Tuesday, July 25, 2017

Aaand... #facepalm

UPDATE: This post is meant for poker players who hold "large" amounts of bitcoin. E.g. an amount that would be devastating to lose. If you hold a small amount of bitcoin you shouldn't worry about it. If you're the type of player who just uses bitcoin to buyin and out of poker sites and immediately converts it to dollars or euro or something else, and you don't hold any bitcoin for the long term the advise for you is simple: don't buyin or cashout using bitcoin for at least a couple of days after August 1.

BUT if you do hold a lot of bitcoin, then the below post explains what you should do to protect it. (End of Update)

The purpose of this post is to attempt to inform poker players on how to handle the upcoming changes to bitcoin. We poker players are amongst the few in the bitcoin community who are actually directly using bitcoin on a daily basis for transacting. So my goal here is to give a set of options that I see for how to prepare for these events, and to try and explain a little bit about what’s actually happening.

Last Friday (July 21, 2017) nearly all of the people who maintain the bitcoin blockchain (aka “the miners”), made a commitment called BIP 91. This opened up the pathway to finally enabling a feature called segregated witness (segwit for short). And, as a consequence, there was renewed hope that a split of the bitcoin chain would be averted. A chain split is bad because it screws around with the bitcoin supply limits. It effectively doubles the supply. After a chain split, instead of there being one bitcoin blockchain with a maximum of 21 million bitcoins. Now there’s two chains: each with 21 million bitcoins totaling 42 million.

So despite BIP91 being committed to by the vast majority of the miners, one group that really hates segwit has decided that they’re going to split bitcoin anyway. They’re going to do this on August 1, 2017 at 12:20 PM UTC. They’re going to call their new coin “Bitcoin Cash” in order to distinguish it from bitcoin. They’ll use the “BCC” symbol instead of “BTC”. Because they’re messing with the supply of bitcoin, it may very well impact the price of bitcoin…. or it might not.

As of the time I’m writing the futures price for BCC is about $430 per coin, and the current price for BTC is about $2600 per coin. Does the current price of BTC account for the upcoming split? I don’t know. I suspect it might but there’s no way that I can think of to test this.

So, this brings us how to deal with this. Here are the options that I see for what you can do. And whichever one you do, you should probably do it at least a couple of days before August 1, 2017. My recommendation: if you haven’t chosen one of these by July 29, 2017, then by default you’ve chosen option 2.

  1. You could cash out of bitcoin immediately. You have lots of options here.
  1. You can just put all of your money into a poker site and have them hold it for you
  2. You can buy some other crypto currency (like litecoin, dash, ethereum)
  3. You can cash out into a government currency (like USD, EUR, etc)
And then after all of this kerfuffle has settled down buy back in.

  1. Or you can hold your bitcoin. Doing this has an interesting benefit. However much bitcoin you hold prior to the chain split, you will hold the exact same amount in both bitcoin (BTC) and bitcoin cash (BCC).  This is because at the time of split, both sides will have the same blockchain history, they'll just be building different split chains going forward. And in that history you held coins that are now valid on both sides of the split.

    But this is *ONLY* true if you hold your bitcoin in a wallet where you control the private keys. As a general rule you shouldn’t leave your bitcoin on an exchange like coinbase, kraken, etc. You should hold your bitcoin in a wallet that you control. I personally recommend trezor or keepkey. But other good ones can be found here. Make sure that you choose one that says, "Control over your money". 

    • Go look up the wallet that you use RIGHT NOW and determine if they're going to support both BTC and BCC. Here are the two posts from the wallets that I use describing their support:
    • Avoid sending any transactions 12-48 hours before the split. The issue here is that there's a risk that they may not get confirmed in time before the split and cause confusion if this confirmation is happening at the split.
    • After the coin is split, sit on your coins for a little bit while the dust settles
    • After the dust settles, it will likely be a good idea to send a transaction to yourself on each side of the chain. Search for instructions from the wallet that you use on how to do this.

It is likely that most poker sites are going to continue to accept BTC and ignore BCC. There's also a chance that BCC essentially amounts to almost nothing and carries very little value compared to BTC. This is what happened when Ethereum's chain split creating Ethereum and Ethereum Classic. But I have no idea what's really going to happen valuation wise. Predictions are hard, especially about the future.