The Bitcoin Cash network has just gone through another hard fork after it was originally created as the hard fork of the Bitcoin (BTC) blockchain in August 2017. The November 15 hard fork split the Bitcoin Cash network into two new blockchains, Bitcoin Cash ABC (BCHA) and Bitcoin Cash Node (BCHN). The main difference between the two is the 8% gross premium tax miners have to pay to the BCH ABC development team.
Between the two networks, Bitcoin Cash ABC received very little hashing power while Bitcoin Cash Node received the most, suggesting that miners generally prefer BCHN over BCHA. The last common block of Bitcoin Cash that was mined before the fork was from Binance, and the first block that split the chain in two was mined by AntPool.
Another fork will last longer
It’s not the first time the Bitcoin Cash community has witnessed a fork event. The network’s first fork came in August 2017, followed by another fork in November 2018 that split it into Bitcoin Cash ABC and Bitcoin Cash SV (BSV). With this latest token, called “Satoshi Vision”, this division was made with the intent of keeping Bitcoin true to its original vision of the currency used for daily transactions between pairs.
Over time, Bitcoin has grown in value and gained increasing attention, which has resulted in the token being used as an investment vehicle rather than originally for everyday transactions. In addition to deviating from the original vision, Bitcoin also had scalability issues where the network couldn’t handle a large number of transactions due to its 1 megabyte block size. This resulted in transactions spending a lot of time in queues waiting for confirmation.
Bitcoin Cash solved this problem. On his “Strees Test Day”, The number of transactions on the BCH network increased to 25,000 per block without any increase in fees, compared to 1,000 to 1,500 transactions per block on the Bitcoin network. However, the last hard fork on November 15th of this year wasn’t just due to improvements in network efficiency.
A hard fork is generally good for an asset that has not gone through a fork because it creates a clear segmentation of the various strengths of the network so that participants can choose which of those strengths has a greater impact on them. This usually also results in the value of the resulting coins being higher than that of the original coin. Because of the different incentives for forked coins, one of the coins usually takes the lead while the other lags behind, losing most of its market cap and becoming more vulnerable to attack. 51%.
Effects of the power fork
This particular hard fork was fueled by the miners’ split over the proposed rule that 8% of the BCH mined must be distributed as BCH ABC to fund protocol development. The developers were divided into two groups: BCH ABC, led by Amaury Sechet, who proposed the update; and Bitcoin Cash Node, which removed the source code for the extra tax BCH miners would otherwise incur.
Ashu Swami, CTO of Apifiny, a liquidity and solution provider for the cryptocurrency industry, told Cointelegraph why BCHN sees stronger support: “Both the mining camp and advocates of decentralization support him. As a result, many well-known exchanges such as Coinbase and Kraken have also given this site its weight.“He added:”There is a high probability that the other currency, the BCHA, will not survive for more than a few monthsBitcoin.com COO Roger Ver, a longtime Bitcoin Cash supporter, wish Lucky for the BCHA node, indicating that it is not part of the cohort that caused the breakup.
Since the fork, BCHN’s hashing power appears to be the more dominant of the two. Swami believes that the 8% gross reward tax from BCHA is the reason, but that could change quickly. He explained:
“What they [los mineros] Doing so at any given time depends on the relative rewards of these two currencies. Since both BCHN and BCHA use the same proof-of-work algorithm, the hashing power can be reallocated between these currencies very quickly. If the price of BCHA remains high enough due to some factor to get a higher return on mining investment than BCHN even after 8% taxes, all rational miners immediately pass their hashing power to BCHA. unless they are deliberately willing to accept the loss in order to manipulate the price in the future. “
Even if the BCHA returns are not high enough in the future, the network will not necessarily disappear from the community. Sam Bankman Fried, CEO of the FTX exchange, explained the possibilities to Cointelegraph:
“It doesn’t necessarily mean it will go away completely – there are many examples of minority chains that result from a fork and evolve – but it certainly seems more likely that the BCHN will be the dominant chain in the future.”
Even before the fork, the data suggests that 80% of BCH miners were in favor of the Bitcoin Cash node, which is now reflected in the mining data that follows the fork. Days earlier, Bitcoin Cash was trading at record lows compared to Bitcoin. The price of BCH then fell to a low of $ 233.96 before rebounding to pre-fork levels of $ 250.
However, Bankman-Fried explained the reason for the decline: “Due to the fork, ‘BCH’ started as ‘BCHN + BCHA’, but ultimately only represented BCHN – so its price should fall around the price of BCHA, similar to a dividend or a stock split.Although the $ 20 price for BCHA follows that logic immediately after the fork, the coin has since lost 20% of its value and is trading at around $ 16.
The price of Bitcoin Cash has rallied almost to pre-fork levels, but it is clear that a hard fork event will bring uncertainty to both investors and miners about the currencies before and after the fork. Given that this fork had a centralizing effect on a decentralized network, it looks like a power struggle between miners and developers. Swami expanded this dichotomy further:
“If you give the blockchain team rewards for mining, it will undermine the decentralization of the chain and make it more government-like. Hence, there is very little support for this fork. Unfortunately, the development team is the one supporting this fork to piss off this team is also not a good sign for the coin. This has raised some concerns in the market about the long-term future of BCH or its post-fork coins. “
This uncertainty could be the real reason assets managed by institutional investors like Grayscale Investments’ Bitcoin Cash Trust were down $ 1.6 million before the diversion. This sense of uncertainty does not seem to exist with retail investors as they deposited $ 1.5M worth of Bitcoin Cash on various exchanges prior to the diversion, rather than immediately selling the asset, as indicated by ChainAnalysis’ trading activity.
For now, It appears that BCHN’s community-driven implementation has taken the lead, as evidenced by the higher hash rate. The fact that BCHA miners have to pay an 8% mining premium tax to the development team makes the token vulnerable to further price instability and even network attacks. Swami believes the 8% rate is just too high considering that current miners are making around 10% to 15% of gross margin, which means 80% of miners are likely to leave the BCHA network to return. to the same margin.