1Broker takes no sides in the ongoing blocksize debate.
However, with the rise of Bitcoin Unlimited hashing power, the unthinkable might happen in the foreseeable future: A (controversial) fork of the Bitcoin blockchain. This has serious implications for end users and especially businesses and exchanges. That said, we think it’s necessary to define our action plan for such a fork beforehand. In this blog post we want to answer some common questions we have received:
What is a fork of Bitcoin?
In short, a fork is a permanent divergence in the blockchain that occurs when nodes follow different consensus rules. By observing the Bitcoin community, the most likely event that causes a fork is when Bitcoin Unlimited miners produce a block with a size of over 1 MB. This instantly leads to network split, since Bitcoin Core nodes will not accept such a block. A few hours later some transactions will exist in one blockchain, but not in the other one. While this sounds like a minor problem Bitcoin will effectively split into two separate currencies then. Depending on the Bitcoin node you run, you can't be sure if your incoming and outgoing transactions are valid in the competing blockchain anymore.
What are the implications when holding Bitcoin on 1Broker during a fork?
When a fork happens, we will instantly disable deposits and withdrawals, force-close all open BTCUSD positions and disable trading on the BTC/USD market. We reserve the right the freeze our BTC/USD market if there is a high chance of an imminent fork. Trading on all other markets will not be halted and will remain active as usual. Since 1Broker has no multi-currency support (yet), we have to decide which new base currency to support. It will take at least 2 days but not more than 3 weeks until this decision will be announced. Our decision will be based on economic factors like market capitalization, community support and the actions of other businesses.
After that we will activate deposits and withdrawals again on the next upcoming Friday at 5:00 pm (New York time). At the same time (Friday at 5:00 pm (New York time)) we will calculate the net worth of every account and set up a parallel withdraw-only platform, where users can withdraw their funds to the competing blockchain. This second platform will remain active for at least two months.
If you disagree with our action plan or want to stay as flexible as possible, please withdraw your funds before a fork happens. Due to the size of our community WE WILL NOT MAKE ANY USER-SPECIFIC EXCEPTIONS.
Will clients lose funds when a fork happens?
In terms of the Bitcoin you own, no funds will be lost. If both currencies survive you can even withdraw and spend your funds twice.
It is not possible to predict if the combined spot price of the new currencies is higher or lower than the Bitcoin price before the fork. This means that, expressed in USD for example, nobody can predict if your Bitcoin holdings would rise or fall in value. This will be decided by the free market.
Is a fork an attack on Bitcoin?
No. The consensus rules can be changed with enough mining power and economic support. Unfortunately, the Bitcoin community split apart some years ago because of the ongoing blocksize debate. Both communities have wealthy backers, powerful mining pools and a significant amount of people supporting them. We can't predict which of them can hold over 50% of the mining power in the long-term, but it's expected that a fork will quickly show the outcome. It will be the first time that investors can “decide” which currency is valued higher; mining power will quickly follow the higher valuated blockchain.
Is it possible that Bitcoin forks smoothly with enough time to prepare?
Yes, it's possible that Bitcoin Unlimited miners announce a hard fork beforehand to avoid any surprises. Observing the two competing communities it is, however, very unlikely that this process does not end in two separate currencies with a significant market capitalization. While a hard fork can be smooth and announced in advance a difficult situation is unavoidable.
When could a fork happen?
At the time of writing this blog post Bitcoin Unlimited supporting mining pools have a combined hashing power of 33.1%. Once this value reaches 50% a fork becomes a realistic scenario. While there are no plans to perform a hard fork immediately after reaching the majority power, there are potential attack vectors against the rest of the miners which could lead to a very “rough” and dangerous fork.
For the sake of Bitcoin, we hope that Bitcoin Unlimited mining pools at least announce the date for the attempted hard fork and configure their nodes properly.
Is this the death of Bitcoin?
No. Bitcoin has by far the largest community, acceptance and market capitalization. All stakeholders are interested in a long-term success of this currency and even if a fork happens it will survive this controversial phase. There is no danger that your funds get lost or that someone can spend them without your consent.
We will add this action plan to our Terms of Service next week and keep you updated on this topic. If you have any questions or concerns please contact us.