It’s Zaheer. Splitcoins — or at least that’s what they used to be called — are
Spawn of Bitcoin
But even Bitcoin, even its most committed backers would concede, is far from the finished product. For one, it’s never actually caught on as a currency.
On May 18, 2010, Florida resident Laszlo Hanyecz offered 10,000 bitcoins, worth around $41 at the time, in exchange for two pizzas. Four days passed before a British man took up his offer and bought him the pizzas in return for his strange new internet money. It was the first purchase ever made with bitcoin and turned May 22 into Pizza Day forevermore.
(Incidentally, the value of 10,000 bitcoins as of last evening was Rs 4,360 crore. And you thought you had regrets.)
GIF Credit: Giphy
So Bitcoin didn’t have the smoothest start as a currency, and things haven’t changed much since then. That’s down to a combination of factors, which include its limited supply (the total number of bitcoins that will ever exist is capped at 21 million), hair-raising volatility, and the fact that it can only process a maximum of seven transactions a second. (For context, Visa processes about 1,700 transactions a second).
While it hadn’t proven to be much use as an actual currency, Bitcoin has arguably proven its worth since those thin-crust days, if not as a medium of exchange, then at least as a store of value — which is why it is often, and increasingly, called digital gold. Like gold, it offers a hedge against the increasing frequency with which central banks devalue traditional currencies by getting out their magic money printing machines and simply willing gargantuan sums into existence. Gold isn’t issued by any central bank, and neither is bitcoin.
Bitcoin’s biggest achievement to date, though, remains the thousands of other cryptocurrencies and blockchains it has spawned, and the communities they’ve coalesced. But as ‘they’ might say: “You don’t hit a $1 trillion market cap without making some enemies along the way.”
Which brings us to splitcoins — cryptocurrencies that owe their existence to disagreements within the Bitcoin community that caused splits in the blockchain. We’ll look at the most well-known ones, and when and why they came about.
But first we need to understand the two ways in which blockchains can split, through what are called ‘hard forks’ and ‘soft forks’.
‘There is no fork’
A fork in crypto world is when someone creates a copy of the blockchain code and makes changes to it. This could be for a number of reasons: to counter a hack or to improve the code in some way.
In a soft fork, only small changes are made to the blockchain. They take place by consensus — at least 51% of nodes on a blockchain must agree on the changes.
- (A node is simply a device that helps verify transactions on a blockchain. In return for this, their operators earn new crypto in a process called ‘mining’. Yes, the gold analogy runs deep).
Most importantly, soft forks are backwards-compatible — that is, new transactions can be recognised by old nodes (those compatible with the previous version of the blockchain) as well as new nodes on the network.
With a soft fork, the previous version of the blockchain simply ceases to exist and is replaced by the new one. This of course does nothing for the whole ‘fork’ terminology, but some heavy lifting for classic lines from The Matrix.
GIF Credit: Giphy
Hard forks happen when a majority of users do not agree to the changes proposed, causing a blockchain to actually split into two, with proponents of the new changes going off on their merry (or not-so-merry), blockchainey way. One cryptocurrency becomes two. And in the case of Bitcoin, it usually hasn’t ended well for the second.
Here are a few famous cryptocurrencies that came out of Bitcoin’s civil wars.
Bitcoin XT, Classic and Unlimited
The first major split in the Bitcoin chain came in 2014, when Mike Hearn implemented several new features that he felt could make Bitcoin more scalable. One of these was to increase the speed of processing transactions from 7 per second, to 24 per second by increasing the size of individual blocks on the chain from 1MB to 8MB. It had some initial success but the Bitcoin XT ran out of steam in months.
But the scalability problem remained, so it wasn’t long before another part of the community proposed a similar change that led to another fork, called Bitcoin Classic. It differed from XT on block size (2MB vs 8MB) but shared the same eventual fate — irrelevance.
Bitcoin Unlimited came soon after, proposing variable block sizes of up to 16MB. Suffice to say, it didn’t live up to its name.
GIF Source: Giphy
A soft fork stirs a rebellion
In 2015, one of Bitcoin’s core developers, Peter Wuille, proposed a way to allow transactions to take place more quickly not by increasing the block size but by conducting them off the actual blockchain and later settling them in bulk on the chain. It was given the frankly terrible name Segregated Witness. There was plenty of resistance, but in the end a majority of the nodes agreed on the changes and SegWit became a soft fork.
The resentment remained, though, and Bitcoin’s adoption of SegWit spawned many more hard forks down the road.
The first of these was Bitcoin Cash. To this day is the most successful cryptocurrency born from a hard fork. This proposal, like BitCoin XT, allowed the blocksize to be increased to 8MB. It also increased the rate of transactions to 60 a second, higher than XT’s 24 but not earth-shatteringly so.
Bitcoin, which was designed to be decentralised, is arguably centralised in one way — through its miners. Because of the size of the network, only very powerful computers validate transactions and bring home the encrypted bacon. This has led to a sort of arms race, and China now accounts for around 65% of all bitcoin mined globally.
Created in 2017, Bitcoin Gold aimed to solve this problem by changing the mining algorithm in a way that any individual user with an ordinary computer could mine Bitcoin. It has enjoyed moderate success and is currently the world’s 65th largest cryptocurrency with a market cap of about $1.8 billion.
Let’s move on to other big developments of the week
INDIA’S UNICORN WEEK
GIF Credit: Tenor
- On Monday, Meesho landed $300 million in a round led by SoftBank Vision Fund 2 at a valuation of $1.4 billion.
- On Tuesday, Credit card repayment platform Cred secured $215 million financing at a valuation of $2.2 billion. The round was co-led by Falcon Edge and existing investor Coatue Management.
- Also on Wednesday, Groww earned its unicorn tag after snagging $83 million from Tiger Global and others.
- On Thursday morning, ShareChat raised $502 million from Tiger Global, and Lightspeed Venture Partners, Snap Inc. and Twitter, ascribing the homegrown social media platform a valuation of $2.1 billion.
- Later on Thursday, Conversational messaging platform Gupshup raised $100 million from Tiger Global, pushing the company’s valuation to $1.4 billion.
The week also saw other large funding deals along with a big-ticket acquisition by edtech giant Byju’s:
- Online food delivery platform Swiggy has raised $800 million from investors led by Falcon Edge, Amansa Capital, Think Investments, Carmignac and Goldman Sachs. The deal is expected to value the Bengaluru-based company at $5 billion, sources told ET, a notable increase from $3.7 billion valuation, when Swiggy last raised funds in February 2020. This fundraise comes at a time when arch-rival Zomato is planning to tap the public markets in the next few months.
- OFB Tech, the parent firm of business-to-business (B2B) platform OfBusiness, landed $110 million financing led by Falcon Edge Capital, at a post-money valuation of $800 million. The round, which was a mix of primary and secondary transactions, also saw participation from existing investors Matrix Partners India, Creation Investments, and Norwest Venture Partners.
OTHER BIG STORIES BY OUR REPORTERS
There are about 700 tech startups in Gurugram which are just under five years old. Several will find it difficult to comply with the law.
Consumption of kids’ content on video streaming platforms such as Netflix surges as adults spend more time with kids courtesy of work-from-home during the pandemic.
Most e-commerce firms are ready to get their staff tested, as mandated by Maharashtra’s latest Covid-19 guidelines. Online grocery firms are already witnessing a surge in orders.
Acceleration in digital technologies, improved demand following the pandemic, ramp-up in previous deal wins and migration to the cloud are driving revenues of IT services companies.
The aim is to highlight the gender gap and bring more visibility to women – both in terms of the number of articles on women and the number of women editors contributing to the site.
That’s about it from us this week. Have a great weekend!