Breaking down the United American lawsuit against Bitmain, Roger Ver, et al

The cryptocurrency world was rocked Thursday by the announcement of a huge lawsuit that was launched by United American Corp. (UAC) against a large number of Bitcoin Cash BCH supporters, including Bitmain and its co-founder Jihan Wu, Bitcoin.com founder Roger Ver, Amaury Séchet of Bitcoin ABC, the Kraken exchange and its CEO, Jesse Powell, as well as a few others. The lawsuit contends egregious amounts of fraud and market manipulation on the part of all defendants and could forever change how BCH is viewed, MarketWatch first reported.  The lawsuit and all updates will be available on the www.bitcoincashlitigation.com website.

UAC points out in its lawsuit, filed in U.S. District Court for the Southern District of Florida, that the group of individuals colluded to manipulate the BCH network and take control of its functions. The company asserts that BCH has become centralized, which violates “all accepted distributed and decentralized standards and protocols associated with Bitcoin since its inception.” The Florida-based blockchain company further asserts that Ver, Wu, et al worked in conjunction with the Chinese government in order to lead a hostile takeover of the cryptocurrency.

Breaking News: Lawsuit links Bitmain, Ver camp to ‘premeditated takeover’ of Bitcoin Cash network

The blockchain is meant to be a decentralized solution. To maintain this decentralization, the network operates on a consensus basis that prevents a single person or group from being able to control the majority of the hash, or mining power. If someone is able to control 51% of the network, they can effectively and autonomously decide the blockchain’s fate and this is what the defendants have been able to achieve.

Bitmain publicly acknowledged its support of Bitcoin ABC during the hash wars and launched efforts to force the BCH network to follow ABC during the hash wars. It rented hash power and even deployed 90,000 of its own mining rigs in favor of ABC mining operations, a move that can be seen as an attempt to centralize and control ABC. There were also speculations that Bitmain’s Jihan Wu was unloading BTC to fund the ABC mining operations, which, in turn, drove the prices of crypto down. Now, people are wondering if Wu is just cashing out amid the hash war.

Meanwhile, the U.S. Department of Justice is also allegedly looking to get involved in the case against Bitmain and Ver’s group through the FBI Cybercrimes Division.

Who are the defendants?

Roger Ver is a “crypto anarchist” and has also directed the mining operations of his Bitcoin.com mining pool to ABC. In addition,Bitcoin.com was a recipient of some of the hashing power that was rented by Bitmain in order to support ABC.

Ver has direct links to the Kraken crypto exchange through its founder, Jesse Powell. They are friends with a history that dates back to their high school days and Kraken was one of the first exchanges to show favoritism for ABC. It was also the first exchange to declare that ABC was offering the true version of BCH.

The lawsuit explains that Bitcoin ABC, the development and mining group that favored moving BCH away from its original design, has now forced changes on the blockchain without regard to what the community wanted. It introduced arbitrary checkpoints that can allow Bitcoin ABC to take over the network. UAC explains, “Combining this change with the hashing power of Bitcoin ABC backers amounts to centralization.  They will be able to override any consensus reached by the rest of the network, forcing other to conform or create an unwanted hard fork.”

UAC also asserts that the entities were fundamental in directing hash power—including through the renting of additional mining equipment—during the BCH “hash wars” this month that saw them force the direction the BCH blockchain was headed. The action resulted in an unprecedented amount of hash being processed by Bitcoin ABC backers and further disintegrated the integrity of the BCH network.

UAC has been involved in blockchain innovation since 2017 and has invested more than $4 million in the space. It argues that the selfish manipulation of the blockchain is not consistent with BCH’s design, and that it has completely altered the “fundamental economics of the business.” In simple terms, it can be viewed as ordering a Filet Mignon in a restaurant and being delivered a burnt hamburger, while still paying for the Filet Mignon.

For a deeper narrative about the scheme, visit the Bitcoin Cash Litigation website.

The full filing can be found here.

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Lawsuit links Bitmain, Roger Ver group to ‘premeditated hostile takeover’ of Bitcoin Cash network

Bitmain, its co-founder Jihan Wu, along with his “team of conspirators” including Bitcoin.com CEO Roger Ver, ABC lead developer Amaury Sechet, Kraken and its CEO, Jesse Powell, will have a lot to answer for. On Thursday, a lawsuit was filed before the U.S. District Court for the Southern District of Florida accusing the group of fraud and market manipulation, asserting that these people worked “with the knowledge and support of the Chinese government to stage a premeditated hostile takeover” of the Bitcoin Cash BCH network.

Florida-based blockchain company United American Corp. (UAC) is seeking an emergency injunctive relief, citing losses that stemmed from the Bitcoin Cash hard fork last November 15. On that day, a hash war was fought with miners voting between two competing implementations of the BCH protocol—Bitcoin SV and ABC. ABC took a temporary early lead due to an artificial burst from “rented” hash power subsidized by Ver’s Bitcoin.com, and some exchanges—Kraken in particular—prematurely listed the ABC token as Bitcoin Cash BCH.

Now the other shoe has dropped.

Lawyer Brian Miller of Akerman law firm, who heads the team of lawyers that handles the UAC litigation, said there was “a scheme by a tight network of individuals and organizations designed to co-opt the cryptocurrency market for Bitcoin Cash, effectively hijacking the Bitcoin Cash network, centralizing the market and violating all accepted distributed and decentralized standards and protocols associated with Bitcoin since its inception.” The scheme, allegedly spearheaded by Bitmain and Ver’s camp, reportedly caused “a global capitalization meltdown of more than $4 billion and caused many American and Canadian coin holders to suffer financial damages.”

Also named in the UAC lawsuit were ABC developers Shammah Chancelor and Jason B. Cox.

Aside from the awarding of restitution and compensatory damages, the lawsuit also seeks to prevent ABC from continuing to implement checkpoints on the Bitcoin Cash network and other software implementations that will “prevent the resulting chains from being able to be re-merged. UAC also wants the court to require ABC “to return the blockchain to its previously decentralized form with the previous consensus rules.”

More importantly, UAC wants to prove that the ABC camp, which has “some of the biggest U.S.-based and international names and entities in the digital currency world” among its ranks, is being backed by the Chinese government, all in an effort “to centralize the Bitcoin Cash network resulting in Chinese entities now having established dominance over this important segment of the cryptocurrency market with proprietary software checkpoints and instituting other means of control over the system.”

Lawry Trevor-Deutsch, VP of Corporate Affairs for UAC, said, “We envision a future led by an open, democratic and collaborative community fostering innovation and freedom. No entity or group of entities should seek to seize control of this platform for their own narrow interests or create rules that inhibit new competition and future technological innovation. That’s what this lawsuit is about.”

Full filing can be found here.

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Why Bitcoin (Segwit BTC) and Ethereum alt coins dumping is good for society

The current coin down turn is actually good for the industry as its exposing the ridiculousness of all the other coins business models – including Bitcoin Core (BTC) has been seriously overvalued given its inability to be used as electronic cash. Cryptocurrency value should always have been about utility, and that requires ability to massively scale as well as low cost secure micro-transactions. Though painful for those going in the wrong direction, this market correction will allow the facts to shine through and we hope that once this is over everyone will understand that this is and always has been about real utility and scaling.

Digital gold models and ICOs are all fiction and have been very bad for this industry. Both will result in massive loses for many investors, and have obscured the understanding that cryptocurrency needs scaling to be the new global money, what Bitcoin (now existing as Bitcoin SV) was created to do.

We are glad we fought Bitcoin ABC and had Bitcoin SV stand its ground. Otherwise, the original Bitcoin would have died again last week when Bitcoin ABC rushed in a series of code changes which depart from Bitcon’s core principles. Bitcoin SV has preserved the original Bitcoin and will make sure it succeeds.

Bitcoin SV is therefore seriously undervalued now, and the token best positioned to grow in value. Our prediction is that this market correction will result in Bitcoin SV being the only cryptocurrency that you can retreat to and preserve value. It is also the only one that will protect mining industry revenue for the future, and it’s the blockchain where the explosion of new business models will happen. In fact, we’ve quickly seen that most of the BCH native applications and businesses are switching over to BSV. Anyone who switches to BSV now will be ok…those who stay with a cryptocurrency or blockchain with no reason to exist will lose everything.

Bottom line, though painful, this correction is good for the industry longer term and good for society.

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ABC’s Avalanche plan signals end to proof of work

ABC is expected to release its ‘pre-consensus’ Avalanche feature for the ABC chain in the near future, even as opinion remains contentious.

For those supportive, it is considered an efficient way to arrive at consensus on a network, and will aid with zero-confirmation transactions. Others see Avalanche not as a mere complement to, but rather a complete deviation from Bitcoin and the proof-of-work (PoW) mechanism as designed by Satoshi Nakamoto.

Reina Nakamoto, tweeting on the matter, cited the Avalanche whitepaper itself that states, “Unlike Nakamoto consensus, the protocols are green, quiescent and efficient; they do not rely on proof-of-work and do not consumer energy when there are no decisions to be made.”

On Reddit, user satoshi vision said the tech would be an overhaul of Bitcoin, and that it would be “bypassing miners and POW, weakening the security of the system.”

The user further said that ABC developers “would rather move to a system of Proof of Stake,” where one’s creation of blocks is dependent on how many coins one holds. They also noted that ABC “already have snuck in centralized checkpoints and 10 block deep reorg protection, without telling miners or users. They even refuse to raise the blocksize, the same as Core and say 22MB blocks are impossible, while coingeek mines 64MB blocks. What a nightmare. BABcoin is fiat 2.0.”

ABC lead developer Amaury Sechet characterized Avalanche as running side by side with PoW, yet also stated, “Avalanche [does] not need proof of anything except for Sybil resistance… It doesn’t need proof of work/stake/whatever to reach consensus.”

Ryan X. Charles of Money Button, in his initial reaction to it, said some transactions may not be confirmed and included in the blockchain as a result of using Avalanche. “[I]f you do things like broadcast a double-spend, it actually may never reach a consensus. So it doesn’t actually guarantee that consensus ever occurs,” he said.

Charles further characterized Avalanche as more a networking protocol, which for arriving at consensus “has some slightly less desirable properties in other ways that are sort of made up for by proof of work.”

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Original Bitcoin will live on as Bitcoin SV (BSV)

Any time you feel forced to square off to defend yourself or something you value you always need to have an end game plan. For CoinGeek that end game was always making sure there was a version of the original Bitcoin still able to show off its original economic design genius to the world. Bitcoin was born with a mature economic model and platform developers have consistently tinkered it to death…first by forking to Segwit BTC and now ABC has pushed the technology off to their side chain view of the world. This is fine for them to test their thinking, but not by killing Bitcoin before it’s even been tested properly so we stepped in.

It is CoinGeek’s opinion that the two chains are now so far apart and have such divergent plans ahead that there is just no path back to joining them. We also no longer want the name Bitcoin Cash BCH as to us, Bitcoin SV is the original Bitcoin not the original Bitcoin Cash (whatever that even means). We understand that having nChain no longer fighting with them over roadmaps was the single most important issue to the ABC side. nChain tells me they are happy to leave ABC chain alone if they enact replay protection and do a permanent split. This is very convenient as the definition of winning is fundamentally different to each side so there is a win-win solution here.

From where CoinGeek sits right now, us permanently splitting the chains by ABC enacting replay protection will give both sides a WIN. Bitcoin will live on with Bitcoin SV and will finally have a chance to show off the true power of the original economic model. Similarly, ABC can join with the rest of the new chain/coin models to demonstrate what they believe they can do. The models can then all compete in the marketplace and this lets actual users vote with their actions.

I am confident that CoinGeek can enforce civility if the other side wants this in any permanent split. We believe this is in the best interests of all and call on all the exchanges and payment processors and others who have an interest in making this all go away to help us convince everyone to accept this solution so we can all focus on our visions for the future and get rid of this wasteful distraction.

I have instructed my team to start working with everyone to roll out the new Bitcoin SV coin. I hope this can be the end of this episode and look forward to the CoinGeek Week Conference next week being the launch party for the return of the original Bitcoin and all that this will enable. Look forward to seeing everyone there and especially discussing the future of the original Bitcoin.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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New ABC code release departs (further) from Nakamoto consensus

Bitcoin ABC has just released its Bitcoin ABC 0.18.5 that adds “deep reorg protection” which will effectively render blocks permanent once confirmed ten times.

Feedback on the update, as announced on Twitter, Reddit, and other forums, was quick and critical, with many indicating the proof-of-work (PoW) system subverted to whoever first manages to get ten confirmations. However, ABC explained the feature was a “safeguard” that “helps users, businesses, and exchanges stay secure and free from disruption.”

nChain lead developer Steve Shadders tweeted his reaction to the update, saying, “Nakamoto consensus is now dead on the ABC chain… They do not believe in bitcoin.”

Under Nakamoto consensus, the more confirmations of a block, the higher the probability of being accepted by the network. Miners are thus incentivized to devote sufficient hash power for their operations, and receive a reward for blocks mined.

Yours.org creator Money Button had earlier criticized ABC’s use of “endless checkpoints” as not being of a decentralized protocol, which leads one to question if ABC should still be considered Bitcoin at all.

Defending the reorg-protection feature on Reddit was Olivier Janssens, Bitcoin entrepreneur, who said that in the event of a malicious miner mining blocks, full nodes will be able to not accept the blocks anyway. This is assuming ABC nodes could consistently make a distinction between honest and malicious miners.

Bitcoin SV’s developer nChain had long warned of ABC using Bitcoin BCH as a developer’s experimental playground. Reorg protection is just the latest of several code changes since the November 15 hard fork, that appear as ABC’s means of defending itself while the hash war between it and Bitcoin SV continues.

As far as CoinGeek is concerned, such changes by ABC weren’t arrived at by consultation with those in the BCH community. Miners who don’t like the changes, however, do have Bitcoin SV as an option where miners’ choice is a priority while maintaining the strength and stability of the Bitcoin protocol.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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New ABC code release departs (further) from Nakamoto consensus

Bitcoin ABC has just released its Bitcoin ABC 0.18.5 that adds “deep reorg protection” which will effectively render blocks permanent once confirmed ten times.

Feedback on the update, as announced on Twitter, Reddit, and other forums, was quick and critical, with many indicating the proof-of-work (PoW) system subverted to whoever first manages to get ten confirmations. However, ABC explained the feature was a “safeguard” that “helps users, businesses, and exchanges stay secure and free from disruption.”

nChain lead developer Steve Shadders tweeted his reaction to the update, saying, “Nakamoto consensus is now dead on the ABC chain… They do not believe in bitcoin.”

Under Nakamoto consensus, the more confirmations of a block, the higher the probability of being accepted by the network. Miners are thus incentivized to devote sufficient hash power for their operations, and receive a reward for blocks mined.

Yours.org creator Money Button had earlier criticized ABC’s use of “endless checkpoints” as not being of a decentralized protocol, which leads one to question if ABC should still be considered Bitcoin at all.

Defending the reorg-protection feature on Reddit was Olivier Janssens, Bitcoin entrepreneur, who said that in the event of a malicious miner mining blocks, full nodes will be able to not accept the blocks anyway. This is assuming ABC nodes could consistently make a distinction between honest and malicious miners.

Bitcoin SV’s developer nChain had long warned of ABC using Bitcoin BCH as a developer’s experimental playground. Reorg protection is just the latest of several code changes since the November 15 hard fork, that appear as ABC’s means of defending itself while the hash war between it and Bitcoin SV continues.

As far as CoinGeek is concerned, such changes by ABC weren’t arrived at by consultation with those in the BCH community. Miners who don’t like the changes, however, do have Bitcoin SV as an option where miners’ choice is a priority while maintaining the strength and stability of the Bitcoin protocol.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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Exchanges selling BCHABC could be conducting fraud

In anticipation of the Bitcoin Cash hard fork last week, two cryptocurrencies were launched—BCHABC and BCHSV. Each corresponded to one of the two camps that were pushing BCH’s divide, but only one has the potential to be considered a fraudulent pump-and-dump scheme—BCHABC.

Medium user “Without Fear” provides a considerable amount of data to support that belief in a recent thread on the social media platform. Before anyone goes off the deep end and accuses Without Fear of being nothing more than a puppet for BCHSV, it would be in their best interest to read the post and understand better the scenario.

Without Fear points out that, prior to the hard fork, “[W]e have hash that wasn’t mining BCH before the fork, which means that (without looking at it) this is either pragmatic hash that makes money by selling the ABC coins they mine, or hash rented by the people who wanted or believed in the ABC ruleset. However it became clear after the following announcement by Bitcoin.com that a lot of the hash that would mine BCHABC the day of the fork would be stolen hash from Bitcoin.com pool miners.”

The author goes on to show that there have been a number of mining pools that have stolen hash from their customers in order to point them to BCHABC proponent Bitcoin.com, including Antpool, viaBTC and BTC.TOP, creating a pool that post’s author refers to as BABV. This hash, asserts Without Fear, is unstable and is being mined against the market’s wishes—it is forced hash.

He also shows how the Kraken exchange is trying to manipulate public sentiment. Kraken is backed by Bitcoin.com’s Roger Ver and recently stated that it will support BCHSV, but warned that Bitcoin SV “should be seen as an extremely high risk investment, citing several “red flags”: BCHSV has no wallets that support replay protection, it has no support in major block explorers and because miners are subsidized or operating at a loss, among others. This is a blatant disregard of the facts and a manipulation of the truth. Neither BCHSV nor BCHABC offer replay protection and BCHSV most definitely has support in block explorers. There is no evidence to support the fact that BCHSV miners are being subsidized, whereas Without Fear provides several examples of how BCHABC is subsidized. Ver himself has even admitted to it, telling CoinGeek’s Calvin Ayre that Bitcoin.com can subsidize BCHABC with 4000 petahashes for a decade.

So, where does this leave us? BABV is a pool that is creating hash that is supposed to be mined elsewhere, but whose components have been pointed by the pool operators—not the miners—to mine BCHABC in an attempt to signal market strength. As Without Fear correctly ascertains, “However, this is not real demand, the machine owners never asked or consented to mine BCHABC. This is being done behind their back while they are paid as if machines are mining BTC, or whatever is most profitable.”

In the absence of true market demand, the forced hash will revert to its original source and BCHABC will, by default, stop progressing. Explains Without Fear, “Considering that ABC hash support was 800 when the BCH price was around $500 and that the current BCHABC price is less than $300, such plunge in hash would spiral out of control and lead to a full halt in what these exchanges have labelled as the “BCH” chain. The portfolios of people who held BCH before the fork would now be worth zero while the BCHSV chain keeps being mined.”

Without Fear’s advice is simple and insightful: “[S]teer clear of exchanges that try to sell ABC as ‘BCH’ as ABC is extremely unstable and not comparable to your BCH holdings.”

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

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‘Think about the game being played here’: Jimmy Nguyen tells the truth about Bitcoin BCH hash war

Last November 15, during the Bitcoin Cash (BCH) network upgrade, a hash war has been fought with miners voting between two competing implementations of the BCH protocol—Bitcoin SV and Bitcoin ABC.

As expected, Bitcoin ABC took a temporary early lead, thanks to an artificial burst from “rented” hash power subsidized by Roger Ver’s Bitcoin.com, which announced that it would use pool customer hash from the Bitcoin Core (BTC) network onto the BCH chain for 24 hours, as well as from ABC’s main supporter Bitmain Technologies.

The hash war, however, isn’t far from over. Bitcoin SV’s strongest supporters, CoinGeek and nChain, is committed to a long term fight using their legitimate, sustained hash—long after Bitmain can no longer afford to bleed money for rented hash.

On November 17, nChain CEO Jimmy Nguyen appeared on Keyport’s live stream coverage of the Bitcoin BCH hash war to speak the truth, as well as explain to the BCH community the consequences of their willingness to accept a burst of rented hash to quickly decide the hash war. And to those who are out there on social media, cheering for the supposed ABC victory, Nguyen posed this question: Is this the precedent we want to set for the Bitcoin Cash community?

Read the full transcript of Jimmy Nguyen’s Keyport speech below.

TRUTH AND CONSEQUENCES ABOUT THE ONGOING BITCOIN CASH HASH WAR

Jimmy Nguyen – CEO, nChain Group

Since the Bitcoin Cash (BCH) network upgrade on November 15, a hash war has been fought with miners voting between Bitcoin SV and Bitcoin ABC – two competing implementations of the BCH protocol. nChain and CoinGeek support Bitcoin SV. As we fully expected, Bitcoin ABC appeared to take a temporary early lead by receiving an artificial burst from temporary, “rented” hash power subsidized by Roger Ver’s company Bitcoin.com, which announced it would move its pool customer hash from the rival Bitcoin Core (BTC) network onto the BCH blockchain for just 24 hours, and from ABC’s main supporter Bitmain Technologies. 

Many observers have quick to prematurely call a win for Bitcoin ABC. But the hash war is not over. nChain and CoinGeek continue to fight, mining with our legitimate, sustained hash committed to support the Bitcoin Cash network and the Satoshi Vision. For days before the hard fork, Bitcoin SV had support from over 75% of the network hash.. Knowing they clearly did not have enough support to win, Bitcoin ABC’s backers had to rent and subsidize BTC hash to move onto BCH to use as voting power. When they can no longer to afford to pay massive daily amounts to rent hash for this BCH hash war, we will still be here fighting, and the consistent hash power supporting Bitcoin SV will overtake Bitcoin ABC. That is the inevitable result of this BCH hash war

On November 17, I appeared on Keyport’s live stream coverage of the BCH hash war to provide my views and a statement to the Bitcoin Cash community about “Truth and Consequences” of their willingness to accept a burst of rented hash to quickly decide the hash war. This is a transcript of my speech, edited for clarity.

I’m about to tell you truth and consequences. These are the truth and consequences for the Bitcoin Cash community of what’s happening in this hash war.

So the weekend went exactly as I expected. There was the fork on Thursday, November 15; there was a huge burst of hash that came into the network on the side of Bitcoin ABC that was rented or subsidised— probably from the BTC network, in order to artificially boost the support for Bitcoin ABC far higher than it had ever been in the days and weeks coming up to the hard fork.

Then the Bitcoin ABC supporters decided to declare early victory, because they seemed so far ahead in hash. Then they started going to the exchanges, if not even before the hard fork. (I think they did look before to try and get them to recognise their chain as Bitcoin Cash (BCH).

They added checkpoint—not a surprise, our developers heard about that a week ago.

So everything that happened is exactly as I predicted, and we’re continuing to plug away.

And people are probably wondering why we didn’t bring more hash in to support the Bitcoin SV side of the coin. Let me explain why. We actually had plenty of petahash offered to us; in fact, we actually didn’t have to go ask any miners or mining pools to lend us their hash.

Before and after the BCH Miners Choice Summit on November 2nd that CoinGeek sponsored and which I attended, we had a potential deal for thousands of petahash —to be rented and subsidised by us much like, I’m sure, Bitmain and Roger Ver were doing in some capacity or variation. While I was at that summit, we had thousands more petahash offered to us to rent, by people who just did not like Bitmain, opposed the Bitcoin ABC implementation, or wanted to support us for all kinds of reasons.

I could have walked away from that day with easily ten to fifteen thousand petahash worth of support for Bitcoin SV. And it’s not for lack of money or resources that we decided not to do it because Calvin Ayre, CoinGeek and nChain could have easily afforded to do that for as long as it took during this battle, and we would have blown the Bitcoin ABC side out of the water, at least compared to the hash that they have demonstrated so far in the charts you can see. But I actually had a realization at that moment in Hong Kong about whether that was the right thing to do; and I decided it was not, because of the consequences it would have in the future for the Bitcoin Cash community. And here’s what they are:

The whole reason that such hash was available on the BTC network to move onto BCH is because the people who should have fought Bitcoin Core did not, and splintered off to create the Bitcoin Cash network, and allowed BTC to continue on. That’s perfectly fine. But now they’re borrowing hash, renting it, subsidizing it from the very network they so vehemently oppose—many of them – to try and claim a victory on the BCH network.

I want you to think about the hypocrisy of that, because it’s staggering. I also want you to think about the game that is being played here, if you are able to just move hash for a day or two from the rival network that many of our community do not like, and use that to claim victory. What does it say about what you would do just to win what looks to many people right now like a sporting contest.

In addition, I want people to know that I thought long and hard about what should be the governing model to decide disagreement between rule sets for Bitcoin – because that’s what this is, that’s what’s really being tested in this moment right now. It’s not just about a particular feature set here or there.  It’s about what should be the governing model when there are disagreements.

And think about this: when the Nakamoto Consensus was written in the Bitcoin white paper, there was supposed to only be one Bitcoin network. There was not supposed to be miners on a network running the same hash algorithm that you could pay to rent their hash to come in and vote in a disagreement over rule sets. Instead, the Bitcoin network as we know it, this whole system, it’s magic is in its economic incentives. Miners have incentives to provide the computing power and security of the network; they earn block rewards, they earn transaction fees, they have the investment and monetary interest therefore to make decisions on rule sets that best continue that economic incentive and the security of the network.

But if you are not mining on the network and don’t have your own investment in it, and you are not making money on this network but making it over on BTC, why is it that you should have a vote for the rule set for Bitcoin Cash, particularly when it is hash borrowed from the very network that Bitcoin Cash was designed to split off from?

So the Nakamoto Consensus is being tested for the first time right now, and I want you to really think about that. Obviously, Satoshi Nakamoto could not have envisioned, at the time the white paper was written, that there was going to be some splintered-off network using the same hash algorithm. And with the idea of one CPU equals one vote, or miner hash power equals the vote, it was designed—and I’m sure most logical people can agree with it—to recognise that the people who have an ongoing continuous invested interest in the network are the ones that should vote on a rule set.

But what has happened over this weekend is that the supporters of ABC have been so quick to come forward, and say, after a day or two of hash bursts provided by Roger Ver and his company Bitcoin.com’s move of hash from his customers from BTC over to BCH – and I’m sure move of BTC hash by Bitmain and other sources – after one or two days of bursts, they are so quick to declare, therefore they must be the winner.

But we took an alternate path. And as you can now probably understand why Craig Wright and Calvin Ayre have been so repeatedly vocal about the need for genuine and legitimate sustained hash that supports the network. We made the decision to fight with genuine honest hash.  And that is why, if you notice, over the days leading up to the hard fork., the CoinGeek, SVPool, and BMG pools started gradually increasing the hash they were devoting to the network.

That was done for a reason. It wasn’t just an all-in burst to vote on the day of the hard fork. It was designed to demonstrate continued commitment to sustain this network and a desire to show the world we are going to continue using that hash on this network. It wasn’t a flash in the pan.

And so the situation that has unfolded this weekend is basically akin to saying: I want to have an election in the United States, and I don’t think I have enough votes, so I’m going to go pay people from Canada to come to the US for a day, vote, and leave—even those people who have no interest in the outcome of that election; it does not affect their lives, their livelihood, what pocket of money they get to pay their bills. That is what the people on the ABC side of the fence have just created: the idea that you can do that and that you can do that every time there’s a disagreement over the rule set.

So I really want people to think about what kind of system you want to decide consensus rule disagreements in the future for Bitcoin. Is it who can pay the most for one or two days to rent hash from a competing rival network that you escaped from? Or is it the votes of the miners who are ongoing providers of sustained hash, because they have an ongoing economic interest in the network?

And you saw the numbers in the days before the fork: it was clear the SV side of was demonstrating on a daily basis—for multiple days—far more than majority support from the network.

I believe that should be the governing model for Bitcoin consensus rule decisions. I also want everyone out there in the community to think about the consequences for the future. IF you are so quick to say that ABC should be declared the victor and awarded the BCH ticker symbol, and its consensus rules should govern, you’ve just walked into a bigger problematic box that I knew you would. Because I knew this would all happen; it’s all unfolded on Twitter and online. You’ve just provided the playbook for a big corporation with really big pockets, a state actor of government, anyone who could afford to pay for just one or two days of rented hash, to come over to the BCH network and get its rule set implemented.

Now that may not be nefarious; it could be Google, IBM, or Microsoft, who are very interested in blockchain technology, and they want to shape the Bitcoin Cash network with rules that favor their business model. This may be perfectly legitimate, and some people may support it. But I know many of you out there in the Bitcoin community would say: “well, wait a minute, I don’t want some big corporations just coming to pay, to take over the rule set of my network.” It would not cost that much —20 or 30 million dollars could have bought them a victory in a day or two according to what all the people screaming and cheering for ABC want to see happen.

A state actor could do that easily, that’s a drop in the bucket. And if you continue this path where you say “AHA!” after a day or two with bursts of hash that did not exist before and were just taken from the BTC network, if that is the way to determine the rule set, you have just set up the biggest vulnerability ever to the Bitcoin Cash network:  for someone with a deep pocket to come in and implement whatever rule set they want.

And for those of you who aren’t a big fan of big corporations and government – you know who you are out there in the Bitcoin Cash community – I think you need to sit back and think: what have I just done? Because that’s what I thought, and this is exactly what I knew was going to happen. I sat there in Hong Kong, and I had all these offers of hash that we could have taken, and we could have used it to quickly win. But I had a moment where I had to say: I had a moment to say, is this the precedent we want to set for the Bitcoin Cash community? That anyone who has a deep pocket to pay for hash for a day or two, who doesn’t have to mine the day before – such as a government, a big corporation who could be a zero miner the day before – to just pay enough miners enough money on a hard-fork date to have enough hash to have its rule set take over?

That’s exactly the situation you are creating now for all of those who are out there on social media and online, cheering for a supposed ABC victory. That’s all you think it takes. But that’s not what it should be, and that’s not what it was envisioned to be at a time when the white paper was introduced to the world with the idea that there was just going to be a single Bitcoin network with a single network of miners who all had an economic incentive and interest to mine that network, and therefore make the best decisions for the viability and vibrancy of that network.

I’ll close by saying that that’s the truth I wanted the Bitcoin community to realise and the consequences of the path you’re trying to take. At nChain and on behalf of the CoinGeek people who are somewhere else, I want to say—and if it’s not clear already—we’re very committed with the SV project to really advance the Satoshi Vision. Obviously, some people have a different interpretation of it; that’s okay, but if there’s one thing we’ve been consistent about time and time again—we want the original Bitcoin. We want to see it grow to what it was meant to be. You can disagree with us about what feature set it should be, what block cap size, about anything else. But there is one thing we consistently work on, day in and day out. You don’t have to like Craig, but it’s very clear that is his mission and vision, and it’s ours as well. And that vision has to be enforced by a pure understanding of what Nakamoto Consensus should be: loads of miners who have an economic interest day in and day out—not people who can be mercenaries, who are rented to come in and allow anyone, any corporation or state actor, to take over your network.

To some people out there who are cheering for an ABC victory after a day or two: I want you to think long and hard about what you just did, if that’s the result you want. Because you’re not going to like it—the hypocrisy, I think, is staggering for where Bitcoin Cash came from. . . from Bitcoin Core.

So it’s time for this community to make a choice, to make a choice about how you want disagreements to be decided, and how you want to allow the ruleset for your chain to be governed.

I know what choice I’m going to make, and it’s a choice that supports the Satoshi Vision. I’m going to leave now, because I have a lot of work to do to support that vision.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

The post ‘Think about the game being played here’: Jimmy Nguyen tells the truth about Bitcoin BCH hash war appeared first on Coingeek.

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The Real World: Legal Risks of Adding OP_DATASIGVERIFY to the BCH Protocol

Today, the Bitcoin Cash (BCH) network goes through a protocol upgrade, and miners will begin using their hash power to vote between two competing implementations: Bitcoin SV, which seeks to restore the original Bitcoin protocol, and Bitcoin ABC, the prior leading implementation. One area of disagreement is that Bitcoin ABC is adding a new opcode not contained in the original Satoshi protocol: OP_CHECKDATASIG (or OP_DATASIGVERIFY) (we’ll call it OP_DSV for short). The Bitcoin Unlimited group also supports adding OP_DSV. Bitcoin SV opposes adding any new non-Satoshi op_codes, believing that the original Bitcoin protocol has everything it needs to enable development on top of it.

We also oppose OP_DSV for another reason: it presents legal risk. At nChain, we talk consistently about the need to build Bitcoin BCH such that it can operate in the real world: to meet real business needs, to be used by real people, and to comply with real laws. For some time, nChain’s Chief Scientist Craig Wright has voiced legal warnings that adding OP_DSV will knowingly introduce illegal transactions into the BCH blockchain. As a former technology and intellectual property lawyer (for 21 years in the U.S.), I want to add my thoughts to this important conversation about OP_DSV. I express the issue somewhat differently than Craig, but my conclusion is similar to his: as it has been proposed for usage, OP_DSV presents legal risks for the developers advocating it and any application using it for problematic purposes.

OP_DSV Proponents Identify Illegal Use Cases
OP_DSV is meant to enable usage of oracles to validate external information and allow an automated smart contract to operate. As one of its proponents, Emil Oldenberg, CTO of Bitcoin.com, describes it:

The new opcode verifies a message, returns true or false if the message is signed by the pubkey stated. This enables us to write something commonly referred to as an “oracle”. An oracle is a third party service that can be used as an authority for facts, statistics and data.

Like any technology feature, op codes can be used for both lawful and non-lawful purposes. The problem for OP_DSV is that its key proponents vocally proclaim uses cases that are, at best, legally problematic, and at worst, clearly illegal. This makes it apparent up front that code developers and companies which then use DSV transactions for those problematic purposes know or “reasonably foresee” that OP_DSV can be used for illegal activity.

Take for example the blog post written by Bitcoin.com’s CTO Emil Oldenburg about the new op code. Emil says OP_DSV serves the explicit purpose of both enabling and facilitating gambling applications, such as “on-chain bets” or “wagers” and “escrow services” – in other words, facilitating the exchange of tokens or financial assets without any actual exchange acting as the regulated approved authority. Indeed, what he describes is a marketplace of bets without the actual financial assets being traded — which falls directly in the U.S. Supreme Court’s classic definition from 1906 of an illegal bucket shop:

“An establishment, nominally for the transaction of a stock exchange business, or business of similar character, but really for the registration of bets, or wagers, usually for small amounts, on the rise or fall of the prices of stocks, grain, oil, etc., there being no transfer or delivery of the stock or commodities nominally dealt in.”

(Gatewood v. North Carolina, 203 U.S. 531, 536 (1906).) Bucket shops are illegal in the U.S. (and in other countries). In fact, just this July, the CFTC obtained a $3 million judgment against InTrade, an Irish prediction market for trading binary options – bets on commodity prices – in violation of a 2005 cease and desist order.

Bucket shops operating specifically in the blockchain world have also been the subject of legal enforcement action. Sand Hill Exchange was a blockchain-based bucket shop launched in 2014 as a fantasy trading site, allowing you to bet on the eventual market price of start-up companies. Although it shut down by April 2015, the SEC obtained an administrative order against its founders and issued a $20,000 fine.

Yet, even though it is quite clear bucket shops are illegal, we have Bitcoin.com’s CTO (one of the key proponents of OP_DSV) explaining a use case of the opcode that can easily be construed as an illegal bucket shop. That is a problem for a company or person who later uses OP_DSV to operate exactly that type of bucket-shop marketplace or transaction.

Even worse, in a recent video statement, Bitcoin.com’s CEO Roger Ver suggests that the Bitcoin Cash blockchain can be used to facilitate transactions for the purchase of drugs, and any type of transactions for that matter, saying that the blockchain allows for “permission-less use. You don’t need permission to do whatever the hell you want with it. If you want to gamble on the Internet, that’s just fine too. If you want to buy drugs on the Internet, that’s just fine too.” We fear that is the ultimate goal—decentralized marketplaces where people can buy anything, even items illegal in their jurisdictions—which some of OP_DSV’s vocal supporters want to achieve. We of course support everyone’s right to their own opinion, and take no position on how and whether governments should regulate gambling, drugs, or anything else. But countries have established laws criminalizing certain types of goods and activity, and those laws govern the real world in which we need Bitcoin to grow.

Legal Liability for Third Party Use of Code
So what if OP_DSV can be used for illegal purposes? You may be asking how people working or operating on the BCH network can be at risk if they did not themselves conduct an illegal DSV transaction?

My concerns about legal risk are not hypothetical. U.S. government agencies have made clear that legal responsibility can even extend in some circumstances to developers who create and release code that is illegally used by others. Just last month, U.S. Commodity Futures Trading Commission commissioner Brian Quintenz gave a speech about how core developers and users of public blockchains generally should not be held legally responsible for unlawful activity that occurs on that blockchain. However, he acknowledged there is a lack of definitive guidance in the law, and proposed the appropriate liability standard for code developers to be whether “code developers could reasonably foresee, at the time they created the code, that it would likely be used by U.S. persons in a manner violative of CFTC regulations.”

It may sound surprising and scary for developers to have legal exposure for how other people use their code, but it’s the real world of how government agencies are prepared to think. For example, Augur has been under scrutiny for some time. Augur is a decentralized prediction-market protocol built on Ethereum; some characterize it as an illegal “bucket shop” or prediction market. When asked about Augur and the legal responsibility of its creators for what users do on the platform, CFTC spokeswoman Erica Elliott Richardson said in an email reply:

“[…] I can say generally that offering or facilitating a product or activity by way of releasing code onto a blockchain does not absolve any entity or individual from complying with pertinent laws or CFTC regulations.”

Recently, the U.S. Securities & Exchange Commission took concrete action which makes clear that operators of a decentralized service can in fact be liable for illegal activity committed by others on their network. The SEC charged EtherDelta, a supposed decentralized token exchange, and its founder with operating an unregistered securities exchange. It announced a settlement for EtherDelta’s founder to pay $388,000 in penalties, disgorgement, and interest. This case is seen as a warning sign to other decentralized exchanges. As Andrew Hinkes, an adjunct professor at the New York University School of Law, has most recently observed regarding the EtherDelta case:

“Just because you make it and then it gets operated by a decentralised network of others doesn’t mean that any prospective responsibility or liability is gone. It’s just possibly relocated.”

While many people may disagree with the legal standard proposed by the CFTC and the SEC case against EtherDelta, the message from these events is clear: even if you create or operate code and applications for a decentralized or P2P network, there are circumstances in which you can be liable for enabling or contributing to illegal activities of people who use that code or application. This includes code developers, if they can “reasonably foresee” their code is likely to be used for illegal purposes – at least if the CFTC Commissioner’s view is adopted as a legal standard. This could potentially also include other participants in the network, if their actions are reasonably foreseeable as contributing to illegal activity.

Outside of the cryptocurrency world, the legal system has witnessed many cases where computer programmers and technology providers have been criminally prosecuted or civilly sued because someone else illegally used their code or technology.

1. A Latvian computer programmer was sentenced to 14 years in prison by a Virginia federal court for designing Scan4You. That program was connected to the 2013 credit-card information hack of the Target retail store chain. The programmer argued the software could be used for lawful purposes, and said he should be held responsible for when it was used illegally. The program allowed hackers to see if anti-virus programmes would identify their hacking software as malicious, who then packaged it into malware kits sold to cybercriminals. The court rejected the defendant’s theory that he should not be held liable because “all online businesses have legitimate and illegitimate users,” holding that such a theory does not apply in criminal cases like this one because, as he told the defendant, “There’s zero chance that you didn’t know the harm being done by the malware hackers used your service to perfect.”

2. An Arkansas software developer pleaded guilty for developing, marketing, and distributing products used by cybercriminals, though he claimed it was designed for legal purposes. Additional articles on the same case can be found here and here.

3. A 21-year old Kentucky developer created and sold a “remote access trojan,” claiming it was intended as a legitimate tool for system administrators, before later admitting in a plea agreement that he was aware some customers used the software to control others’ computers without their knowledge or permission.

4. The motion picture industry has successfully filed many lawsuits against file-sharing sites that use P2P software to facilitate illegal copyright infringement. The Betamax defense, as it came to be known was established in Sony Corporation of America v. Universal City Studios Inc., 464 U.S. 417 (1987); it stands for the proposition that the distributor of a technology product cannot be found liable for infringement by users if the product has “substantial non-infringing uses.” However, years later when presented with a case in the P2P context, Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., 545 U.S. 913 (2005), the U.S. Court Supreme Court held that while the Grokster service had substantial non-infringing uses, secondary liability for copyright infringement was possible given evidence that Grokster intentionally induced, encouraged, and had actual knowledge of direct copyright infringement on its platform.

Therefore, even if a technology can be used for non-infringing purposes, its provider and other operates can still have secondary liability for other people’s illegal of that technology. As a ComputerWorld sub-headline succinctly stated: “Companies that actively enable infringement can be held liable for sins of their users.”

Build Bitcoin for the Real World
Of course, these legal principles will evolve and may develop differently in the cryptocurrency world. And legal standards will vary from jurisdiction to jurisdiction. But the warning which everyone in the Bitcoin world should heed is this: do not advocate for technical features by identifying illegal use cases. You are just setting up legal risk for yourself, application providers, and other network participants who use your proposed feature.

At nChain, that’s why we always look at Bitcoin as more than a technical system. We do not propose technical features simply because they can replicate some feature developers envy on Ethereum or other blockchain projects. We do not propose technical changes because we feel like experimenting with Bitcoin. We carefully evaluate technical needs for Bitcoin’s growth to be sound, stable money and the global public blockchain of the future. But we always balance technical concepts with the economic, business, and legal impact.

That is why we support the Satoshi Vision and the Bitcoin SV implementation: a simpler approach to restore the original Bitcoin protocol, keep it stable, and allow it to massively scale. In order to achieve the Satoshi Vision – a world where big businesses and billions of people use Bitcoin – we need the BCH network to operate in the real world. Bitcoin must meet the needs of real businesses, real people, and real laws.

Jimmy Nguyen is CEO of the nChain Group. Before joining nChain, Jimmy had a 21-year career as an intellectual property and digital technology lawyer in the U.S., where he was a partner at three major law firms. In 2008, Lawdragon named him as one of the 500 Leading Lawyers in America.

nChain’s content analyst Sebastian Ploetzeneder contributed to this article.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.

The post The Real World: Legal Risks of Adding OP_DATASIGVERIFY to the BCH Protocol appeared first on Coingeek.

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