'Bitcoin Private' Is Here, But What's It Worth?
A fork of a fork of a fork?
With Friday's birth of a new coin called "bitcoin private," the cryptocurrency space just keeps getting more meta. The much-discussed launch finds the cryptocurrency being created from a copy of the zclassic cryptocurrency (itself a copy of zcash, which was a copy of bitcoin).
But if that sounds crazy, it's all - allegedly - in the spirit of innovation.
"The big experiment with airdropped coins was that they'll just fail, and if people are getting free coins, they'll just immediately sell them and it will dump down to pennies," said Rhett Creighton, who's leading the bitcoin private effort.
Yet, in a number of cases, that notion just didn't pan out.
Bitcoin cash, bitcoin gold and ethereum classic, three high-profile hard forks, are now valued at $1,285, $115 and $34, respectively. And for those who owned large amounts of bitcoin or ether, those launches meant big gains with little effort.
But for zclassic, its fork wasn't exactly a success story. Zclassic flatlined throughout most of 2017, falling to under $2 per coin, while zcash stayed in the hundreds.
Rather than walk away, though, in December, Creighton doubled down.
"I would like to propose revitalizing zclassic by migrating it to become a bitcoin hard fork, 'Bitcoin Private' (or possibly another name)," Creighton tweeted.
And although Creighton told members of a Telegram channel he didn't write any of the code or create the white paper, logo or website, his concept has come to life.
In this way, bitcoin private is perhaps the pinnacle of the forking phenomenon, and in turn, it has become somewhat of a punching bag for crypto enthusiasts on Twitter. Trader Peter McCormack dismissed it as "brand stealing" and "unnecessary," while a popular Twitter user @dandarkpill called the project "an abominable potpourri of buzzword features."
Yet, the cryptocurrency has garnered a significant amount of interest, for distributing new, free coins to users of, not just one existing blockchain, but two: zclassic and bitcoin.
By forking a code base, a user's private key can be made to access multiple wallets, a method that, while criticized on security grounds, Creighton sees as a feature that could become important over time.
He told CoinDesk:
"So you have in the case of bitcoin, all these people have their private keys, but when forks spring up now the same private key can be used in different peer-to-peer networks. It seems to be a key piece to the technology."
The founder's fee
But is this really innovative? As Creighton puts it, "No one has ever done a fork like this."
And he's right - the value proposition and mechanisms at work might be perhaps the strangest and most complex yet of any fork.
Specifically, what bitcoin private is implementing - or, rather, reinstating - is similar to zcash's "founder's fee," a line of code that allocates 20 percent of the cryptocurrency generated by mining to the zcash development team.
Removing the zcash founder's fee was the core value proposition of zclassic (which bitcoin private is forking from). But what shook out was a cryptocurrency that failed to keep pace, its wallet causing so many problems it was shut down by exchange Bittrex recently.
According to the bitcoin private white paper, this was due to a lack of developer funding:
"Zclassic suffered from the same ideas which it derived its greatness: the absence of a founder's tax led to a lack of active development."
So, bitcoin private reintroduces a type of founders' fee. Prior to the launch of bitcoin private, zclassic miners were asked to contribute computing power to the zclassic protocol in exchange for new private bitcoins, and to put the old coins into a pool that will fund development of the new protocol. (The old zclassic chain will keep on running in parallel.)
The white paper stresses this program was voluntary. Otherwise, bitcoin private looks nearly identical to zcash.
"We wanted to create the fork in a short period of time, I think that we didn't feel like we had enough time to really consider the best options," he said, stressing that updates would soon be forthcoming.
Why not use zcash?
Yet to many, bitcoin private, in that it's a basic carbon copy of zcash, is just another cash grab. Indeed, for a handful of investors, it definitely seems that way already.
Following the announcement of the fork, zclassic's price shot up, peaking at $199.26, according to data from CoinMarketCap. Then, shortly following the so-called snapshot on February 28, zclassic sank from $122 to $24.
This is notable, as a snapshot is a process whereby developers create a type of freeze-frame of the blockchain they're forking - in this case, both zclassic and bitcoin - replicating the data and then diverging from there. The snapshot allows the new coins to be airdropped to wallets on the connecting blockchains at equivalent rates.
In response to those price movements, crypto investor and entrepreneur Richard Heart tweeted, "Have you heard of a pump and dump before?"
And ethereum creator Vitalik Buterin even displayed some confusion, if not disapproval, after a Twitter user linking Buterin's praise of zk-snarks privacy technology to bitcoin private, tweeting in reply, "Why not just use zcash?"
Plus, a number of crypto enthusiasts have become irate at the rate of hard forks, using only slight variations of long-established cryptocurrencies' names, which many think are confusing the industry and exacerbating scams. Charlie Lee, the creator of litecoin, for instance, voiced his concerns recently over a litecoin hard fork that's using the name litecoin cash.
Yet, Creighton remains suspiciously optimistic.
"We're going to be tapping into all of the people that are key holders of bitcoin, so we're tapping into that network, and what we're giving those people is zk-snarks privacy, plus the same decentralized mining as bitcoin gold, plus faster block times and larger blocks," he said.
Finally, he pointed to a typical refrain of crypto enthusiasts:
"People decide how they're going to value that."
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Zcash Company, the for-profit entity that develops the zcash protocol.
Forks and spoons image via Shutterstock