Tai Zen: What’s up guys. My name is Tai Zen. I’m broadcasting from Dallas at this moment. With me today, I have the honorable grandmaster legendary world renown LeonFu.com. Say hello, Leon.
Leon Fu: Hey guys
Tai Zen: If you’re new to this channel, Leon is known as the Oracle of crypto because he’s made some really, really excellent call on some real cryptocurrencies.
In the video, we want to talk about Bitcoin Cash. We’re going to give you a brief history, what it is today, how it got started. More importantly, from an investor perspective, we’re going to talk about how we need to view Bitcoin Cash or at least how Leon and I and the rest of our team view Bitcoin Cash.
Before we get started, let’s take a look at the TaiFu 30 Cryptocurrency Market Index, which is up 1.76% today. Sentence it came out in June with 100 points, it has been up 44 points. That’s a growth of 44%, which is really good.
I mean it’s always good when the market’s going up. If we look at the TaiFu Bitcoin Aggregate Index, which includes the of the market cap of Bitcoin Cash and Bitcoin, it’s 2.5 points since in the last 24 hours as well. If we look at the TaiFu 30 Altcoin Market Index, it’s also at 62 points right now. Everything is back up.
This is about Bitcoin Cash, but really quickly explain to the audience what we discussed about why the Altcoin markets are going up right now, and why there was a lag between the Altcoin market going up versus Bitcoin.
Leon Fu: Yeah. The majority of the new money gains have been coming from Bitcoin and Bitcoin Cash.
You got to remember that most Altcoins does not trade against Fiat. The only coins that do are Bitcoin and Ethereum. There’s not really a liquid market between any of the other Altcoins and Fiat.
Therefore, when new money comes into the crypto markets, it’s going to cause a move in Bitcoin or Ethereum. I would say Bitcoin primarily because that’s where most of the liquidity is. That’s why there’s going to be a lag. What we just saw is Bitcoin just doubled from 2000 to 4,000, and that was against USD.
What we’re foreseeing is somebody has a big pile of newly bought Bitcoins, and they’re going to diversify those into the Altcoin. We believe it is going to happen over the next several weeks. However, there’s always going to be a lag for that reason.
Tai Zen: Since you understand that, I just want to have a quick summary of the history of Bitcoin Cash for our audience. Then, we can talk about the investing side of Bitcoin Cash from an investor perspective.
Originally, Bitcoin was invented by Satoshi Nakamoto in January of 2009. Since then, the software’s been updated multiple times.
Recently, in the last year or 2 years, there has been a contentious argument among all the people in the cryptocurrency and Bitcoin development community, where they want it to update the software in a certain way that includes segregated witness or segwit for short.
There’s a large portion of the community that did not want to update the software in that way. They wanted to update it in a different way. Let’s just call Version A versus version B. These 2 communities had a huge argument about that.
Finally, on August 1st, it was like a hard date in which the updates were going to happen so that they can increase the capacity and the transaction speeds of the Bitcoin network.
However, the reality of why these parties are fighting to update it in their way is they want to take control of the Bitcoin network. The party that does update or is responsible for updating it will be the party that ultimately has control of the Bitcoin network.
Leon Fu: it’s political.
Tai Zen: Do you want to just recap real quick what we believe is the biggest flaw in Bitcoin?
Leon Fu: Let’s just call them Bitcoin Cash and Bitcoin core for the sake of this discussion.
Let’s say you are new to cryptocurrencies and you just listen to what these 2 parties are saying. It sounds like a technical debate. It sounds like one group wants bigger blocks and faster transactions. Then another group wants a something called segregated witness, a 2 MB blocks and they have the different technical roadmap.
However, for veterans like us, since we’ve been investing in cryptocurrencies for over 4 years, it’s really about who is going to be in control of the future of Bitcoin. These 2 groups are trying to position themselves to become the “official version of Bitcoin”.
Tai Zen: Since they couldn’t decide, they went ahead and updated the software in their way. Now, the community is split into 2 groups: pro-Bitcoin core and pro-Bitcoin Cash. Now, the funny thing is both parties own both coins.
Leon Fu: Yes, that’s right. If you have any Bitcoin before the August first fork, you now have a Bitcoin and Bitcoin Cash. You have twice the number of Bitcoins. They have different values, but you currently have 2 coins.
It remains to be seen as to which of these two parties will ultimately be in control of bitcoin, and the market will tell us that.
Clearly right now, Bitcoin is at $4,400 and Bitcoin Cash is at $600 change. Right now, Bitcoin core is still dominant.
Tai Zen: Bitcoin Cash has gone up to almost $1000/coin and the market cap is over $10 billion. Right now, it is sitting around $600, $700. The question is why people thought it was dead and now it is alive and doing well.
Leon Fu: I mean just by the number of people who support Bitcoin Cash going into the fork was enough to tell us that it wasn’t going to be dead.
We had big exchanges supporting it. We had a major wallet that’s supporting it such as Ledger Trezor, and many other wallet makers coming out and supporting it or at least allowing you to get your Bitcoin Cash. Even if they didn’t want to support it, they at least allowed you to go claim it by exporting your private keys.
I don’t know why people thought that it would have been dead on arrival because it was one of the highly anticipated events of the year for cryptocurrencies. People want to make sure that they got the Bitcoin Cash.
Tai Zen: Since we have so many new people on our channel, I think it’s important that we explain what makes the value of a cryptocurrency.
It comes from the community of that cryptocurrency, not from this technology. The people that don’t understand how to make money from cryptocurrency investing will focus on the technology. However, the people that know how to make big money in cryptocurrency investing will focus on the community around that.
Do you want to elaborate on why it is not the technology because a lot of newbies focus on technology when they come to cryptocurrency? We say so because we’ve made that mistake too.
Let’s go ahead and clarify for the audience so that they don’t make the same mistake we did.
Leon Fu: The component that makes us money is how large the community gets around a cryptocurrency. Because the idea of a currency is if there was not a limit to supply, it would not be money. if there wasn’t any scarcity, it would not be money.
Therefore, as more people come in to use a kind of currency, the more valuable it becomes given that if its supply remains constant.
We don’t mean that technology is not important. It is, but the value comes from people. I think that’s one thing many people misunderstand.
Tai Zen: Like gold. People think it has a lot of value.
Leon Fu: Exactly. Things have value because we as human beings give it value, and it doesn’t matter what it is. It could be things like this can that I’m drinking.
It’s valuable to me because I put a value on it for whatever reason. I value it because I’m drinking it and it serves a purpose for me.
Tai Zen: When people use the term the intrinsic value of gold or silver, I think that’s kind of a misnomer because intrinsic means the goal has a value from the inside. The goal itself has value because we get its value. That’s the main thing that we want you to understand.
In the cryptocurrency world, we have some coins that have the technology, but doesn’t have any value. Let’s take some examples so that people know what you talking about
Leon Fu: I think a good example is Dogecoin. It has no technology. It’s simply one of these copycat coins. It was started as a joke by the founder of Dogecoin himself. He said: “I’m doing this to make fun of all the Altcoin that were coming out”.
He was building this just to poke fun at all these copycat coins that were coming out in 2012 and 2013. However, the community rallied behind that. They thought that was funny, so they bought it.
And all of a sudden, you have a coin that is still in the top 20, 30, 40. It’s still up there on the first page. It’s always been there.
In my opinion, it will probably always be there somewhere in the middle of the first page on the coin market cap. The reason is the community still give it value no matter what we say.
As you can see, the reason why they do it as long as they continue to do it is really irrelevant for whether or not it should have any value. It has value because people give it value.
Therefore, you can apply the same thing with Bitcoin Cash when you look at the community. If you see so much support from the community, miners, exchanges, the wallet manufacturers and the people talking about it, it’s going to have value.
Tai Zen: Other examples are Litecoin with segwit, Particl with confidential transactions. These confidential transactions to make transactions private and segwit are technologies that Bitcoin invented.
Leon Fu: Yes. I think the first time I heard of confidential transactions was from Monero. I don’t think Bitcoin invented confidential transactions, but their developers definitely invented segwit.
Litecoin just took it up and a bunch of all coins copied it. I mean it is very easy for someone to come along and copy technology. It will be popular because it is a good idea.
As a result, from the investor perspective, the value comes from whether or not a cryptocurrency can grow its community.
One way it can grow its community is by incorporating technology.
For example, when Litecoin was going to adopt segregated witness, the price doubled, tripled and quadrupled ahead of that because people were saying Litecoin was going to adopt this new technology that Bitcoin didn’t have even though that was invented by Bitcoin dev.
However, because of the political turmoil that’s going on in Bitcoin, Litecoin going to go and run with it and the price shot up. It didn’t shoot up because of segregated witnesses, but because the new technology drew more people into the Litecoin community.
Overall, the segregated witnesses are kind of the reason why they came, but the reason why the price went up is that they increased their community size.
That’s really where we need to focus on as investors. We need to focus on how the community is growing for this project.
Tai Zen: Now there are many Bitcoin maximalists who are the diehard fans of Bitcoin and don’t believe in any other cryptocurrency.
My question to you is what is the potential for Bitcoin Cash. Let’s talk about the difficulty, the hash rate and things like that when you were explaining to me offline about the EDA.
Let’s talk about the facts that Bitcoin Cash has a community. You mentioned about the exchanges and the people that are interested in it, but let’s talk about hard numbers that no one can deny.
Leon Fu: The most obvious number is the trading volume and the price. Nobody can do that right.
Massive trading volume is traded every day between Bitcoin and Bitcoin Cash. I don’t believe there is a single party that is able to generate that much trading volume just by themselves. There’s definitely interest.
Even if we ignore all that, we see people trying to get their Bitcoin Cash and trading it. A lot of the chat groups on Slack groups are talking about it. There’s about 10% of the hashing right now. There’s a website called fork.lol, that is tracking the development between Bitcoin Cash and Bitcoin.
Tai Zen: If the audience can follow us, they can go 26:26. That’s a top-level domain down now.
Leon Fu: This is an interesting website because it tracks a lot of the statistics. One of the things that tracks I like is the POW, which stands for proof of work. This is the work that miners are doing to mine Bitcoin Cash versus Bitcoin.
As a miner, you can mine Bitcoins or Bitcoin Cashes. As I’m looking at this the split is over. The last three hours is 55 to 45 roughly.
Tai Zen: Just explain to them where you look in there so that they know where to look at the website.
Leon Fu: If you click on the menu, there’s rewards, blocks, TX and POW. If you click on POW and then click on hash rate, you can see the actual hashing.
Hash rates are real resources. Miners are spending…
Tai Zen: …like hundreds of millions of USD to process Bitcoin transactions
Leon Fu: There’s a real battle right now between Bitcoin and Bitcoin Cash for the miners hashing power. It’s split about 55 to 45.
Now, it’s very volatile. Miners are profit-driven. They will point their computing power at whichever coin makes them more money.
Since they’re spending real resources to mine Bitcoin Cashes, namely their electricity and computing power, if they couldn’t get paid for that, they wouldn’t be mining it. Therefore, that’s one evidence that Bitcoin Cash has a real community behind it.
When Bitcoin was going into the fork, I always knew Bitcoin Cash was going to survive. I just didn’t know it was going to come out at $1000 or $300 for the market.
The bigger point is there is going to be more of these forks coming in the future because every time a portion of the Bitcoin community comes up with a new idea that is not compatible with the old Bitcoin, and they can get enough of the community behind it, they’re going to come out with a fork. That’s the situation.
One thing I wanted to go over is the difficulty. Now, Bitcoin in its entire history has never had to deal with fluctuating hash rates from the mining company. The number of miners mining Bitcoin has always been steady or increasing. It’s never had to deal with losing 50% or 80% of its hash rate. Consequently, Bitcoin does not have any ability to rapidly adjust down its difficulty.
Tai Zen: I want to interject real quick in case someone’s new to the channel and they don’t know what the difficulty means.
Let’s just say Leon and I cranked up our computers and we started processing bitcoins. What happens if one of us will find the blocks every 10 minutes due to its algorithm. The more people get added to the Bitcoin network, the faster the blocks will be found because there’s more computing power to find the answer to process the blocks.
Bitcoin has an algorithm called difficulty algorithm where if the more people that weren’t computer being added to the bitcoin network, it’s more difficult for people to find the next block as it grows. That’s what Leon means.
So far in the history of Bitcoin, the hash rate, which is the amount of computing power that’s being added to the network, has been on a steady incline. It has never been on a decline. So now go ahead and continue, Leon.
Leon Fu: The difficulty is retargeted every 2000 blocks. It means every 2000 or so blocks the algorithm looks at whether it takes on average more than 10 minutes or less than 10 minutes. If it took more than 10 minutes, we make it easier. If it took less than 10 minutes, we make it harder. That’s part of the source code.
Tai Zen: When you say we, you’re talking about the bitcoin network.
Leon Fu: The network, yes. It’s in the bitcoin source code. It’s in the code that Satoshi Nakamoto originally wrote to adjust the difficulty level based how long it took each block on every 2000 blocks.
Let’s say we were having 5-minute blocks on average over the last 2000 blocks because more miners coming in. The difficulty would re-adjust upward.
If it took 20 minutes for the last 2000 blocks, we would have to make it easier. That’s the outcome.
Now, this is a situation that Altcoins may have to deal with this from the very beginning. As you can see, miners jump between Altcoins because they only mine whichever coin is profitable at the given moment.
For example, when a coin suddenly becomes very profitable to mine because the difficulty is still low and the price is high, the miners will add all their hash power to that coin.
Then, when the coin re-adjust to a higher difficulty level, the price goes back down and all the miners leave. However, the difficulty is still this high and the chain can’t advance to readjust the difficult.
Therefore, the coin gets stuck because none of the miners are willing to mine anymore. The price isn’t high enough anymore to keep mining that profitably.
That situation has never happened to Bitcoin before.
Let’s say if 90% of the miners decide to move from Bitcoin to Bitcoin Cash, the chain can’t advance 2000 blocks to re-adjust the difficulty. It could potentially get stuck.
Now, Bitcoin Cash does have that. It does have a way to re-adjust the difficulty down as it looks at the last 6 blocks. If there hasn’t been a new block over the next several hours, the difficulty gets automatically re-adjusted down.
This is something that is part of the consensus algorithm, which Bitcoin can’t add this without a hard fork.
In order for us to agree that we’re going to use a new way to adjust the difficulty, there’s no way to do that as a soft fork or anything like that. It has to be a hard fork.
Now, why am I going into this? Let’s say for some reason, Bitcoin Cash exceeds the price of Bitcoin and the miners just stopped mining Bitcoin. They go mine Bitcoin Cash or they go mine one of these baby Bitcoins.
I could potentially see where the Bitcoin dies that way and Bitcoin Cash takes over because it doesn’t have enough hashing power to find the next block to advance the 2000 blocks to re-adjust the difficulty level back down again. As a result, the coin gets stuck.
What’s happening right now between Bitcoin Cash and Bitcoin is we’re seeing wildly fluctuating hash rates. The miners are rushing to Bitcoin Cash when it becomes more profitable mine.
Then, they generate like up to 30 blocks an hour and make a whole bunch of coins. Nonetheless, the difficulty re-adjusts higher and it no longer becomes profitable to mine, so they repoint everything back to mine bitcoin because the price of Bitcoin is at $4,400 and the price of Bitcoin Cash is at $600.
What we’re seeing is miners are constantly going back and forth. Once they move to Bitcoin, the difficulty drops on Bitcoin Cash because it does have an exponential difficulty adjustment or EDA.
There’s a way to rapidly adjust the difficulty on Bitcoin Cash downward. All of a sudden, Bitcoin cash becomes more profitable to mine and all the hash power move back.
I point this out is because I see that as a risk to Bitcoin core protocol. The reason is if another baby Bitcoin gains traction and surpasses the original bitcoin in value, the miners would leave and go mine this baby bitcoin. Then, the chain could potentially grind to a halt, especially as the value drops.
If the value drops too fast or if the hashing power drops too quickly, we could get a situation where the blockchain just stops. It doesn’t move anymore. It gets stuck.
I’m watching the hash rates and the price of Bitcoin Cash closely because of that reason.
Tai Zen: From an investor perspective, we need to keep an eye on it.
To sum up what you’re saying, if all the miners on Bitcoin jump over to Bitcoin Cash before the 2000 something blocks are created, that can potentially cause a Bitcoin to be suck.
Leon Fu: Yes. It could potentially be in a situation where we don’t see another block come out because the difficulty is too high, which is relative to the number of miners that are mining Bitcoin.
Plus, there’s no consensus algorithm and no governance process in the community to re-adjust that difficulty back down.
I’m not saying this will happen. I’m just pointing this out as a potential risk that has been in the back of my mind.
Tai Zen: Yeah. It’s worth keeping an eye on. We really need to pay attention to it whenever the bitcoin maximalist say it’s no good because they have a very good track record of being on the wrong side of the price.
Leon Fu: Yes. If you just do what the maximalists say not to do, it seems like they’re really good at that.
Tai Zen: Anything else that’s important about Bitcoin Cash that investors need to know about or pay attention to?
Leon Fu: As I said, it’s the development that is worth watching. Once again, it’s about whether Bitcoin Cash can get traction. Right now, they’re in the minority. I think they’re led by Roger Ver, who is one of the main players in it.
One of the things that people don’t realize is Bitcoin is centralized right now. It’s centralized by a few very large miners in China.
If a few of them decide to flip and get behind the Bitcoin Cash or one of these other baby Bitcoins that are coming in the future, it will be very interesting to see how that plays out.
Tai Zen: Yeah. That is something people don’t realize.
If you’re not clear or don’t have a full understanding of this, I would highly recommend you search for a video call “Noses not nodes” by James D’Angelo.
He has a very good 10-minute video where he explains why Bitcoin is not decentralized like everyone thinks. It’s all controlled by a handful of miners in China regardless of 6,000 nodes that are listed on Bitcoin. It’s not how many nodes you have. It’s how many noses behind those nodes that are controlling it.
Right now, we have a tiny, tiny number of noses that are controlling all the bitcoin nodes. Since they are anonymous, there’s no way for us to verify that they’re not the same person.
As you said, if they just decide to switch sides and point all their computer power towards Bitcoin Cash, they do have the ability to kill Bitcoin.
Now we keep saying that Bitcoin’s biggest flaw is it does not have a governance process. A lot of the bitcoin maximalists think we are saying that the government needs to be involved in Bitcoin, which is not true at all.
We are saying is that there is no final decision-making process to help Bitcoin update the software. Whereas, a lot of the Bitcoin maximalists are saying that that is a feature, not a flaw in bitcoin. Well, what are your thoughts on that?
Leon Fu: We are not saying Bitcoin is dead. Bitcoin is not going to die. In fact, the whole point of cryptocurrencies is that they can’t die. I mean even coins that were outright scams don’t die. There are still some guys mining it somewhere and the blocks just keep coming out.
What we’re saying is the governance issue will limit how big bitcoin will get. That’s not how good the technology is. That’s nothing to do with software or with code. That has to do with people, the community.
That’s the same thing that’s going to be true with Ethereum and all these other coins. It’s how well they can govern themselves, bring new people into the community and keep the community together.
Bitcoin Cash happened because of their lack of governance. A group of people decided to break off and now they created $10,000,000,000 of market cap that is no longer part of Bitcoin. It’s part of Bitcoin Cash.
It could have been part of Bitcoin if it had a better governance process, but it went to Bitcoin Cash and that’s going to continue to happen.
Every time somebody decides that they don’t like something and they can get enough of a community together, it’s going to work again for multiple times, because there’s no way to resolve differences within the community themselves, except for forking.
If any cryptocurrency wants to grow beyond a certain size, they’re going to have to figure this out. I’m not saying I have the solution. I’m not a political science major or anything like that. However, this is a problem that cryptocurrencies will eventually run into when they get to a certain size.
Tai Zen: Before we wrap up this episode here, if you have any questions pertaining to Bitcoin Cash, please type it on the chatbox and we will answer that to you.
Nike1007 asked: “If the bitcoin does slow down, would it be the base of cryptocurrencies?” I’m not sure what that means.
Leon Fu: I think he means other traders will trade against Bitcoin. It’s already a crisis of Bitcoin, but right now we have people who are not getting their transactions confirmed for hours or even days.
If we ever get into a situation where Bitcoin goes into that spiral where all the miners leave suddenly and the chain gets stuck, I think Bitcoin will need to do another hard fork in order to survive.
Will the community rally behind that? I mean how hard it was to do the segwit. It’s already hard to do in a soft fork.
Tai Zen: Okay. John asked: “Do you think Bitcoin or Bitcoin Cash is close to the white paper? Any thoughts on that?”
Leon Fu: I’ve read the white paper several times. The very first paragraph says “a peer-to-peer payment system”.
In my opinion, I think bitcoin is no longer electronic cash. The word cash implies that I can pay you to buy a piece of coffee with it. I can use it the way I use physical cash.
Tai Zen: I want to add this so everyone can understand.
When Leon and I got into Bitcoin in 2012 and 2013, many of you guys know that I put my life savings into Bitcoin at that time. Leon was the one who helped me buy my first Bitcoin at that time.
I did that because Leon showed me what bitcoin did. I saw it was clear and settled instantly. I mean when they sent it to me, it was pretty much in my wallet. Plus, the cost of sending was almost free.
Leon Fu: the transactions were free.
Tai Zen: the transactions were free.
I think at that time there was like $150,000,000 transaction that went through the network for 5 cents.
A few days ago, I sent a transaction with a few Bitcoins and it cost me $10. 68 cents. If I saw that the bitcoin transactions cost that much, I would have never put my life savings into it. Plus, it took me several hours to confirm.
Now, if we want to transfer payments to other people, we’ve had to convert Bitcoins to Ethereum or even to Litecoin and send it because it cleared fast because the fees are so high
Now, the majority of the features that Bitcoin has now gone. We have to be prepared to that as an investor.
If somebody asks whether we prefer Bitcoin or Bitcoin Cash, we don’t have a bias because we are investors. Our goal is to make money from investing in cryptocurrencies. We’re not here to argue or fight over which technology is better.
Leon Fu: Getting back to the original question, the word cash implies that I can pay you with zero cost.
For example like cash in my wallet, I can give it to you and it costs me nothing. There are no middlemen in between our transaction. That’s no longer the case anymore with the way Bitcoin stands today. Plus, it’s a private transaction
Tai Zen: We know for a fact that Bitcoin is not a private transaction. We just don’t know who the sender is, but we can figure it out eventually because that’s how they found out who has stolen Bitcoins from Mt. Gox, which ended up at BTC-E.
Leon Fu: I think philosophically Bitcoin Cash is closer to the original vision of white paper because the view of Bitcoin is being able to push all these small transactions through something they called the lightning network or something with a segregated witness.
I’m not convinced that what Satoshi Nakamoto intended when he created Bitcoin. That’s just my opinion though.
Tai Zen: That’s all the questions I see so far for Bitcoin Cash.
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