Coin of the Year: Bitcoin Cash

Sitting at a desk in a pristine hotel suite in Seoul some months ago, Roger Ver was offended. He was offended by governments, and their groundless wars on drugs. He was offended by technical incompetence, and the effect it had had on his community. But most of all, he was offended by Craig Wright.

Ver is Bitcoin’s twinkly-eyed evangelist; a true believer. A California native, he relocated to Tokyo in 2005 after a ten-month jail term for selling explosives on eBay jaded his view of the US. He grew immensely rich investing early in Bitcoin and spreading its gospel, earning the moniker “Bitcoin Jesus.” It’s appropriate enough—though Ver himself is a clean shaven and straight-edge jiu jitsu brown belt, he drifts among sinners, and his closest friends were the “peaceful, wonderful people” of darknet drugs bazaar Silk Road. People, he reasoned, who understood the meaning of individual liberty.

So when Ver’s vision of Bitcoin as a holistic “money for the world” was twice threatened, he stood up to defend it. The first time, in late 2017, he helped engineer a split in the original network that would spawn a new, more faithful Bitcoin: Bitcoin Cash.

But now, this time, Bitcoin Cash itself was under threat — largely by controversial computer scientist, Wright, who portrayed himself as yet another, though somewhat different, Bitcoin fundamentalist. And as a small technical dispute snowballed into a war-like struggle for freedom itself, it was Ver’s feelings, laid bare in a candid YouTube confession from that small suite in Seoul, that would prompt him to bankroll Bitcoin Cash to victory.

The Great Block Size Debate

Why should anybody care about Bitcoin Cash? While Ver's well-rehearsed refrain that it's "money for the world" is true, the same can also be said for Bitcoin, Ethereum, Monero, Zcash, Litecoin or even, under duress, XRP. What makes Bitcoin Cash so fascinating isn’t so much what it is, it’s how its story illustrates the possibilities—and dangers—of decentralized power.

That story begins with a debate about block size.

Fundamentally, Bitcoin Cash was a byproduct of Bitcoin’s longtime Visa envy. In a 2009 email, pseudonymous Bitcoin inventor Satoshi Nakamoto had stressed how the currency could, technically, scale to handle even more Internet-based transactions than the credit card. Yet from early on, Bitcoin was constrained by a one-megabyte limit on its block size—the number of transactions it could verify at any one point. This limited its capacity to a measly three to ten transactions a second; Visa, the world's second largest credit card, easily handles 24,000.

In the ensuing years, Bitcoin grew in popularity, and the need for scalability took on a new urgency. But unlike centralized technologies like Facebook, Google, and Amazon, the fate of Bitcoin is in the hands of fragmented political entities. They can be roughly divided into three categories:  First are the miners, who use supercharged hardware to solve complex, power-draining puzzles; solving such a puzzle generates new bitcoins, which the winner gets to keep. Next are the so-called Bitcoin Core developers, the group responsible for maintaining Bitcoin’s underlying code—and largely on the payroll of controversial development firm Blockstream. Finally are the entrepreneurs, investors, and that most-shadowy denizen of the crypto deeps—the "whales," who own huge amounts of currency and are generally believed to manipulate its price.

The Great Block Size debate brought these factions into conflict. The Core developers took one side of the debate, making the point that a larger block size would expose the network to “spam.” It was a rather outdated point. “Spam” referred to Bitcoin’s early days, when coins cost less than a cent and pranksters could troll the network by pointlessly transacting vast amounts of cheap bitcoins. Moreover, bigger blocks are more expensive to maintain, leading to more centralized power among the big miners. That's anathema to Bitcoin, which was designed to be a "trustless" system that can achieve truthful consensus among a multitude of miners. The fewer the miners, the easier it is to rig the system.

The “big blockers,” comprising both business-types and large mining opertions, took another view. Among them was Ver, who, through a series of Bitcoin-related investments—most notably in BitInstant, the Bitcoin Foundation, Mt. Gox, Kraken, Blockchain.info, BitPay, and Ripple—had made a lot of money and become personally invested in Bitcoin’s success. His view was that a stagnant block size at the height of Bitcoin’s popularity would congest the network, possibly killing it. “We saw that, eventually, Bitcoin was going to become so popular that the one-megabyte, block-size limit was going to be bumped into,” he said.

A compromise had to be reached.

Between a rock and a hard fork

One  solution that would avert a hard fork was “SegWit,” an upgrade proposed in 2015 by a group of Core devs. It ameliorated the scaling problem by modifying the way transactions were sent, while keeping the one-megabyte block size. But Ver dismissed it as a Soviet-style “production quota" and said that limiting the block size was “economic suicide.”

The next proposal, SegWit2x, attempted to compromise on SegWit’s shortcomings by doubling the block size to two megabytes. At a meeting of industry giants in New York, July 2017, SegWit2x was accepted, but with a caveat—the “2x” part would come a whole three months later, in November. That galled Bitmain, a vast Chinese company that runs mining hardware, as well as Ver and the other big blockers. Nevertheless, they reluctantly accepted, hoping to avoid a catastrophic split.

Complicating this mess was a third option: a new protocol known as “Bitcoin Cash.”

Bitcoin Cash was conceived by a small group of partisans led by BitcoinABC, a firm that develops software for Bitcoin miners. One of ABC’s technicians, Amaury Sechet, had developed a client in early 2017 that would remove SegWit altogether, and increase the block size to a whopping eight-megabytes. ViaBTC, a large Chinese bitcoin mining conglomerate with a vested interest in maintaining the network, threw its support behind Bitcoin Cash, and gave it its name.

For Sechet, the name was appropriate. “Adding ‘Cash,’” he explained to Bitcoin Magazine in July 2017, “seemed like a good way to differentiate and also convey the vision.”

Of course, by pledging to remove SegWit, Bitcoin Cash would be more than a simple upgrade. It was fully incompatible with the original Bitcoin network, meaning those who adopted it would be forced to generate, or “hard fork,” a new currency. Hoping to avoid such a split, many Bitcoin fundamentalists, including Ver, clung hopefully onto SegWit2x. Yet, he announced a contingency plan to switch to Bitcoin Cash if consensus failed to hold around SegWit2x.

That’s both the beauty, and chaos, of Bitcoin’s hypercharged, fluid democracy: Unpopular policies can be simply abandoned by those who disagree with them—with immediate effect.

Indeed, one group of early-starters jumped on Bitcoin Cash before waiting to give SegWit2x a chance, and set the stage for a hard fork. Bitmain pitched in. Mining giant ViaBTC (which had named Bitcoin Cash and was one of the first to declare support) launched speculative futures trading on Bitcoin Cash in late July, giving it an approximation of value—$11 million traded on the not-yet-existent network. Some third-party trading and exchanging platforms threw in their support. Others didn’t. Much of the ballyhoo came from China; one excitable WeChat user likened the fork to Chiang Kai-Shek’s revolution of 1926:

Bitcoin began to fork.

Bitcoin Cash is born

Once the politics of hard forks have subsided, the hard forks themselves tend to be less interesting—and even more confusing.

It’s best to imagine miners as builders, all building the same network, with the same tools. Yet when a group of builders switches tools (the miners switching to Bitcoin Cash, in this case) they must spin off and build something of their own; their tools are no longer compatible. And so it was with the Bitcoin Cash hard fork. At 12:37pm, on August 1, 2017, miners began using the Bitcoin Cash tools—Sechet’s client—and the first Bitcoin Cash block was built. At block #478,55, the network split.

It was, according to one post-fork reveler, “the fork heard around the world.”

Yet it was only when SegWit2x failed three months later—as predicted—that the new currency would be taken seriously. A growing number of businesses began to adopt Bitcoin Cash as a point-of-sale currency. Exchanges, too: Coinbase and others listed the coin, only (briefly) pulling back when the flood of investors crashed their systems. Moreover, the price was rising. On and off, it stood at fourth largest cryptocurrency by market cap.

True to his word, Ver duly transformed Bitcoin.com into a full-blown Bitcoin Cash propaganda outlet “the moment SegWit2x was abandoned.” Living up to his namesake, Ver became a kind of globe-trotting Bitcoin Cash evangelist, traveling the world, attending conferences, doling out (meager) sums of Bitcoin Cash to would-be converts, and, crucially, spending it himself. As the proprietor of Bitcoin.com, a portal for Bitcoin and Bitcoin Cash that provided an exchange, a wallet and news service (and, like Bitmain, also made money from miners), he made sure that his employees’ wages were in the currency too. Incredibly, he says, he and his staff were able to live like this, barely ever resorting to fiat currency.

Still, he was disappointed that more miners hadn’t switched to join him. Damningly, for Bitcoin Cash’s ardent supporters, a majority of miners remained on the original Bitcoin network, seeing it as more profitable—despite, as Ver insists, believing that the increased block size would be beneficial. He even offered them cheaper power. “This wasn't enough,” Ver said, adding that the setback “delayed the progress of all humankind.”

For the next seven months, scant little else happened. A few minor software upgrades were carried out with something nearing conviviality. Allegations of insider trading were leveled at Coinbase’s early listing of the currency, though the exchange was later cleared of wrongdoing. But overall, most observers were impressed by the currency’s growing success. Two parallel currencies could live side by side; decentralized politics looked like it would work. The age-old Block Size Debate had been settled peacefully.

Enter Craig Wright.

A fundamentalist revolt

With his neatly parted mop of brown hair, puffed out chest and taste for checked shirts, Dr. Craig Stephen Wright appears at first quaintly academic—like a middle-school supply teacher pacing a classroom. It’s fitting. Unlike Ver, the proud lawbreaker, Wright came to crypto glory from academia, not post-recession angst.

Born in Brisbane, 1970, Wright studied computer science at the University of Charles Sturt in New South Wales. By 2003, he had two master’s and a (disputed) PhD. Then things got weird.

In October 2015, Wired and Gizmodo “outed” Wright as Satoshi Nakamoto, inventor of Bitcoin, a revelation he encouraged. Though Satoshi's true identity remains in doubt, the attention earned Wright enough notoriety to garner a massive Twitter following, which he quickly used to his advantage. In 2018 he founded the All-Star nChain, a Bitcoin research firm whose sole mission was to “enable worldwide adoption and enterprise-level usage” of “the original vision of Bitcoin.”

To Ver, though, it might have seemed that nChain’s sole mission was to antagonize him.

Though Wright shared Ver’s libertarian instincts, his was a libertarianism circumscribed and permitted by the state. Indeed, far from being anti-state, Bitcoin was for the state, as well as a way to streamline, not undermine, the international banking system. And whereas Ver will enthusiastically support whatever he thinks will better the world, for Wright there is only Bitcoin.

“I think in the end there will be Bitcoin, there will be one Bitcoin, it will be the original—and nothing else,” Wright said, impatient with having to reiterate such a blindingly obvious truth. “I've not moved from that belief. I won't move from that belief. There’ll either be the original Bitcoin or nothing.”

For Wright, Bitcoin Cash had been a step in the right direction. Like Ver, Wright believed that an ever-expanding block size was fundamentally consistent with Satoshi’s vision, as outlined in the Bitcoin whitepaper.

But he was aghast when, in August, 2018, BitcoinABC unveiled plans to make Bitcoin Cash competitive with Ethereum and other networks that facilitated so-called “smart contracts.” Worse still, the update—this one due November 15—would do nothing to increase Bitcoin Cash’s block size.

“Smart contracts’ were not in the original whitepaper,” Wright said, explaining that the upgrade would lead to the proliferation of the sort of third party “tokens” that, over the past year, had plunged the Ethereum network into a speculative gold-rush and subsequent legal minefield. “It's not about some speculative gambling asset,” he said. “It has to follow the law. Full stop.”

So, nChain got to work developing yet another new client, Bitcoin SV (“Satoshi Vision”) that would boost the block size to 128 megabytes—and eschew smart contracts.

As with the hard fork partisans of the year before, Wright was threatening a split on ideological grounds. And similarly, his “SV” client was incompatible with ABC’s. The difference here was that Bitcoin Cash’s small network size gave Wright outsize influence. With his friend Calvin Ayre—the billionaire owner of mining pool and news outlet “CoinGeek”—Wright controlled a third of Bitcoin Cash’s miners, enough to sustain his rebellion.

And yet, a split on a network of this scale posed an existential threat, and risked devaluing and even destroying both currencies. Wright was holding the entire Bitcoin Cash community at gunpoint.

For Wright, this threat was essential. It would be the ultimate expression of free-market capitalism—a life-or-death battle in which the market decides the victor. “We will bleed them,” he told Decrypt earlier this year, adding: “There is no bitcoin gold, no BTC vs ABC-type battle here. This is one or the other. Long term, one dies. There is zero chance of both surviving.”

Actually selling this kamikaze-like pitch meant crass self-promotion. Already disliked for his claims to be Satoshi, Wright managed to alienate almost everybody else (while garnering a small, loyal following) with a belligerent, raving Twitter campaign. Among his critics was Ethereum founder Vitalik Buterin, who regularly derided him. Yet that didn’t much bother Wright. “The people who should be using [bitcoin] are the people who are being scared away,” he explained. “They’re finance companies, they’re banks, they’re large corporations.”

Last-ditch attempt

In the hope that great minds could find a compromise and dodge a fork, various factions assembled in a hotel overlooking Bangkok’s glittering Chao Phraya river in August, 2018. The anti-ABC bloc included included delegates from Wright’s nChain, and mining pool CoinGeek; those in favor included reps from ABC and Bitmain, whose CEO, Jihan Wu, had once branded Wright “Faketoshi.”

Ver was there, too. Though he was cautiously neutral, he later said Wright’s performance during the meeting was alienating.

“As soon as any sort of technical discussion was about to happen,” Ver recalled, “Craig Wright physically got up and left the room and refused to take part in any of it. Which was, I think, the biggest turning point in that.” In fact, Wright didn’t just leave, he stormed out, screaming “bullshit and lies” at anyone who would listen. “I think he’s not able to have those technical discussions,” Ver said later.

The drama in Bangkok ended up doing more harm than good. A second fork, a mere year after the first, picked up additional support. Attempts at mediation, including a middle-ground “Bitcoin Unlimited” compromise, fell flat. Wright was convinced he was right, and others were convinced that, right or not, they couldn’t work with him.

And Ver? At first, he sat squarely on the fence.

Ver had admitted he didn’t necessarily understand all the technical aspects of the fork. He even thought much of it superfluous; Bitcoin Cash was increasing the block size in April, 2019 anyway. He characterized much criticism of Bitcoin Cash as “mean.” As always, he just wanted “money for the world.” So he searched inside himself and considered who was most responsible for the division, the infighting, the bitterness. Who, he wondered, was “easier to get along with,” had a “better team,” was “more competent”?

On November 2, he declared support for the ABC upgrade, which would allow smart contracts.

Explaining his decision in that YouTube video from his hotel suite in Seoul, Ver began by laying out a general world philosophy, veering into illicit wars on drugs, the unfair treatment of “peaceful people” who just wanted privacy (and “crack”) and, finally, his disappointment in Wright, who, in his obsessions with the “law” had in Ver’s view sided with the enemy: the state. Quoting Buterin, Ver said that if Wright were Satoshi, his estimations of Wright wouldn’t go up; his estimations of Satoshi would go down.

(“I like many of the things the BSV camp say,” Ver said later in an email. “I despise many of the things [Bitcoin Satoshi Vision] members (Wright) do.”)

The final nail in the coffin was an email Wright sent Ver after the latter declared his position on the fork. In a lean 104 words, Wright promised “bankruptcy,” “two years of no trade,” and the death of Bitcoin—i.e. freedom. “I AM Satoshi. Have a nice life,” Wright’s email concluded. “Fuck you” was the sign-off.

The bad blood created an uncertain future for Bitcoin Cash. Exchanges froze trading on the currency to pre-empt traders from abruptly losing funds in the event of a split. Many derided Bitcoin Cash as a joke, and dead to boot.

As the fork drew nearer, Ver concocted a plan.

Vote with your wallet

“Winning” a hard fork is not an exact science, but generally the post-forked currency with the “longest chain” has the best chance of survival. (Though it’s far from conclusive.) A “chain” is a string of verified transactions; whichever faction can consistently muster the most computing power wins.  

Though Bitmain and its allies were larger, their victory was not a foregone conclusion. Most of Bitmain’s resources were focused on the Bitcoin network. To divert resources from Bitcoin to Bitcoin Cash was certain to be expensive, and potentially ruinous. As uncertainty mounted, Wright appeared to be heading for an unlikely victory.

So it was Ver, still bruised from Wright’s email, who proved decisive here. “Most miners support Bitcoin Cash but they’re also running a business,” he later explained. “They need to mine whichever coin is the most profitable to mine. So, all we had to do is make up the difference between the profitability of mining Bitcoin versus Bitcoin Cash.” The simple genius of Ver’s plan was for him to pay those miners to switch. (He said he was assisted here by another early Bitcoin investor, Olivier Janssen.)  

Victory came “out of my pocket,” he said. He declined to say exactly how much he coughed up.

As a result of this largesse, ABC’s computing power ramped up to 4,000 petahash, “more than has ever been on the BCH network,” former Bitcoin.com advisor Jake Smith said at the time.

ABC’s Bitcoin Cash client, which later dropped the “ABC” from its name and continued referring to itself as Bitcoin Cash—surged ahead and mined the first new block, just as it had done 14 months earlier. Eventually, after an initial price surge, SV lagged and the money drained out. Wright’s threats of grinding both networks to a halt never materialized; CoinGeek’s Ayre, the real power, overruled him and called for a retreat. Was Wright disappointed in Ayre’s quasi-capitulation? “You could probably say that,” he said later.

Post-fork, the markets were in freefall. Both currencies, as well as most other tokens across the spectrum, have depreciated some 50 percent in value. Some blame Wright and Ver directly. Wright professes to not care about price; Ver on the other hand does, because Bitcoin Cash’s purchasing power is dependent on relative fiat price.

Ver seems to have won the battle, and is glad to have helped neutralize Wright, whose Twitter account is now private. Over the Christmas break, Buterin, who is a fan of Bitcoin, described Wright's SV as a "pure dumpster fire." With a market cap of around $2.8 billion, Bitcoin Cash has consistently been ranked the fourth most valuable currency; SV, at $1.5 billion, is ranked 9th.

Yet Ver is ambivalent about what all this means for the community of Bitcoin true believers. “If one person can destroy everything, then maybe it wasn't as robust as we all thought it was to begin with,” he mused recently.

So Wright had destroyed everything?

“No,” he replied. “But if he had managed to—let’s say by tomorrow he did destroy everything—then I guess we’ll have to figure out a different way of achieving censorship-resistant money for the world, and try again.”

But perhaps it’s a pyrrhic victory. In (almost) single handedly rescuing his “money for the world” with his own wealth, Ver undermined its very premise. What is a “money for the world” that risks falling apart on the whims of an uber-rich power-broker, and requires another uber-rich power-broker to save it?

Bitcoin Cash, at this point in its early history, exposes an inconvenient truth in Bitcoin’s decentralized politics: power accrues only to those who can foot the electricity bill.