Bitcoin Could Lose Half its Value Facing Coordinated 51% Attack

Speculation that the Bitcoin Unlimited (BU) Project is planning something big; possibly a 51% attack, may becoming a reality.

The project’s members might be planning to start larger blocks of bitcoin in an attempt to create a new blockchain. If they were to succeed the BU miners might be able to create a new cryptocurrency.

Investors should pay close attention to this because it might result in a hard fork, or a coin split that has the potential to cut the price of bitcoin by 50%. Such an event would be huge, a hard fork would effectively cut the price of bitcoin in half.

One bitcoin was trading for $1,032.09 on March 29, 2017, according to Coinbase, that would cut the price to $516.05. If it were to occur that would cause an almost immediate collapse of the bitcoin market because thousands of investors would pull out.

One result of such a split would be to boost the price of ethereum, which is already skyrocketing. Ethereum was trading at $52.45 a coin on March 29, 2017, as recently as January 31, it was trading for $10.57 each.

What Does Bitcoin Unlimited Want?

The Bitcoin Unlimited Project is an open-sourced effort to build a mining platform. The platform is supposed to respond real world market conditions and is designed to be scaled up fast.

The BU platform currently rejects any block larger than 4MB unless the chain is four blocks deep. The idea behind that is to make the market competitive for smaller markets.

One goal of Bitcoin Unlimited is to create a new standard for bitcoin. Some of BU’s promoters have been proposing a major attack on the original bitcoin blockchain.

“It would be even more destructive to mine an 11-block-long empty chain, then wait until the slow chain gets nine blocks until announcing it to the network,” Gavin Andersen, the former lead developer for BU wrote on Reddit. Even though Andersen apparently is not involved in Bitcoin anymore he seems to be promoting a plan to crash some of the bigger wallets and exchanges.

“It would be impossible for exchanges to know how many confirmations were safe for deposits and would be a nightmare for their withdrawal accounting,” Andersen claimed on Reddit. “I am not even sure this kind of thing should be considered immoral — majority hashpower acting selfishly for their own economic benefit (both short and long term) is the basic incentive structure that makes Bitcoin work.”

The interesting question is whether the Bitcoin Unlimited community will actually go along with Andersen’s proposal or not. Since he is not directly involved with BU right now, his level of influence is not known.

One potential danger is that unscrupulous speculators might try to implement his plan in an effort to short bitcoin. Shorting occurs when an investor bets that an instrument such a stock or a currency is about to drop in value.

Is BU Chief Scientist Planning a “Hard Fork?”

Bitcoin Unlimited’s self-proclaimed “Chief Scientist” Peter R. Rizun has been promoting the idea of a Hardfork because he thinks Bitcoin’s growth has hit a wall. In a Medium Post Rizun wrote that there’s an invisible wall restricting blocks to a size of 1MB.

“As a result of these changes, Bitcoin has become less usable and thus (all else held constant) will be used less, giving opportunities to similar systems (alt-coins) without these internally-imposed constraints to out-compete Bitcoin,” Rizun wrote on March 23. The recent increase in Ethereum prices seems to be justifying this argument.

Among other things, Rizun believes that bitcoin hit its upper limit in 2015, and now needs some sort of hard fork in order to start growing again. He wrote that miners are modifying their nodes to produce larger blocks. If that is true, there would be a higher volume of bitcoin trading which would generate more volatility.

He also believes that Miners will soon agree to a new block size that might be as high as 16MB. Rizun also made two intriguing predictions about bitcoin’s future. These forecasts were:

  • “Several weeks of notice will be given before miners will begin to accept larger blocks, to allow node operators running non-upgraded software sufficient time to upgrade.”

  • “Several weeks later, miners will begin producing larger blocks.”

  • “The client implementation known as Bitcoin Core will split internally, as one faction modifies the software it maintains in order to permit its users to track the emerging consensus.”

These statements seem to be the basis of the fears of a major attack that Bitcoin Magazine and other media have picked up on. Unfortunately, there seems to be no evidence that Rizun or anybody else is actually carrying out these threats.

Platform Operators Say No to Bitcoin Unlimited

Bitcoin Unlimited may not be able to carry out its threats, because many businesses and platforms are rejecting it. The wallet platform Armory has rejected BU because of its chief developer, Andrew Chow dislikes the organization’s philosophy, CoinTelegraph reported.

“I disagree with BU’s primary principle that the block size should be decided by user and miner vote,” Chow wrote. That indicates Chow opposes a BU hard fork and will keep the miners out of his wallet.

Several other solutions including Blockstream have also rejected BU and some its solutions such as Flexible Transactions, CoinTelegraph reported.

“Transactions from BU is not even remotely an option as the concept has already been dismissed by the technical community, and more importantly, there is no functioning code available – it is vaporware,” BTCC’s Chief Operating Officer Samson Mow wrote in a statement to CoinTelegraph.

Many developers object to BU’s lack of peer review and the presence of buggy codes within some of its software, CoinTelegraph reported.

Those developers seem to prefer another solution called SegWit because it is more secure and transparent, according to CoinTelegraph.

All this indicates that Bitcoin Unlimited might simply lack the credibility to carry out its threats. Enough developers might be able to block, which might make the big BU attack nothing but an internet rumor.