Bitcoin Transaction Replay threat: REAL or HYPED?

A major issue highlighted on the world wide web today, which is termed extremely important whenever we speak about ‘Bitcoin Forks‘ is the likelihood of ‘Replay Attacks‘. When Bitcoin forked on August 1, 2017 and ‘Bitcoin Cash’ was born, replay protection was a hot topic. When Bitcoin forked to ‘Bitcoin Gold‘ on October 25, the hype around replay protection grew as the core will be released only on November 1. On November 16, when the fork takes place, the community will stand divided, staunchly on the replay protection aspect, as this new forked blockchain core is not expected to have replay protection.

Let’s understand why replay protection is required, and before that, the concept of how two bitcoins come into existence in the first place. This is important to understand before we discuss transaction replay. Whenever Bitcoin forks, the Bitcoin chain upto the predetermined block level is split into two. From the next block onwards, two parallel but entirely different blockchains come alive. The reason we get two bitcoins is because the same address containing the bitcoin from the original chain can now be spent in both the blockchains. For example, let’s say that bitcoin cash was forked after block number 478558; so if 1 bitcoin were held in an address that was part of block number 478558, or any block before that, it can be considered that your bitcoin can be spent twice, once on the original bitcoin blockchain, and then again on bitcoin cash blockchain.

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It’s not a plane, or a bird…It’s a FORK!

What’s gonna happen?

Just around 16th Nov, Bitcoin would hard fork to another blockchain using the Segwit2x protocol, or S2X. Segwit stands for seggregated witness, whereby in a bitcoin transaction, the transaction and the witness signatures would be stored separately, thereby increasing the number of transactions that can be packed in a single block to be mined by some percentage. In addition, the block size would be increased to 2MB from the existing 1MB, and therefore the term Segwit2x.

Some may remember that Bitcoin implemented Segwit as an option on 1st Aug, 2017 and the differing miners forked out to another blockchain, the ‘Bitcoin Cash’. Subsequently, another fork on 25th Oct caused the creation of ‘Bitcoin Gold’.

How will it happen?

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The Bitcoin hype continues unabated. Should I continue to ignore it?

For some of us who invest in mutual funds, gold or equities, bitcoin is not completely unheard of. Some are just getting to read about it and have been making up their minds to invest in bitcoins. Some of us are blissfully unaware of cryptocurrencies altogether and most within that group dismiss any discssion arising on bitcoin as soon as the reference is made. But should we ignore cryptocurrencies, particularly Bitcoin altogether?

History teaches us that no one remains unaffected by technological changes in the world. The die hard personal letter writers gave way to emails eventually. History is replete with instances of corporations doing brisk business folding up owing to changes in technology which they chose to ignore at their peril.

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What is the intrinsic value of a particular cryptocurrency? Is it a mere bubble or is their really a value?

A Zecoex counter on the noise that cryptocurrencies are mere bubbles and fiat currencies have intrinsic value.

Do cryptocurrencies really have a value? And if so, why are their valuations surging to astronomical heights, with the year 2017 being the highest grosser in most cases?

At the time I write this, Bitcoin had surged from around $1k from the beginning of the calander year to over $6k, after nearly touching $8k a few days back. Ethereum surged from around $10 to over $300 with a high of over $400 this year. Everyday we see posts from some respected and some not so opinionating that this is all a bubble. Everyone I speak to, who has never indulged in participating in the cryptocurrencies ecosystem in one way or the other, claims that they stay away as this is all a fad, a bubble, a ponzi pyramid, or something similar, again citing that they base their comments on their understanding that cryptocurrencies have no intrinsic value.

Fiat currencies, they argue, has value because they are backed by the state machinery, and the state has the capability to levy and collect taxes, and are able to guarantee store of value to the fiat currency they back.

A look at the definition of fiat in Investopedia.com “Fiat is the Latin word for “it shall be.””. Thus the basic

Wikepedia has a very thorough and well referenced note on fiat money, its origins, and use and specifically states in its opening paragraph that fiat money is a medium of exchange mandated by the government without any intrinsic value (https://en.wikipedia.org/wiki/Fiat_money).

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