Thursday, February 15, 2018

The Litecoin Cash Fork: Curb Your Enthusiasm?

(Note: I'm still conducting a "test" of the Coinhive in-page background miner on my blog, which is the pop-up you saw when you arrived here that asked for permission to use some of your CPU's processing power to support this blog. It's mining Monero in the background on your computer harmlessly and only while you are on this page, if you gave consent. I'm wanting to gather reader input on the system, so please leave your comments as to what you think about it; I'm trying to decide if I should keep it or boot it. Thanks!)

Litecoin (LTC) is surging right now, from a low earlier this month (just a few days ago, actually) of around $143, and as I type this it's sitting at about $224, a gain of about 57% in a matter of days.

Why?

Because of the looming Litecoin Cash hard fork that is set to occur in three days. Just like the Bitcoin Cash hard fork last August, the prospect of "free money" attracted more cash to Bitcoin. And free money it essentially was: after the fork occurred, those of us who were HODLing Bitcoin past the moment it occurred found that both coins continued on, rather than one or the other crashing and burning.

So, here they come again. But this time, the creator of Litecoin, Charlie Lee, is sounding some alarms:
"PSA: The Litecoin team and I are not forking Litecoin. Any forks that you hear about is a scam trying to confuse you to think it's related to Litecoin. Don't fall for it and definitely don't enter your private keys or seed into their website or client. Be careful out there! https://t.co/qXbiIxp5Al" — Charlie Lee [LTC] (@SatoshiLite) February 4, 2018
So why is someone forking Litecoin? Just like with the Bitcoin Cash fork from Bitcoin, the stated reason is to increase the efficiency and speed of the blockchain while also lowering costs. As the above-linked article describes, the people behind this fork want to reduce the block speed to 2.5 minutes per block, switch to a "proof-of-work" mining method that could be used by older mining hardware (stuff that got sidelined as specialized ASIC mining rigs came to dominate mining of many blockchains), and a reduction of transfer fees compared to Litecoin of 90%.

Sounds good, right? Maybe. There's just one thing about all of this that potentially spoils the whole party: as the Benzinga article I linked to above describes, none of the team working on this, the so-called, "Litecoin Cash Foundation," can be identified.

What this could be then is an attempt to get people to try to claim their Litecoin Cash by entering their Litecoin wallet private keys into a site that these anonymous actors may have created, which will simply vacuum out the contents of a Litecoin wallet. Because of how forks work, where an existing wallet address is included in the history of the new and old blockchain, this is a normal step in claiming the new coins on the new chain. However, if the fork never actually occurred and there is no new blockchain, then thieves can simply set up a site the claims to give people access to their new coins, which only steals their existing, actual coins.

This may not be the case with the Litecoin Cash fork, as it has been reported that the Litecoin Cash team is advising people to first move their Litecoin on the Litecoin blockchain to a new wallet, then use the old private key of that now empty wallet to claim their coins on the Litecoin Cash blockchain. If a person does this, then there is nothing left at the old wallet address for anyone to steal, so this would be a perfectly safe move. If a person does so, then on the Litecoin Cash blockchain, their old wallet that existed prior on the Litecoin blockchain will contain 10 Litecoin Cash coins on the new blockchain for every 1 Litecoin they had on the old.

So if the Litecoin Cash team are telling people to use a safe and theft-proof method of claiming their Litecoin Cash, what could be the possible nefarious angle here? It could be that this whole thing is just a "pump and dump" scheme. Basically, the hype around this coming forking event will drive up the value of Litecoin, which will in turn translate into a higher value for Litecoin Cash at the fork. Then in the aftermath of the fork, Litecoin Cash will likely attract more buyers at whatever exchanges it might be listed on, further increasing its price. And then the anonymous development team behind all of this, who may hold a sizeable number of "premined" Litecoin Cash coins will simply dump theirs and walk away with a big pile of money, leaving all other Litecoin Cash holders with a rapidly devaluing cryptocurrency that never actually had a useful purpose in the global marketplace.

Of the two scam possibilities here, I think the second one I've described is the most likely. Basically, my thoughts on this fork can be summarized as, "why?" I can't see any purpose for it because I'm not aware of pent up demand out there for a faster, lighter, and cheaper Litecoin, specifically because Litecoin IS faster, lighter, and cheaper than what it was built to compliment: Bitcoin. Also, while I do know that some merchants out there accept Litecoin as a primary form of cryptocurrency payment, I don't know of that many who do, and since Litecoin Cash will exist as a separate blockchain, it can't be accepted in place of Litecoin without merchants making upgrades to their systems to include it (just like how Bitcoin Cash isn't accepted over-the-counter at the hundreds of thousands of places that accept Bitcoin, because they're not interchangeable!). Basically, Litecoin Cash will have no real world use case behind it, it will only be useful for trading between other cryptocurrencies on exchanges, and there's certainly no shortage of cryptos to do that with already. This proposed new coin, like so many others, does absolutely nothing that's new.

Basically, I think these guys are trying to fix what isn't broken, and while there's a chance that they're really honest actors that are just tilting at windmills here, I think there's an equal or possibly greater chance that they're just looking to make a fast buck on people's hopes for their new coins to turn into a Lambo that they can drive on the moon.

What I'll be doing then is proceeding with cautious lethargy (I think I just coined a new term there; you heard it here first!). I'm just going to let the fork happen, leave my Litecoins in the wallet they're presently in, and just assume that I have Litecoin Cash out there on the new, post-fork blockchain that will (may) result. I've done the same thing with each and every fork of Bitcoin that has occurred (the number of which I've actually lost track of).

When the day comes that I move my existing holdings to a hardware wallet that I plan to acquire, then I may try using the private keys of the old, empty wallets on the new blockchains to claim those other coins that are out there. If those coins still exist at the point at which I do so, then I will have them, too. If they never existed or have failed and gone away since the forking events that created them, no big deal, because my legit Bitcoins and Litecoins will be safe and sound in new wallets on their respective blockchains, out of the reach of anyone who might have set up a malicious site to steal my old private keys.



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