanEck SolidX ETF.

This is the ETF you have probably heard most about, brought to the SEC by a partnership of Investment firm VanEck and financial services company SolidX. This proposal is also endorsed by the CBOE (Chicago Board Options Exchange), known for launching their Bitcoin futures in December), and if approved it would trade on the CBOE exchange.  

Buying this proposed ETF would basically represent shares in a Trust, and the Trust’s assets would be securely-stored Bitcoin (insured against loss or theft). Therefore as bitcoin rises in price, the assets of this Trust appreciate and make money.

ETF Hopefuls file a “Proposed Rule Change” to the SEC. When received, the SEC posts a “Notice of Filing” and then has 45 days to approve or deny (or delay decision on) the proposed ETF. 

Here is the Notice of Filing for the most hyped up ETF of the year, the VanEck/SolidX ETF (mentioned above):

“Notice of Filing of Proposed Rule Change to List and Trade Shares of SolidX Bitcoin Shares Issued by the VanEck SolidX Bitcoin Trust”

VanEck/SolidX ETF Approval - When Will We Know?

The SEC delayed the decision on the VanEck/SolidX ETF to September. They are able to delay further 2 more times, and very likely to do so. This gives the deadlines of:

1. September 30

2. December 29

3. And finally, February 27 

Bitcoin ETF's & The SEC - What Does It All Mean?

The SEC is not friendly to these proposals, and their reasons are clear.

The Bitcoin market is unregulated, easy to manipulate, and not liquid enough (not enough trading volume occurs). The SEC are concerned that Bitcoin trading almost exclusively 

occurs on unregulated venues overseas that are relatively new and that generally appear to trade only digital assets.

Given these problems, the VanEck/SolidX ETF is also in trouble, as currently it does not appear to solve any of them. There is a low likelihood that it will be accepted, at least before the Crypto markets have matured a whole lot.

While an ETF would be great for adoption and more widespread trading of Bitcoin, it is certainly not a necessity, and many other projects are in the works, such as those listed in our article:

Sharding has morphed from an obscure concept in 2017 into the buzz-word of 2018. The need for blockchain scalability has become glaringly obvious, and several projects have turned to Sharding as a solution.

However, Sharding a blockchain is not a simple task. In fact, it poses challenges that have our best thought-leaders scratching their heads. Several projects have made lofty promises of future scalability using Sharding. But, only few have provided a viable Sharding solution for mass adoption. RadixDLT is one of the rare projects that brings forth a novel approach to Sharding –– an approach that seeks to meet the demands of mass adoption

Right from its conception, the goal for Radix was:  Every single person, on every single device using a single protocol simultaneously.

​Every single person, on every single device using a single protocol simultaneously.

The RadixDLT Sharding architecture was designed (unlike other projects that approached Sharding “after-the-matter”)  to allow for unbounded scalability while maintaining security, and maximizing decentralization.

In this post, I will explain how Sharding works in Radix in a simple way – without any technical jargon.

Break a window, and you have shards of glass. Break an iceberg and you have shards of ice. A shard is simply a broken piece of ‘something’.  So, when you “shard” something, you’re simply breaking it into smaller pieces.

But, why do we shard? Well, you usually shard something because it’s easier to manage. For example, we ‘shard’ a large pizza because it’s easier to eat one slice at a time. It also allows us to share (distribute) the pizza with friends a lot easier.

Similarly, when a database gets too large to handle, we shard it and distribute it across multiple computers. There you go –– you now understand distributed computing & Sharding. It’s really that simple.

Sharding has been used to partition databases for a long time. You simply cut the database (think of an excel sheet) horizontally into several pieces and distribute across multiple “database servers” (machines that ‘serve’ you data when you need it). When the data needs to be retrieved or processed, the relevant database server is called upon to do the task.

In Blockchain these “servers” are what we call “nodes”.  However, Sharding a decentralized system isn’t as straightforward as we’d like. There are complications that a centralized system doesn’t need to concern itself with.

Every distributed system requires a Consensus Method. But, developing a Consensus Method for a Sharded blockchain is tricky. You find yourself sacrificing security in favor of scalability.

Why? Well, a huge component of the security comes from the fact that every node stores all the data. Since every node keeps a copy of the entire database – you can’t cheat/lie about past events. But when you shard that database, each node stores partial data. Suddenly, you can tell Node Bob one thing, and tell Node Lisa another.

To understand this better, think back to when you were a kid.

Remember when your Mom grounded you and your Dad didn’t know about it? If you were anything like me, you tried to sneak out by asking your Dad for permission. Dad didn’t have all the info. And you took advantage of it.

Mom and Dad represent a Sharded database. Sure, together they have all the info needed to run the household. But as individuals, they don’t – and can be lied to about past events (like you being grounded or not)

Founder & CTO  Dan Hughes identified the scalability issues that would plague Bitcoin back in 2012. After several attempts at improving the protocol, he realized that the only solution is a brand new architecture and consensus method. Six years and a lot of sweat later, he brought us Radix DLT – a unique Sharding approach and consensus algorithm.

Radix DLT approaches Sharding in a unique but simple manner.  Most projects take existing Consensus Methods and build a Sharding solution on top of it. But as discussed, this leads to sacrificing security. For example, Sharding on PoS network could result in a One Percent Shard Attack.

Radix, however , started with a Sharded network –– and built a unique consensus method on top of that network. This “Sharding-first” approach allowed them to bypass the limitations faced by other consensus methods.

Essentially, Radix began with the end state in mind, which is:  every single person on every single device using a single protocol.

Radix’s pre-sharded network serves as a fundamental around which they have designed their consensus method (Tempo).

The size of each shard, and the number of total shards are predetermined. Nodes then place themselves atop shards – and can overlap with other nodes in layers. 

This is where it gets interesting…

Remember, every shard has already been created. They all live in the same “Universe” and their location ID is known. Every transaction is stamped with a blend of the sender’s ID and shard ID.

This makes it extremely simple to locate the Shard from which the transaction that has been sent.  Now, if Node Bob tries to double-spend his $10, we don’t need to check every other shard to catch him cheating. We can simply check his shard.

To better understand this let’s go back to our Mom & Dad analogy

​Your Mom grounds you. But this time, she stamps your forehead with the word “Grounded”. You now go to your Dad’s study room and ask him if you can out to play. Your Dad simply looks at your forehead and says “Nope”.

He didn’t need to go check with your Mom. He didn’t need all the info – and was still able to stop you from cheating.

Similarly, the overlapping of nodes and easy cross-shard communication allows each node to store partial info. Which essentially means: not all nodes have to store all the data!  This plays a significant part in Radix’s massive scalability without sacrificing security.

(I simplified this, of course. But we will discuss more on Atoms, Universes timestamping & Temporal Proofs in future posts)

As mentioned earlier, the need to store and process every transaction is a huge limitation for blockchains. Radix is a cleverly designed network that avoids this limitation.

Radix has presented an innovative and noble approach to solving the scaling issues of DLTs. 

Over six years of sweat and frustration, Dan Hughes and team remained true to the goal: Every single person, on every single device using a single protocol simultaneously. The project is still in alpha and the team urges us to participate and help find any potential issues or flaws. 

​Although this was an introductory explanation, I’m sure you can’t help but wonder... Will Radix DLT be the answer to the burning question for mass adoption? Time will tell.

The current process for clearing and settlement is wasteful – and blockchain tech is poised to change that. The results will be a net gain for everyone -- not just for businesses, but for consumers as well.

We tend to take our daily transactions for granted. It’s as simple as swiping your credit card or depositing a cheque, right? Wrong. It only seems that way. In truth, every transaction you make is simply a promise. Once the promise is made, a clearing house steps in to facilitate and  settle the promise .

The clearing house consists of a plethora of middlemen. They ensure that the finality & settlement of the promise made. And in return for their good-deed, they charge you hidden fees. Ding!

Businesses have to endure these unnecessary fees as well – but on a grander scale. They trade securities that have various risks managed by the clearinghouse. This leads to higher fees. Businesses are then forced to pass these costs down to their consumers.  Ding!

We essentially get Double-Dinged!  But wait – it doesn’t end there. Since we’re getting double-dinged, we have less money to buy stuff. And because we have less money to buy stuff, businesses lose profit. Businesses now have to either increase prices or close shop. As you can see, it’s just one never-ending loop of economic waste!

However, eliminating the middlemen like settlement Clearing houses has been all but a fantasy… until the advent of blockchain technology.

Our current models of eCommerce are facing a hasty demise. Enterprises have been swift to leverage blockchain clearing and settlement solutions. The efficiency and cost savings that the technology delivers has been far too enticing to ignore.

Traditional methods of clearing and settlement rely on middlemen to facilitate trust & security. But the friction is so severe that it can take weeks to settle a single transaction.

However, blockchain and distributed ledger technology provide trust & security without  a middle man. This reduces friction and costs for all parties. Furthermore, transaction settlement is conducted within seconds! The resulting cost savings are massive – which are then passed down to consumers.

Across the globe, big name firms and established players have been experimenting with blockchain and distributed ledger technology. The list extends from one end of the world to the other

USA based Broadridge Financial Solutions will be using blockchain trade settlement in the repo market.  Broadridge believes that blockchain technology can

1. Reduce counterparty risk

2. Eliminate wasteful manual intervention

3. Streamline current processes for confirmation

4. Increase audibility, and transparency

London based SETL already utilizes a blockchain platform for settlement of payments. They empower participants to deploy their own blockchain within minutes.

In 2016, India based uTrade was the first Indian company to  employ a blockchain technology for trade settlement. Their “uClear” blockchain platform allows for real time clearing and settlement of securities.  Fast forward to 2018, and we have the Security and Exchange Board of India (SEBI) have begun exploring blockchain technology for trading the stock market.

The Australian Securities Exchanges (ASX) isn’t interested in falling behind either.  ASX will be launching their blockchain based financial services by 2021. The goal is to allow stockbrokers & fund managers to use the blockchain for real-time settlement and tracking.

Established processes and policies have firm roots in modern day operations. Uprooting these policies and redistributing resources will be the biggest challenge firms will face. Change is not easy – and will face strong resistance and certain junctions. Furthermore, the technology itself requires to be battle-tested some more. The complexity combined with the shift in mindset may cause onboarding issues.

Even with the political and regulatory resistance, the adoption of the technology has been moving forward. As understanding increases, decision makers will be coaxed into action by the following advantages:

1. Drastically reduced transaction costs

2. Near instant settlement and clearing

3. Easier Risk management

4. Increased Transparency

Blockchain technology is paving the way for a financial revolution that eliminate a lot of economic waste.

Businesses – small or large – face issues with finality of payments quite often. A consumer can attempt to reverse his payment made via VISA or PayPal. In these scenarios, settlement finality conflicts are handled by the middleman.

However,  middleman-solutions are always going to be a point-of-weakness for finality. What if people in key positions are bribed?  What if  centralised servers are hacked? In a centralised solutions, there's always a chance that finality is reverted. Each intermediary will pose a risk point.

Comparatively, a blockchain uses no intermediary. It achieves finality via it's consensus method. Notable consensus methods are Proof Of Work and Proof of Stake. Both of which eliminate several weaknesses of centralised systems. However, neither of them achieve true finality. Finality will always be probabilistic (i.e there's a chance – however small – that a transaction can be reversed) 

First, let's go over finality in proof of stake and proof of work.

Settlement Finality: Proof of Work & Proof Of Stake

​In this post Shawn explains the Nothing At Stake Problem simply. He goes over the nothing at stake definition, and also touches on nothing at stake Casper issue.

 Nothing At Stake definition: –  a situation where someone loses nothing when behaving badly, but stands to gain everything.​

In this post Shawn explains the heated EIP-999 debate. He goes over how it happened and why the EIP-999 & Parity controversy is ruffling so many feathers.

A cauldron of drama-soup is boiling in the kitchen – and most of us are too distracted to smell what’s cooking.   Either we're too busy refreshing Blockfolio or the EIP-999 drama has too much technical mumbo-jumbo for the new members. Well, the soup is being stirred again – and perhaps it’s time we pay attention.

As a community we need to have an open discussion about this. For that, though, we need to first understand what is going on. In this post I’ll try to explain the issue as simply as possible.

A somewhat comical incident led to a disastrous consequence.  An anonymous developer managed to gain ownership to a Smart Contract – and then killed it.

But this wasn’t just any smart contract. It was the underlying contract to Parity Technlogies’ Multi-Sig Wallet – which held 514,000 Ether.  That’s worth around $300,000,000.

Killing the smart contract resulted in 514,000 Ether being utterly inaccessible.

Seems like Parity goofed up on auditing their smart contracts….

One of the contracts was left ‘uninitialized’. And a anon developer was able to simply take ownership by initializing it. Yeah... that simple.

He then went on to hit the self-destructo-button and killed it. Why? I’m not sure. He probably fumbled. It seems like an “oopsies!” moment. Either way, the contract is dead. Kaput! Gone. it was a disaster

All Parity Multi-Sig Wallets created after July 20th 2017 relied on that contract and without it – they can’t function. Funds in those wallets were effectively… burned?

Around 600 wallets had their funds rendered inaccessible… indefinitely. Parity now have a lot of unhappy customers – some of which are big name ICOs.  (It’s important to note, however, that Parity haven’t lost any funds themselves.)

A solution was proposed a couple months ago: EIP-999. An EIP is simply an “Ethereum Improvement Proposal”. Put in simple terms, the proposal was:

“Let’s just simply restore the contract with a patch”

This patch would replace the self-destructed contract with a brand new contract. This new contract basically:

• Allowed users to access their funds.
• Contained a fix for the previous ‘bug’. (bug or..oversight?)

The patch is simple – but the consequences are not. A code change like this will result in a hard-fork. A hard-fork isn’t necessarily a bad thing. In fact, the Metropolis upgrade was a hardfork and everything turned out fine.

It’s when we have a “contentious” hard-fork that things get really ugly. Why? Because a hard-fork requires miners and nodes to perform a software update. If the software update is “contentious” (controversial/debated) then we may not have 100% agreement on the upgrade.

If some participants decide to upgrade and others don’t, they will “fork” off into two different chains. We will have a chain split – fracturing the network and the community.

EIP 999, unfortunately, turned out to be a contentious proposal. 

Some people say EIP-999 is the “right thing to do: people deserve access to their money”.

But others say that it’s "not fair – parity shouldn't get special treatment". And then there are the “code is law: deal with it” advocates.

There are many camps, but ultimately it’s either: “For EIP-999”  vs “Against EIP-999”. A vote took place to gauge community support.

The vote was informal, but was enough to see that the community was at odds.  And this is why we should care. Because if there are enough people who disagree with the other side, then a chain split WILL occur.

At that point it won’t matter what’s fair, what’s right, what’s law etc.... The community will be fractured, and a narrative will be spun for both sides.

A few days ago the EIP-99 was set as “Accepted” on GitHub because it was “not technically objected by the devs”.  (So not saying ‘no’ means ‘yes’, now…)

Apparently this was done in error, and was quickly reverted. But it still stirred things up. And now it seems like there are changes being made to the EIP process to bypass community consensus

The cauldron is beginning to simmer.

All of this makes for an extremely intriguing case study. It’s in Parity’s best interest to have EIP-999 passed. But Parity doesn’t want a chain split either.  So the only way they can have that is to have EIP-999 be passed without contention.

Well, there’s clearly contention… Now what? Are they going to pass it under EIP-1 because it is “technically feasible”?  Oh dear...that would open a new can of worms.

And what about the people screaming “Not fair!”? Last year, QuadrigaCX – Canada’s largest exchange – faced a similar issue and had a huge amount of Ether rendered stuck. At the time, general consensus was “Your shit out of luck – Double check, triple check your godam code!”

Should Parity be held accountable for lack of auditing standards?

In the 2008 financial crisis, big banks were bailed out to utter disdain of the public. Regardless of whether the bailouts were the right move or not, people were upset. But unlike the Ethereum network, people couldn’t simply “fork off”.  

It’s up to the community to step up and show that we are better than the rest. Someone is going to have to bite the bullet and set the stage for future dilemmas. Who is it going to be?

Either way, it’s now evident that we need more thought and discussion put into:

a) The Governance Process
b) Auditing smart contracts with more seriousness

Randy asked a great question in regard to The Longest Chain Rule & Forks. Over the last few posts, we’ve established that Consensus Methods are not as worried about “verifying” transaction but are more concerned with the “ordering” of transaction. When a fork occurs – we have a dispute in the correct ordering. The Longest Chain Rule kicks in and will fix that dispute for us. Awesome! Hope that is clear. If not, I suggest you read through the posts linked above!

Ah, this is such a great question!  Because it brings us one step closer to understanding the 51% Attack and Double Spends.

Cassidy is concerned about losing her BTC – and understandably so.  She’s always trusted the bitcoin blockchain, but now I’m telling her that her transaction may end up on an “orphaned chain”.  

Orphaned Blocks - The Key is in your Wallet....

A common misconception is that people tend to believe that their BTC or ETH is stored “within” their Wallet.  So, when they send a transaction – there is a belief that they are taking out some BTC (or ETH) and putting it in someone else’s wallet.

This is completely untrue.  But I don’t blame people for thinking that way. The term “wallet” is probably what confuses people. The term “wallet” was probably used to help user adoption, but it’s made explaining the technology even more difficult.

Your Bitcoin or Ethereum Wallet is not like your traditional wallet. It does not hold any of your funds.  

Don’t think of your Wallet as something that holds your BTC or ETH – but more so as something that holds the keys to access your funds.

Your keys allow you to say to the blockchain, “I have the right to spend these funds”

In the previous post I explained the Longest Chain Rule using an analogy. The analogy seemed to help several of the Mango Readers grasp the importance the rule plays. If you haven’t read it yet, I urge you to do so. The Longest Chain Rule plays a vital role in the Bitcoin and Ethereum consensus mechanism. Furthermore, it may also clear out other doubts you may have concerning Blockchain Forks.

This brings me to a question I received from Randy yesterday:

“Hey man,
Great explanation on longest chain!  
Quick question:  
" Why do we have 'Forks' if we have the Longest Chain Rule? 
Is the longest chain rule applied during a 'fork' ? "
​Cheers! - Randy “

Quick Answer:  Yes, the Longest Chain Rule will kick in when forks appear. Each fork will have its own chain and miners can pick which one to apply their work on. But eventually the longer of the chains will be declared the winner – and all miners will apply their work onto that chain.

That’s the quick and dirty answer. But I’d like to dive a bit deeper into this – and run you guys through exactly how this happens.

Why? Because understanding the Longest Chain Rule will be fundamental in allowing you to grasp other ideas (for example: 51% Attack).  In fact, once you grasp this idea – most of the other concepts will become super easy and intuitive.

Longest Chain & Blockchain Forks

But what exactly is a “fork” ? 
A fork is simply an occurence of a disagreement. Remember, the primary aim of a consensus model is “ordering of events”.  

Questions that fall under “ordering of events” criteria:  
Q) “Who gets to place the next block?”
Q)“Whose transaction gets verified first?”

Going back to the Farmer Analogy – the fork was simply the two rows that were placed at the townhall.  Up until the disagreement, everything was fine and dandy. Once the disagreement occurred – two rows were laid. Each row represented a decision. Villagers will vote by placing their sacks of rice in each of the two rows and the longer of the two rows will win.

It’s a similar process in a blockchain. Initially, everything is fine & dandy – and there’s only one “main chain”.  When a disagreement occurs, the chain splits into two. This is called a “fork”.

(It’s kinda like when you’re driving down the main road and it “forks” into two different paths. You have to now choose between two paths. In the blockchain, the mainchain splits into two –  and the miners now choose between two chains.)

But why do disagreements occur? Isn’t proof of work supposed to solve that?  

Why Do Blockchain Forks Occur ?

The Proof Of Work Consensus model is designed to allow the network come to agreement. So forks like this shouldn’t happen, right?

If you read my post on the PoW Cryptographic Puzzle, you know that miners compete against each other to win the right to place the next block.

The “winner” is the miner who solves the puzzles first. The rest of the network then “agrees’ that he gets to place the next block – and they will continue the process with his block being deemed the last approved/valid block.

Let’s say the last valid block is Block A. Miners are now competing fo Block B.  Miners will attempt to solve the puzzle until they hear a winner is declared. “

However, ever so often – we may have two “winners” simultaneously.

Since, the winner is broadcasted and propagated through the network  – different participants may hear a different winner. Once a winner is declared and “heard”, the miners accept that winning block and move on to the next block. 

So now we may have one group of miners accepting Block B, and the rest of the miners accepting Block B2. Hence, fork…