Bitcoin Private — A New Era?
By now you may be aware of the BTCP coin burn that occurred at Block Height 480000 (at 7:00 GMT 17th February), the result of which is that a large number of coins have been removed from circulation. I have conducted my own analysis which was complicated due to several aggravating factors associated with the article written by Coin Metrics (Don’t trust, verify: A Bitcoin Private case study). More on what this actually means later.
The coin burn was a controversial gift left by the outgoing BTCP ‘Core Team’ at the start of 2019, partly in response to the exploit highlighted by Coin Metrics and partly to address an issue identified in the White Paper, these were 2 distinct elements to the coin burn. The BTCP ‘Core Team’ no longer exists as it once did, it is now purely a community entity as alluded to in the recent tweet introducing the new team site here. There are still a lot of wrinkles to iron out, but the goal is to put the community at the forefront of decision making and direction by providing mechanisms to allow meaningful interaction with developers. The key element of this is communication, and to provide fact based discussion points so that the community are informed and empowered to choose the path of BTCP.
A lot of things have happened in the first year for BTCP, and we are left with the legacy of our founders, the ‘Core Team’, and those that seem determined to undermine all things BTCP. A new momentum has been gained in recent weeks and the community have come together to address several high priority items. This is a chance for a new beginning and it is being embraced by a growing technical community.
With this, the first point to address is the coin burn. What is it, what is it not, what does it mean moving forward? As stated we are left with the fact that a coin burn was determined the correct course of action by the ‘Core Team’. The lack of communication around this has led to a lot of speculation and comment from the crypto community in general, not a lot of which has been positive, and some of which has been largely accusatory. The first point to note is that not all coin burns are created equally. The recent hard fork implemented 2 coin burns, which has at best caused confusion and at worst led to claims of theft, corruption and labelled BTCP a scam. It is worthy of note that new people continue to become involved with BTCP and that those who may or may not have had their own agenda at the inception of BTCP are long gone. Anyway back to the burn, the first of which occurred at block height 455500, and shall henceforth be known as burn1.
Burn1 was a solution to the issue raised by Coin Metrics whereby 2,040,000 coins were illegitimately introduced during the fork merge in February/March 2018. These coins were moved to shielded addresses in order to conceal their creation and as such went unnoticed. The conclusion reached independently by Coin Metrics was that somehow this was instigated by the ‘Core Team’ and that they were complicit. There was no verifiable evidence to support this, which is mildly ironic given the title ‘Don’t trust, verify’. The ‘Core Team’ were indeed guilty, but only of inexperience. Merging of 2 coins had not been done before and was incredibly ambitious, the checks and balances were not in place and the result is, well, history. Of these two million coins a number were deshielded and therefore introduced back into the circulating supply which distorts the numbers reported by the daemon (gettxoutsetinfo) in relationship to the BTCP Block Explorer. The number, although significant, was only around 10% of those that had been illegitimately introduced and is approximately 210,000. The ‘Core Team’ decided on swift action and implemented burn1, but what did this ACTUALLY do? The answer is quite simple, the effect was to remove these coins from existence using the mechanism of resetting the number of coins in the shielded pool to 0. This obliterated around 1.8M illegitimate coins, as well as around 17,000 legitimate coins that were held in the shielded pool. These can no longer return to the visible blockchain and are gone, forever. There is an outstanding issue relating to the Maximum Supply and whether it should include the coins from burn1 as these can not be monitored by gettxoutsetinfo.
As stated in the original Medium article Hard Fork Summary, the verified owners of the 17,000 legitimate coins are able to request their coins back from the relief fund.
On to the more misunderstood coin burn that occurred at block height 480000 (burn2), this was identified in the White Paper as a solution to the problem of ‘the low amount of mineable Bitcoin Private remaining after the fork could cause some problems, including extremely low network hash rate’. However, the premise of this is flawed for a number of reasons. Again, this points to the inexperience of the ‘Core Team’ whereby a statement was made without necessarily considering the implications fully. What may have seemed like a good idea 12 months ago, with hindsight, would never have offered a viable solution to the identified problem. Nevertheless, burn2 has been implemented, and on 17th February it was activated. So what actually happened during burn2, and what did it achieve? Firstly, it is worth noting that in this instance the term burn is a bit of a misnomer. That is to say that the premise of crypto currencies in general is they exist by way of an immutable blockchain, with a known fixed supply. The process of burning coins, or to remove them from existence as was achieved during burn1, is generally contrary to the core principles. BTCP was designed to have a maximum supply of 21m coins, this is a calculated value based on the legitimate number of coins created at the fork merge plus the coins available for mining based on the mining schedule within the code. Irrespective of burn1, that further complicates issues, burn2 could never have achieved the goal of allowing more coins to be mined without increasing this maximum supply. The concept of taking away legitimate coins and replacing them with mineable coins simply can not take place without muting large portions of the blockchain. So what did burn2 do? Again, quite simply, all coins that were generated as part of the original fork merge that remained unclaimed at block height 480000 were rendered unspendable. The coins are still there, they can still be seen on the blockchain, their history can be traced to their respective genesis blocks. They have not actually been burned. Another point is that burn2 did not follow the traditional method of burning coins which is more generally performed by moving all unclaimed coins to a single address that can not be used as the private keys are not available. The reasons for this can be assumed to be related to the possibility of a 51% attack occurring around block height 480000 to double spend up to 17m coins. In actual fact there is no functional difference, the result is the same, the coins are inaccessible. Now here are some terminology differences with the 2 possible methods for burn2, and these have been clarified with CoinMarketCap. In both instances the Maximum Supply and Circulating Supply would be the same, however CMCs definition of ‘verifiably’ burned coins means that the method that has been used for burn2 will result in the Total Supply being the sum of the Circulating Supply PLUS the number of coins burned. Had a more traditional burn been implemented, where all unspent coins had been moved to a single address, the Total Supply would have been equal to the Circulating Supply. The consequences of this are negligible as the Total Supply is not used for the important calculations related to Market Cap nor are they relevant to the mathematical concept of the Maximum Supply.
So this is what actually happened, but what does it mean? In reality it has only allowed a correction to the Circulating Supply. There are many factors that affect how many coins were claimed over the course of the last 12 months, a large part being that many exchanges simply didn’t support the fork. On the day of the fork, some 7m BTC were being traded on various exchanges, and private keys were not actually held by individuals. Not your key, not your Bitcoin Private. A lot of people are crying foul, and that the ‘Core Team’ have stolen funds. The fact is that the private key represents your entitlement to BTCP, and not ownership. Opportunity has been given over the last 12 months to claim coins, and the White Paper always mentioned that a burn would take place. The fact that it has been accelerated is a factor, but it has been communicated. These coins from burn2 have not and will not be used by the BTCP ‘Team’ either past or present and the net result is ONLY that there is a more accurate representation of the number of coins that are in circulation.
So what now? We are in a position where we have an accurate Circulating Supply, but the Maximum Supply of 21m has been breached. My calculations show the following numbers:
Circulating Supply ~4,624,000
Total Supply ~22,692,000
Max Supply ~23,000,000*
*This is determined based on the code. Circulating+burn1+burn2+mineable
There is still an issue with the mineable supply, although the code does not respect a hard limit but it does leave a decision to be made. This is a community decision and the consequences need to be discussed based upon the facts of where we are today with the current codebase.
This is a binary decision at this stage. Do we determine that for network security and miner incentive that we introduce more coins in to the ecosystem — effectively printing money, or do we hold firm to the original mining strategy and accept the fate that is in front of us?
We have the facts around this to have sensible discussion and it is vital that the community is informed and represented in order to make decisions about the future.
“The future isn’ts not set. There is no fate but for what we make ourselves.”