The Bitcoin Gold Hard Fork Explained

The Bitcoin Gold hard fork, scheduled for Oct. 25, will create yet another alternate version of Bitcoin.

This comes in the wake of the Aug. 1 Bitcoin Cash hard fork. The BCH version of Bitcoin continues to exist as a separate cryptocurrency.

Bitcoin Gold hard fork

The Bitcoin Gold hard fork aims to do the same thing. Following the hard fork, the plan is for Bitcoin Gold to be a distinct and separate cryptocurrency.

And anyone who holds original Bitcoin as of Oct. 25 will receive an equal amount of Bitcoin Gold, just how it happened with Bitcoin Cash. Trading of Bitcoin Gold is to go live Nov. 1.

But hard forks are supposed to be rare. And Bitcoin Gold isn't the only hard fork expected in November.

The SegWit2x hard fork, intended to double the block size from one megabyte to two in the original version of Bitcoin, is expected to trigger near the end of November.

That means we'll have four competing versions of Bitcoin by the beginning of December.

With so many hard forks in such a short span of time, even veteran Bitcoin users are struggling to make sense of all this.

So Money Morning contacted two of the team members behind Bitcoin Gold to find out why this project was launched and what Bitcoin investors can expect...

The Reason for the Bitcoin Gold Hard Fork

I talked with both Robert Kuhne, Bitcoin Gold's volunteer organizer, as well as the Chinese lead developer, who goes by the nickname h4x.

Kuhne said the idea for Bitcoin Gold originated with Jack Liao, the CEO of LightningAsic, a Hong Kong-based vendor of cryptocurrency-mining equipment.

Liao had become concerned with increasing centralization among a handful of Chinese Bitcoin miners. Bitmain, in particular, dominates with control of about 30% of the network's mining power.

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Bitcoin mining has become centralized because of the hardware "arms race" that has developed. While people could at one time mine Bitcoin using the GPU cards in PCs, that's no longer feasible. Bitmain and other companies built machines called ASICs, designed specifically to mine Bitcoin. These machines are very good at mining Bitcoin, but typically cost thousands of dollars - too much for casual users.

Bitcoin Gold puts casual users back into the equation by making it again possible to mine Bitcoin with the GPUs in PCs.

"The inspiration for Bitcoin Gold was to create a version of Bitcoin that is anti-fragile against mining centralization," Kuhne said. The only way to do this was through a hard fork.

But Kuhne also emphasized that Bitcoin Gold is not an attempt to supplant the original Bitcoin protocol. Rather, he said Bitcoin Gold should be thought of as an insurance policy against a future disaster caused either by mining centralization or hard forks seeking to overthrow the original, like Bitcoin Cash.

"I am a Bitcoin supporter above all else, and my primary motivation for backing this project is to defend Bitcoin," Kuhne said.

Nevertheless, skeptics in the Bitcoin community have raised a lot of questions about the Bitcoin Gold hard fork...

Details on Bitcoin Gold Haven't Been Easy to Find

Proposals of major changes to the Bitcoin protocol usually are accompanied by a flurry of publicly disclosed information. Typically, that means a dedicated website as well as a "white paper" that describes the proposal in detail.

Bitcoin Gold's website today is just a page with a logo, the Oct. 25 hard fork date, and links to its social media pages on Twitter, Facebook, and Slack, as well as a link to its Github page. There is no white paper.

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The project hasn't even set up its "testnet" yet, an alternative blockchain that developers use for testing new code before putting it on the "mainnet" for everyone else. The code for SegWit, for instance, ran on a testnet for 18 months before it was implemented in August.

Yet h4x told me the Bitcoin Gold testnet won't be up until the middle of this month, just a couple of weeks before the Nov. 1 launch. And while a white paper is planned, it won't come out until after the launch.

Which begs the question: What's the hurry?

"We are aiming to launch the fork before SegWit2x," h4x told me. "We believe SegWit2x and Bitcoin Cash are not the correct way to scale Bitcoin and have lots of bad properties."

The Bitcoin Gold team wants to have its "Bitcoin Plan B" in place before the SegWit2x hard fork - just in case.

Meanwhile, a group of HTML developers is working on the Bitcoin Gold website, which h4x said "should be ready in one or two days."

All that said, Bitcoin investors still need to know what to expect on Nov. 1 and how to get their hands on their Bitcoin Gold should they want to hold, sell, or trade it.

Here's what Kuhne told me...

What Will Happen with Bitcoin Gold After Nov. 1

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One difference between this hard fork and the Bitcoin Cash hard fork is that Bitcoin Gold's choice to use a different mining protocol (Equihash, the same one used by ZCash) means it won't be fighting the original Bitcoin chain for mining power.

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Despite some old information on the Internet suggesting some Bitcoin Gold would be pre-mined, that's not happening. Kuhne said that was an early idea the team discarded.

Another distinction is that the difficulty (how hard it is to find and mine a block) of Bitcoin Gold will reset with every block. That should keep the rate of blocks mined stable at the desired six per hour.

Bitcoin Cash kept the original chain's reset cycle of every 2,016 blocks (approximately every two weeks, but added an "emergency difficulty adjustment." That has caused resets at much shorter intervals.

The resulting swings in the Bitcoin Cash mining difficulty, with many miners frequently switching from the BCH chain to the BTC chain to maximize profitability, has disrupted mining on both networks.

"Bitcoin Gold's solution is an order of magnitude better," Kuhne said.

As for obtaining your Bitcoin Gold, you will probably want to have your original Bitcoin in a place that will make obtaining the new coin easy.

With the Bitcoin Cash hard fork, people with Bitcoin at the Bittrex exchange were able to access their BCH within days. Those who had their Bitcoin stored at Coinbase are still waiting (the company says the BCH will be available to customers in January).

The same will be true with Bitcoin Gold. Some Bitcoin exchanges will make the BTG coins available relatively quickly, while others will hold off. Kuhne said there will be announcements on how the exchanges are planning to handle Bitcoin Gold before Nov. 1.

Users of Bitcoin Core, the full-node, PC-based software wallet, will be able to import their private keys into a Bitcoin Gold wallet to access their BTG coins.

A light mobile wallet is also planned, Kuhne said, as well as a possible fork of the Electrum Bitcoin wallet that would permit access to a user's Bitcoin Gold.

And the team is already looking ahead to future releases of the Bitcoin Gold software.

"In the second major release, we plan to implement a new address format, so that BTG addresses will not start with '1' or '3' and be easily confused as BTC addresses," Kuhne said. That would help people avoid sending one version of Bitcoin to an address reserved for another version, resulting in the loss of the Bitcoin sent.

How to Deal with the Bitcoin Gold Hard Fork

Since hard forks can be unpredictable, it's best to remain on the sidelines, at least for the first few weeks.

In the case of Bitcoin Gold, it makes sense to wait a bit longer, until the uncertainty surrounding the SegWit2x hard fork is resolved.

Then you can set about accessing your Bitcoin Gold, using one of the methods above (there should be more details on exactly how to do that closer to the launch).

If the whole thing gives you a headache, you don't have to do anything but hold on to your Bitcoin, preferably in a wallet you control (not stored on an exchange). You don't ever have to claim your Bitcoin Gold, but hey, it's free money.

As for the price of Bitcoin Gold, the market will have its say. Pre-trading of Bitcoin Cash put the price at about $300. Since then, BCH has traded as low as $200.98 and as high as $1,091.97. Today (Friday), BCH was trading at about $360.

Kuhne said futures trading of Bitcoin Gold is expected on at least one exchange, so look for that as an early indicator of the likely BTG launch price.

And one last thing: If you trade your Bitcoin Gold, your windfall is taxable. Hopefully the IRS will provide more clarity on that in the months ahead.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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