How To Make +50% Gains Just Hodling

I can honestly say that there is no boring week sailing in the crypto sea. If you have been following the fork of BTC and BCC you probably noticed that BCC is currently the number 4 most valued coin on the market. At the peak, each BCC was worth 0.25BTC each. This means if you were one of the brave and timely ones, and you were lucky enough to have your coins on an exchange that allowed for trading right away (Kraken, Bittrex) you would have made 50% on your holdings for just being there. Even now, you are looking at a 5 - 10% gain on your coins. Thank you Crypto Gods for making me richer!

The Unintended Audit

Through my research, there is the idea that having a BTC and BCC split is a good indication and audit of the amount of BTC that an exchange holds. The basic idea is that if an exchange does not support BCC, there is a chance that it's hiding the fact that it actually does not hold all of the BTC that it says it does (Poloniex have not allowed BCC trading and recently updated their user agreement).

This is not necessarily true, so please take it with a grain of salt. Also these service providers might just have political difference with regards to the split. Or more rationally, the way they are conducting themselves right now makes them more money, than supporting BCC.

The Run Down

Here's my humble understand of what happened. Since the beginning of the year, someone or a group of people were flooding the BTC network with micro transactions with various transaction fees. This effectively raised the average transaction fees 10 times. It also killed the idea that BTC could be used to buy a cup of coffee. At the current state of affairs, it is not efficient to purchase a cup of coffee and pay $1 to do so with BTC. One of the hypothesis is that a group of miners flooded the transaction stream to prop up the fees, so they get more fees per block that they mine. This also set them up for a civil war, which was to ultimately raise the block size so they raise their earning potential.

To understand what this means, we need to take a look of what a block is. If you are a new sailor in the crypto sea, you might have heard about someone renting a Boeing 747 to ship GPU from AMD to mine for these crypto currencies. GPU mining does not work for bitcoins, for a profitable operation one would have to use ASIC miners for bitcoins. What does mining really mean? The following is my attempt at a non technical explanation of the relationship between mining and blockchain.

Blockchain and Julie the photographer

Think of bitcoin miners as photographers. As photographers they get paid a fixed fee per picture taken and also a variable fee per number of people included in the picture.

I'm sitting here typing away on my computer, and a photographer name Julie takes a picture of me. When the she does that, the Crypto Gods (Read "The Bitcoin Protocol") pays her 12.5 BTC and I also pay a nominal fee of a few dollars to be included inside the picture.

To take the next picture, the she has to solve a puzzle (Read "mining"). There might be a number of photographers trying to solve the puzzle at the same time. The only way to solve the puzzle is by trial and error. Julie has lots of computers guessing 10 times the guesses than another photographer (Read "Hashing"). Julie wins 10 times more. When she solves the puzzle she is allowed to take the next picture by the Crypto Gods. On average, we have 1 winner every 10 minutes (Read "10 minutes confirmation time"). When taking the second picture, Julie must have the first picture inside the frame. So second picture includes the first picture and so on.

We now have a picturechain!

If you have a large crew on your crypto ship and you are taking a group photo, it's difficult to fit everyone nicely inside the picture. Since Julie gets paid per person that they include inside the picture, there is a limit to how many people she can include (Read "block size limit"). Which means a cap on her potential earning. No one likes a cap on their potential.

Larger Blocks = Power To The Miners

The proposal of a larger blocks was made. The game theory here is that, right now blocks size are limited at 1MB, this means the bitcoin blockchain grows at a max of 1MB every 10 minutes. BCC has a block size limit of 8MB. This might equal to more revenue for the miners as more sailors come to sail in the crypto sea. This also means that the number people hosting a bitcoin node to relay network information and to secure the network will diminish over time. This is because amateurs will be edged out as the blockchain grows to 1TB then 2TB and so on. This process happens a lot faster with 8MB blocks than 1MB blocks.

The other solution that people are proposing is segregated witness. (To be honest, it sounds like a stalker movie) The solution there is that instead of broadcasting all of the transactions, programmatically speaking, there are ways to compress the total number of transactions down to a smaller number which are put onto the blockchain. This saves space and fees. Miners don't like the sound of saving fees.

Ruthlessness = More Money

Here is where the ruthlessness begins. It is only a hypothesis. I'm putting myself in the shoes of someone who controls about 25% of bitcoin hashing power. I flood the network, effectively raising the fees per block that I receive by 10 times. As long as what I'm spending on flooding the market is lower than the raise in fees that I receive, flooding is a business expense.

Then there is a discussion of segregated witness which will stop me from flooding the market with fake transactions. I'm not happy about that. Since I control a large amount of hashing power, and my other miner friends understand the idea behind bigger blocks = more power to the miners, I fork on August 1st into Bitcoin Cash. Since my other miner friends and I are the only person mining for new bitcoins, we control most of the hashing power, and we make most of the money. We also hold a bunch of Bitcoins, and get a return on that. If our forked coin fails, we can always go back and mine the original bitcoin as if nothing happened.

The Loot

Sounds like a bunch of pirates going after the crypto treasure. They have more or less succeeded. They have effective gained a 10% to 50% return on their own bitcoin holdings, and started a new coin which they control and is currently sitting at number 4 in term of market cap.

Whether this is to continue or evolve into something like ETH and ETC, only time will tell.

My Ask

If you have enjoyed the series of articles that I have written, I thank you for your attention!

Below is a survey that I put together to get an idea of which wallets are my audience using when it comes to storing their crypto. If you complete it, it would help me out a bunch!

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