Bitcoin

The Tweets of April: Courthouse becomes new battlefield for Bitcoin Cash

Legal attacks by the central powers of Bitcoin SV lead to an alliance seeking to kick it out of major cryptocurrency exchanges

Crypto billionaire Craig Wright filed a £100,000 libel suit against “What Bitcoin Did” podcast host Peter McCormack on April 18, following a twitter-based argument about the real identity of Bitcoin creator Satoshi Nakamoto.

Wright, who has long claimed that he is the pseudonymous Nakamoto has sent out a series of cease-and-desist letters in the last week to cryptocurrency community members who have publicly called him a liar for claimed the Nakamoto mantle. Ethereum founder Vitalik Buterin is among those who have received similar letters, Bloomberg reported.

McCormack courted a legal action by tweeting out a statement calling Wright a fraud for claiming to be Nakamoto as well as a physical address for legal correspondence. That was in response to an article in Calvin Ayre’s Coingeek.com, in which Wright offered a $5,000 bounty in Bitcoin SV for information leading to the identity of Lightning Torch creator @Hodlonaut, who Wright said had libeled him in a series of tweets that call Wright’s claim to be Nakamoto fraudulent.

Wright’s attorney’s obliged, and McCormack replied with a snarky letter repeating his claim that Wright is not Nakamoto, pointing out that Googling the phrase “Craig Wright is a fraud” returns millions of hits, and calling his cease-and-desist letter “vexatious.”

While McCormack has been taking a humorous approach to the matter—selling “Craig Wright is a fraud” T-shirts, for instance—the litigation has outraged the vast majority of the crypto community. Most notably it outraged Binance CEO Changpeng “CZ” Zhao, who on April 11 threatened to delist the Bitcoin SV cryptocurrency that Wright created and has championed. On Monday, April 15, following McCormack’s publication of the cease-and-desist letter he’d received, Zhao followed through.

Several other major exchanges followed suit over the next few days, and the price of Bitcoin SV cratered, losing almost one third of its value in the space of a week.

And while the episode does show a strong sense of community solidarity among cryptocurrency enthusiasts, it has also highlighted just how centralized two of the main Bitcoin spinoffs cryptocurrencies really are.

Decentralization may be a core tenet of the cryptoverse, particularly for those who try to remain faithful to the pseudonymous Satoshi Nakamoto vision of Bitcoin as an alternative to government-issued fiat currencies. But the legal battle that began this week shows just how connected Bitcoin Cash (BCH) and Bitcoin Satoshi Vision (BSV) are to the two billionaires who created and championed them.

It all began last Friday, April 11 when one of those billionaires, nChain Chief Scientist Craig Wright, began threatening to sue members of the crypto community who said his claim to be Nakamoto is a lie. Seen as bullying, this spurred a furious backlash and led a trio of major cryptocurrency exchanges to delist his BSV.

That delisting has had a real impact on investors. The price of BSV has cratered, losing about one third of its value in less than a week.

The root of the conflict: Hash War I

The current litigation has its roots in an earlier clash between Wright and another wealthy crypto investor, Bitcoin.com CEO Roger Ver, over details of a protocol software upgrade to Bitcoin Cash scheduled for November 2018.

Ver, who was calling his preferred protocol Bitcoin Cash ABC at the time, wanted to leave BCH essentially unchanged. Wright wanted to return it to something he felt better reflected the original Satoshi vision. That latter part is key, as the current legal battle is over Wright’s claim to be the real Nakamoto, which many people in the crypto community don’t believe.

Ver’s faction eventually won the BCH name by attracting more miners, which gave it a better hash rate, which in turn gave it control over the original Bitcoin Cash blockchain. Exchanges started listing Bitcoin Cash ABC under the original BCH symbol, making it the winner. Wright’s version became Bitcoin Satoshi Vision, or BSV. The entire affair became known as the Hash War.

By way of background, in 2017 Ver lead the faction that created the original Bitcoin Cash after a hard fork with Bitcoin. Ver wanted to increase of the block size of Bitcoin during a hard fork so it could scale better. By increasing the amount of data each block could hold, the original Bitcoin Cash could support far more transactions in the same amount of time than Bitcoin could, letting it support a higher volume of payments. After all, the original intent of Bitcoin’s pseudonymous creator Satoshi Nakamoto was to create a currency to be used rather than an investment commodity. For (far) more details, here is a good place to start.

The victim of the conflict: Decentralization

The bad blood has done more than just cause BSV miners and investors to lose money. It has highlighted just how centralized the supposedly decentralized cryptocurrencies can really be. Bitcoin developer Jimmy Song made this point in an April 16 Twitter post. He wrote, “Unpopular opinion: Delisting coins is satisfying short term, but ultimately bad. It’s giving the perception that exchanges are king-makers or legitimatizers. They are not.”

CoinGeek.com founder Calvin Ayre, who is another main supporter of BSV, and has been blamed along with Wright for the legal attacks that spawned the current feud, made the same point in a statement to CoinDesk, saying the delistings are, “a case of people in trusted positions abusing that trust and playing God with which token gets the most volume and market access. In essence, market manipulation.”

Concentration of power is not a new concern in the cryptocurrency market, or one that is limited to exchanges’ ability to affect the price of a particular cryptocurrency by starting or ceasing to trade it.

As low prices have caused miners to take their specialized mining computers offline, the total hashing power available to solve the proof-of-work math tests that create new cryptocurrencies like Bitcoin (and confirm transactions of existing currencies) has decreased. And, those mining rigs have become available for rent. While this isn’t a huge concern for Bitcoin and the largest cryptocurrencies, it is possible to cheaply rent enough mining capacity to gain more than half of the total hashing power of smaller cryptocurrencies (called altcoins—or “shitcoins” depending on your perspective), allowing low-cost 51% attacks. In a 51% attack, a bad actor gains control of a blockchain and can double-spend that currency.

The conflict: Hash War II

Several hours after Binance delisted BSV, ShapeShift exchange CEO Erik Voorhees followed suit, tweeting out, “We stand with @binance and CZ’s sentiments. We’ve decided to delist Bitcoin SV #BSV from @ShapeShift.io within 48 hrs.”

In the meantime, the Kraken Exchange started a Twitter poll asking if it should delist BSV. More than 70,000 people voted, with 71% saying yes to delisting versus only 7% saying no. The additional 22% voted that they didn’t care.

On April 16, Kraken released a blog post announcing it would also delist BSV, saying that the BSV team’s “aggression will not stand.”

Several other smaller exchanges and wallets followed suit. One of them, Bittylicious, pointed to BSV’s low trade volumes as well as its desire to “show solidarity against the toxic litigious environment in the BSV space.”

But BSV had its supporters. In a series of tweets, OKEx exchange announced that after a review, it would not delist BSV, noting that it is “a neutral platform.” OKEx is at press time the fourth-largest exchange by trade volume, according to CoinMarketCap.

And, Bitcoin Cash (BCH) its opponents. On April 16, Japanese exchange SBI Virtual Currency, announced that it was delisting BCH. It cited decreasing market capitalization, which it said made BCH vulnerable to a 51% attack. SBI said the timing of it’s delisting was coincidental, and had nothing to do with the ongoing controversy.

The real losers, so far, are the people who hold BSV coins. It is down nearly 29%, from $83.67 on April 10—a day before the current controversy began—to a low of $55.02, before reaching $59.76 on April 18, according to CoinMarketCap.

On April 12, when BSV ended the day at $71.75, BitMEX Research estimated that based just on electricity costs, BSV miners had lost $2.2 million since the November 2018 hard fork that created it.

Leo Jakobson, Modern Consensus senior editor, is a New York-based journalist who has traveled the world writing about meeting and incentive travel, as well as the consumer and employee loyalty business. He also covered the East Coast side of the Internet boom and bust, small businesses, and New York City crime, nightlife, and politics. Disclosure: Jakobson owns no cryptocurrencies.