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Craig Wright talks bitcoin dumping and explains malleation in plain English


New answers to some of the old questions in bitcoin.

Craig Wright, who has on occasion controversially claimed to be bitcoin creator Satoshi Nakamoto, is widely believed to have a heck of a lot of bitcoin. Regardless of whether or not he's Satoshi Nakamoto in the way the claim is typically construed, it's clear that he's been involved with bitcoin since the very early days. From 2011 to 2013, he and his former business partner are thought to have accrued at over 1 million bitcoin between them.

While bitcoin has forked hundreds of times over the years, mostly into dross, a few forks have attained some significance in their own right, and Wright has shifted his support to some of these over time.

The thing about forks is that they typically snapshot user holdings, and replicate them on the new fork. So over time, early bitcoin whales can accrue large separate fortunes in bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV) and others.

This can be unnerving for many given the hostile nature of some splits and the relatively low liquidity of the cryptocurrency markets, because it means whales that oppose certain bitcoin forks might have the funds to wreck coins they dislike with with heavy selling.

What and why

With tensions between different variants of bitcoin running high right now, the spectre of Wright, and his potentially huge BTC, BCH and now BSV holdings, has been unnerving to many.

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The recent market plummets in November-December 2018 are thought by many to be the result of frictions between Wright's Bitcoin SV fork and Bitcoin Cash, and have some suspecting that whales are dunking on each other by dumping on each other, at the expense of overall market caps. However, signs suggest that it has more to do with general market sentiment rather than anything so specific.

Still, Wright has previously said that bitcoin (BTC) will be dead by 2019, thanks to a "fatal flaw" that's been accidentally baked into it, and some have taken this prediction to mean that he'll be getting rid of remaining BTC holders, with a potentially devastating market impact, sometime before then.

On his recent appearance on Crypto Finder TV, a viewer voiced these concerns and asked Wright whether he would be dropping his holdings on the market, which could have potentially devastating impacts.

His response might be reassuring.

"It's not about dumping. It's about [how] certain things will be fixed in bitcoin."

The next part might be less reassuring though.

" we fix them in Bitcoin, you're going to learn why there are major problems in segwit coin."

Problems and solutions

"Bitcoin core is a dead end, and I keep saying this. They've made a lot of problems, they're not going to scale."

And according to Wright, it's too late to fix it now – the mistakes have been built in for too long.

When asked why bitcoin (core) can't do what SV is trying to do, Wright said:

"They'd have to remove some of the changes they've made. They have to get rid of replace by fee, they have to uncap the blockchain, they have to get rid of segwit, they have to allow malleation. All these changes they've been putting in there saying "bitcoin's broken", they have to remove."

These kinds of charges might be why Wright has previously described bitcoin as having been "tinkered to death". But it's worth noting that the question of whether these changes are necessarily harming bitcoin is still very much up in the air. Rather than being clearly good or bad, they're more like a balance of pros and cons that need to be considered.

  • Replace by fee: This change essentially lets someone put a new transaction in the bitcoin queue, overtaking one that was already there by attaching a higher transaction fee. It comes with some security downsides, but allows big spenders to continue passing transactions through quickly even when the blockchain is backlogged. Ideally it probably wouldn't be necessary, and the blockchain would have enough throughput to handle all transactions without it.
  • Uncap the blockchain: This refers to the block size debate. Larger block sizes can increase throughput, at the cost of raising the data costs associated with bitcoin mining, and with using the bitcoin blockchain. The "big blockers" say this is a cost that can be managed, while "small blockers" say it risks centralising mining even more, and that there are alternative options. Craig Wright is a so-called "big blocker".
  • Segwit: Or Segregated Witness to use its full name. This is one of those alternative options that can be used to increase throughput without increasing the block size, at the cost of a few downsides. Essentially it cuts out the "witness" from transactions, which saves space on the blocks. One such downside, Wright explained in the interview, is that it strips transactions of useful information which might be necessary for certain applications, and for creating audit trails.
  • Malleation: Malleability in bitcoin is generally considered a bad thing. It's typically seen in bitcoin as an attack vector that allows hostile miners to change certain headers in other people's transactions. It doesn't directly allow double spending or similar, and directly tampered-with transactions will still typically go through, but other functions that depend on the headers being tampered with are affected. For example, if someone is sending a pre-programmed chain of transactions, malleation might let someone disrupt that chain, potentially resulting in the loss of funds. Counter-intuitively, Wright believes malleation should be allowed due to the opportunities it offers.

Why malleate?

"So this is something people don't actually realise. With script sig malleability, what you can do is hand data to someone in a payment channel, where they can strip the information out of the header, then send that off to miners," he explained. "So, having a proven, a tested, way of sending information back and forwards between parties which is then sent off to the network to be validated at a lower cost."

This is part of the broader goal of Bitcoin SV microservices, which aims to allow miners and bitcoin users to handle only certain parts of transactions. Essentially, deliberate and controlled malleation of transactions, for the purposes of tailoring transactions in certain ways as needed for certain situations.

The idea is that the ability to tailor individual transactions can be potentially extremely useful. The ability to strip certain headers out of transactions can potentially be very useful, he says.

"So funny enough all these things about stripping out malleation is a bad thing. Many of these solutions that we're going to be bringing in the next months, years, etc, actually require that you can do malleation on signatures."

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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