“A stream is simply a life context formed by all the information flowing towards you via a set of trusted connections — to free people, ideas and resources — from multiple networks. If in a traditional organization nothing is free and everything has a defined role in some grand scheme, in a stream, everything tends steadily towards free as in both beer and speech. “Social” streams enabled by computing power in the cloud and on smartphones are not a compartmentalized location for a particular kind of activity. They provide an information and connection-rich context for all activity.” – Breaking Smart
Bitcoin $BTC and BitcoinCash $BCH have potential “hard forks” on November 16 and 13. The concept of a “fork” has many of our readers confused. As such we decided to explain why we are not afraid of them and actually see these forks as an improvement over historical methods for solving differences of opinion. We believe forks will supercharge technological innovation in cryptocurrencies and lead to faster mainstream acceptance.
A hard fork is a change to the underlying software that governs a cryptocurrency. For the change to take effect the users, namely miners, need to use the new software. If all the miners adopt the new software then owners won’t notice much difference. However, if only a portion of miners adopt the new software, a divergence is created that results in two versions of the blockchain. This creates a fork in the blockchain, one path which follows the new, upgraded blockchain, and one path which continues along the old path. Owners should receive one new token associated with the new blockchain.
Essentially, hard forks represent a difference of opinion regarding how a cryptocurrency should work. These differences have no obvious right answer. For example, the Bitcoin hard fork essentially comes down to a tradeoff between efficiency and security with Segwit2X supporting an increase in block size limit from 1MB to 2MB (more efficiency) even though this will make it harder for some smaller miners to participate in the network potentially leading to more concentration of power (less security).
We don’t have a strong opinion on which fork is better…our point is that the hard fork method of innovation is one that is vastly superior to traditional methods of problem solving. Here is why.
Traditional problem solving works something like this:
- Problem selection: Identify an important problem
- Plan solution: Determine plan to solve problem
- Resourcing: Acquire resources needed to solve it
- Solution: Solve the problem subject to resource constraints
This formulation is so obvious that you may wonder why we bothered to write it down. It works great when talking about traditional problems. Take building a house as an example. First we determine that we need a house. Then we figure out what kind of house we want. We then assess what resources we have such as available land properties, access to building materials, and financing. Then we build the house.
Now here is an alternative articulated by the by Venkatesh Rao in his online book Breaking Smart. Essentially, Venkatesh argues that many of the more interesting problems we face today have no clear solution. We may not even know we have a problem. Did we know we needed touch screen smart phones? No…at least not until we had them. Here is a summary:
Technological progress in today’s world is so fast paced that we simply can’t plan out solutions in advance. This makes traitional problem solving extremely inefficient. Instead we need open-ended, pragmatic tinkering that thrives on the unexpected. The process is not even recognizable as a problem-solving mechanism at first glance:
- Immersion in relevant streams of ideas, people and free capabilities
- Experimentation to uncover new possibilities through trial and error
- Double down on whatever works.
This is the creative process, and it works great for software. A group of engineers and cryptologists may initially start tinkering with Bitcoin. But down the road they may disagree about some proposed change. Bitcoin core adopted a change called “Segwit” while BitcoinCash did not. This resulted in a hard fork. Now both streams are forking again. Which one will dominate? Will some other cryptocurrency beat out all the Bitcoin forks? Time will tell.
Traditional problem solving makes sense when resources are expensive. You need a plan before building a house. An unfinished house is useless and waste lots of raw material. Software is different. It only costs time to write. This key difference between today and the past 10,000 years of human civilization is what makes traditional problem solving inferior.
But does this apply to the problem of creating a better form of money?
Hard forks are the epitome of the creative process. They allow those with differing opinions to pursue their own stream. Global teams are free to uncover new possibilities through trial and error. There are no large corporations or governments allocating scarce resources from above. Each individual is free to experiment, contribute and follow their passions. Ultimately, markets will decide which approaches work best, providing incentives for all stakeholders to succeed.
The result is a global, decentralized, and organic process that we believe will deliver rapid progress to the usefullness of cryptocurrencies. Those used to the glacier speeds of large corporations and governments are in for a surprise.
Feel free to share your own thoughts on cryptocurrency hard forks. There is no better compliment you can give us than your thoughtful criticism. You can reach us at firstname.lastname@example.org, or follow us on Twitter @intuitecon
Disclaimer: We are long Bitcoin $BTC and BitcoinCash $BCH and occassionally other cryptocurrencies such as #Ether $ETH and #Monero $XMR. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action. Our hope is that these observations will merely help you to more critically examine your own beliefs about finance and stimulate dialogue.