Bitcoin’s 2017 Fork Frenzy Is Tough on Service Providers, Says Luno
International Bitcoin services company Luno has clarified its stance on hard forks. With Bitcoin Cash in recent memory and SegWit2x (S2X) looming, it’s time to look at the concept of blockchain forks in general — and the challenge for service providers in handling them.
Since supporting new forked tokens puts a strain on resources, Luno said in a blog post, companies should consider the following: levels of community interest, monetary value, and exchange support. However top priority must go to keeping users’ digital and fiat funds secure.
Luno and Its Competitors Try to Make Bitcoin Easy
Luno, which launched in 2013 as BitX, has a similar product suite and philosophy to Xapo and Coinbase. It offers both a wallet service and fiat currency exchange, with UIs designed to make the process of starting out in Bitcoin simple.
Led by founder and CEO Marcus Swanepoel, Luno has offices in London, Singapore and Cape Town. Initially it focused on “emerging” markets — Malaysia, Indonesia, South Africa and Nigeria — but announced in September it was opening services to 35 European nations.
Luno has processed over a billion dollars USD worth of transactions since launching.
Luno, Xapo and Coinbase wallets are “custodial“, which means they store and secure private keys for their users. As such, each company’s hard fork policy is important. Will customers have access to all coins that result from a hard fork? Looking more broadly, do services have a duty to provide it?
The Five Forks of Bitcoin in 2017
Forks are not all equal, and not all result in radical changes — or valuable new coins.
To judge what the outcome might be, it’s important to note the motivation for forking, and level of support from various sectors of the Bitcoin community.
Luno explained why its approach was different for each example. Bitcoin Unlimited lost support, and its fork never really happened. SegWit was implemented as a soft fork with over 90 percent support, so there was no direct blockchain split. However this resulted in a separate hard fork that created Bitcoin Cash (BCC or BCH).
Bitcoin Cash was the most significant fork event of 2017, with its full long-term implications not yet known. Coins on its forked blockchain still have substantial value, despite the lower miner support.
Then there’s the October “Bitcoin Gold” fork, which Luno (and many others) dismiss as “lacking significant community traction” — though it is monitoring the situation. For the record, Bitcoin Gold replaces Bitcoin’s proof-of-work algorithm with one designed to be ASIC-resistant, taking mining away from large factory-sized operations.
And finally, there’s S2X. Unlike Bitcoin Gold, Luno said, S2X has “significant miner and platform support”, and thus warrants more interest. Like Bitcoin Cash, there’s a reasonable chance it could produce a minority chain with coins of non-trivial value.
Too Many Forks Drains Resources, Turns off Investors
Software project forks are an effective, if extreme, way to solve ideological disputes and improve technology. However in Bitcoin’s case, there’s a risk frequent forks will confuse newcomers and turn away potential investors, keeping the value low.
For Luno, it means a torrent of customer enquiries. As well as taking up customer support time, forks create technical challenges — forcing them to add features and complexity to wallets to handle new tokens, as well as storing and securing new tokens which function differently.
Supporting a forked coin is effectively the same as adding an altcoin, which is probably why some are only doing it on a limited basis. Luno’s explanation continued:
“Most of these Bitcoin fork proposals don’t add significant value to the ecosystem and generally just adds complexity and confusion to the market. The opposite of easy.”
As well as announcing its big expansion into Europe, Luno also recently closed a Series B funding round worth $9 million USD. European venture firm Balderton Capital led the round, joined by AlphaCode, Digital Currency Group, and Venturra Capital.
Luno will use the money to double its 70-strong workforce in all departments, and drive its European expansion.
And if Bitcoin continues to experience high-profile hard fork events after 2017, it may have to expand further.
How do you think Bitcoin companies should approach hard forks? Let us know in the comments.
Images via Luno, Pixabay