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Jiang Zhuoer: Bitcoin Gold Is Just Another ICO Scam with 200,000 Coins Pre-mined

BTG (Bitcoin Gold) is the latest fork that the community is debating about. BTG implements a new proof-of-work concept known as Equihash which is different from the original SHA256 and it claims to make Bitcoin more ‘decentralized’ — but I beg to differ. Using a few simple logics below, we seek to understand what BTG truly is.

1. Is GPU mining machine not considered a mining machine?

BTG claims that by replacing the conventional ASICs with GPUs for mining BTG, it allows mining to be decentralized because it gives ordinary users a chance to mine. However, how can you argue that GPUs are not mining machines and they cannot be concentrated in mining farms?

GPU mining farms

The truth is, if you go to Bitmain website, you can see that both ASIC and GPU mining machines are for sale. As with ASIC mining machines, miners are going to buy the GPU mining machines and the machines will be deployed in large scale mining farms. How can you claim that ASIC mining is centralized and GPU mining is decentralized? The claim is absolutely unfounded and absurd.

If you ever operated ETH/Zcash GPU mining pool, you will know that the total GPU hashing power of PCs is almost negligible. This is because the electricity bill incurred by mining farms is about 0.3–0.4 CNY/kWh while consumer pays about 0.6–0.7 CNY/kWh. For ASIC mining machines, this difference in cost of electricity is still acceptable but for GPU mining machines, it is not just about that.

For instance, a PC consumes 100 Watts of electricity for GPU processing. However, to run the GPU itself, the PC needs to consume another 100 Watts of electricity on CPU/ RAM /Mother Board etc. On the other hand, a GPU mining machine typically stores 8 GPUs. Out of the 800 Watts of electricity it consumes, only 100 Watts will be wasted by other components. Thus for GPU mining machines, the cost savings brought by scale are not merely 0.3 CNY versus 0.6 CNY like ASIC mining machines, the differences are between 0.3 CNY and 1.2 CNY.

8-GPU mining machine

Thus, as GPU hashing power of PCs is almost negligible, the claim that using GPU mining makes mining more decentralized — the core supporting theory of BTG hard fork — is invalid.

2. Changing the POW algorithm can prevent the emergence of large scale mining farms?

Supporters of Bitcoin Scaling always scoff at the Bitcoin Core team for not having basic knowledge of economics. They neglected the fact that the society will improve economic activities to be more efficient, regardless of the usage of ASIC, GPU or CPU mining machines. Even if Satoshi Nakamoto came up with a POW algorithm that can only be calculated by CPUs (similar to that of Quarkcoin), there will also be CPU mining farms. For instance, the pictures below show a CPU mining farm that mines PTS.

Using regulations and policies such as changing the POW algorithm does not change the existence of fundamental theory of economics — the power of economies of scale. Hence, it does not prevent the emergence of large scale mining farms.

                                                                                                                                                CPU mining farms

Ironically, CPU mining is more centralized because CPUs are typically concentrated in the hands of owners of internet cafes, machinery managers, and especially government-controlled supercomputers. For instance, the supercomputer (Sunway TaihuLight) has 40,960 computing board, every computing board has 260 CPU cores, totaling to about over 10 million CPU cores. Even all of the millions of Bitcoin miners are using CPUs for mining, the government can easily make use of the super computer to initiate a 51% attack.

Why is this so? Why is it that CPU mining which seems the most decentralized can make the Bitcoin network fragile and susceptible to attacks? We have to dive deeper and ask ourselves — is decentralization an enabling process or an outcome?

3. Is decentralization an enabling process or an outcome?

The core team glorifies the idea of ‘decentralization’ and its intention is to let Bitcoin be decentralized. This is their biggest mistake.

When Satoshi originally designed the Bitcoin network, he did not intend for bitcoins to be a decentralized currency. He wanted a network that cannot be killed. How do you prevent a network from being kil? He made use of ‘decentralization’ as an enabling process to protect the Bitcoin network and hence “decentralization’ is an enabling process but not an outcome.

Satoshi mentioned ‘1 CPU 1 vote’ and decided against ‘1 IP 1 vote’. The core team loves to argue that Satoshi did not foresee the emergence of ASIC machines, however that’s not the truth. Regardless of the existence of ASIC machines, concentration of mining is an outcome of economies of scale. Satoshi is the master of economics, he beautifully designed the Bitcoin network and thus it is impossible that he did not understand such basic economic theory.

Satoshi clearly understood that there bound to be concentration for CPU and other mining machines, otherwise he would not have pointed out the possibility of 51% attack. Then why did he choose ‘1 CPU 1 vote’? This is because only through ‘1 CPU 1 vote’ then we can let people with large hashing power to invest sufficiently into sunk cost which thus incentivizes them to protect the Bitcoin network instead of harming it.

4. Warning the Core team against ruining Bitcoin

‘1 CPU 1 vote’ is essentially ‘1 share 1 vote’ for corporate organizations and objection against ‘1 IP 1 vote’ is the same as objection against ‘1 man 1 vote’.If a shareholder holds 51% of the company’s shares, he will be incentivized to develop the company instead of ruining it. Hence backed by the rationale behind ‘1 CPU 1 vote’, we have to be warned against the ‘Core team ruining Bitcoin’ rather than ‘miners ruining Bitcoin’.

Please do not exclude this possibility. Recall that engineer of Motorola used Iridium Satellite(only use satellite communication, not use mobile telephone ground base station) to ruin Motorola. The Core team are doing the same thing to ruin Bitcoin. The secondary layer (eg: LN and side chain) =satellite communication, and the main chain =mobile telephone ground base station

If miners were to ruin the Bitcoin network, their mining machines worth billions of dollars will be deemed worthless. However, if the Core team were to ruin the Bitcoin network, they do not have a price to pay.The Core team likes to claim that miners do not have the right to vote but they only have the rights to signal. But the truth is, Satoshi have already accounted for it in his design — miners are more reliable than the Core team, and miners are the one with voting rights.

5. BTG is essentially an ICO to scam funds

GPU computing cannot stop the emergence of large scale mining farms. BTG is not only conceptually unsound, it has also displayed its developers’ greed and ugliness through their operations.

The biggest issue with BTG is that it is not a clear-cut fork, but rather it is an ugly fork motivated by greed. Prior to the fork, the BTG team have already pre-mined 20,000 BTG. Hence, BTG should not be considered a fork, but rather a coin to scam funds. Moreover, the pre-mining was not stated on their official website (btcgpu.org) and we are not sure if it is their intention to deceive the public.

Who is behind such deceptive moves? Let us have a look at the core members of BTG team:

The founder of BTG is Jack Liao, from mainland China and he has a bad reputation of hurling vulgarities in public and within group discussions in the Chinese community. The main developer has remained anonymous and we are unware of the true intention behind his anonymity.

BTG started as one of the projects which intended to ride on the waves of ICO and Jack Liao originally reprimanded BCC fork as an act of fragmenting the community. However, in lieu of preparing for his own ICO, he praised that BTG fork is an upgrade of the current network. The difference between BCC and BTG is that, supporters of Bitcoin scaling initiated the BCC fork to support their ideas and they invested real money to mine and buy BCC. Jack Liao, on the other hand, did not spend cash to support his project and he still wanted to make money from it.

After the fork on 25th October, Jack Liao plans to spend 5 days until 1st November to pre-mine 16,000 blocks of 200,000 coins (fix difficulty to 1 and mine block quick). Other users and mining pools can only start to mine BTG after 1st November. They intend to sell the pre-mined 200,000 coins at 0.1 BTC to ICO investors and raise 20,000 BTC funding out of a simple code change.

Even after the Chinese government banned ICO, this did not stop Jack Liao — he can still sell the pre-mined BTG to market. Even if 1 BTG ends up being sold for just 0.01 BTC, that still sums up to 2,000 BTC, which is equivalent to 80 million CNY.

Referencing from “FAQ of BTG” by Jack Liao:

Q: Some do not agree of your pre-mining mechanism

A: We estimate to pre-mine 200,000 BTG coins and use these coins to raise funds. The 200,000 BTG coins will represent 1% of the total issued coins and this percentage is not high. Mining pools are already asking for 4%-5% transaction fees, the 1% that we asked on behalf of the work done by our developers and team is not very high. The money does not go directly into our pockets; it is for the expense of the project. The entire community is selfish and greedy. Those who do not approve of our pre-mining are simply ignorant and my response to them is: ‘Join us or f*ck off.’

Coinbase had warned against such behaviour of pre-mining:

Coinbase cannot support Bitcoin Gold because its developers have not made the code available to the public for review. This is a major security risk.

I predict that the 200,000 BTG coins will be sell to market soon, riding on the wave of the heated discussions. Who exactly is the anonymous developer h4x3rotab? Apart from Jack Liao, no one knows.

With the case of BTG, even after the ban of ICO in China, scams like this which claims to be a fork but in fact is a way of raising money through ICO will become more prevalent. This will result in the emergence of various ‘forks’ and I urge everyone to be cautious.

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