Although there has been much debate about November’s SegWit2X hard fork, the lesser discussed Bitcoin Gold hard fork is right around the corner. Not to be confused with BTCGOLD (XBG), Bitcoin Gold (BTG) is a hard fork of Bitcoin’s blockchain to change its’ proof-of-work algorithm. Quick primer on hard fork for those who are unfamiliar with the term – a hard fork is a software upgrade that changes the rules of the network which results in a copy of the blockchain that is not backwards compatible with the previous version of the blockchain. In this article I’ll explain what Bitcoin Gold is, why it is happening, and what you should know before the hard fork happens.
Before I start, it helps to first understand how Bitcoin mining works. Bitcoin transactions are gathered into “blocks” and miners spend enormous computing resources to verify these transactions by racing to solve a difficult mathematical puzzle. The only way to solve this puzzle is to run different guesses through Bitcoin’s SHA256 algorithm some zillion times. The first miner with the correct solution, aka “proof-of-work”, earns a reward in bitcoin. Once other miners check the solution, transactions are approved and the block is linked to previously verified blocks to form a blockchain.
As the price of bitcoin skyrockets, mining became increasingly profitable. The need for faster and efficient Bitcoin mining hardware accelerated development of Bitcoin ASICs (Application-Specific Integrated Circuits). These expensive machines are customized to only do one thing (running SHA256) but they do it extremely well.
Bitcoin mining has become specialized activity dominated by ASIC hardware. A significant part of Bitcoin’s network is now maintained by just a few mining pools whom are owned by a small number of giant ASIC hardware enterprises. Mining pools such as Antpool (17.4%) and BTC.com (11.3%), both of whom are owned by Bitmain, account for a total of 28.7% of Bitcoin network’s processing power. Enthuisiasts pretty much have no chance to compete.
Bitcoin Gold is a hard fork to adopt zCash’s Equihash, a (memory) RAM-intensive and ASIC-resilient algorithm. This makes BTG mineable with CPUs and GPUs while ASIC mining equipment become obsolete. BTG developers claim Bitcoin Gold will offer an opportunity for new people around the world to participate in the mining process with normal consumer hardware.
Why I’m Not Buying Into BTG’s Pitch
BTG developers argue that Satoshi Nakamoto’s original vision is for every computer to be an equally important part of the Bitcoin network. While it is true that the reality is Bitcoin mining is dominated by a very small number of entities, BTG is not the answer.
First, switching to Equihash doesn’t solve mining sectors’ centralization problem. Bitcoin Gold leads miners down the same arms race to construct monstrous equipment to mine new BTG. Rather than buying ASICs, mining pools will simply build massive GPU mining farms. And guess what… these GPU mining farms already exist.
Second, there is an obvious financial self-interest for BTG’s development team to push Bitcoin gold. BTG’s hard fork is led by Jack Liao, the CEO of LightningASIC – a mining equipment company. If BTG’s adoption takes off, BTG developers would’ve effectively created a need for GPU equipment and I bet LightningASIC will happily sell you their GPU Miner for $3669 USD. By providing both ASIC and GPU hardware, LightningASIC is positioned to profit from both chains as a hardware manufacturer as well as a miner.
How to Prepare for BTG?
All Bitcoin holders who possess BTC private keys on block 491407 will receive 1 BTG for 1BTC. If you have your Bitcoins on an exchange, make sure you find out whether your exchange supports Bitcoin Gold otherwise you won’t receive any. Some exchanges such as Yobit and HitBTC have expressed their support but Coinbase/Gdax will not citing BTG developers have not made their code available for public review. Another point I want to stress is many of you might have read that the official fork date is October 25th but this is just estimated date. Basically, a snapshot of Bitcoin’s blockchain is happening on block 491407 and BTG coins will be officially issued to you early November. To be completely sure you receive BTG, move your Bitcoins out of exchanges and into your personal wallets before the block is reached. I suggest you visit btcgpu.org to monitor BTG’s countdown.