The Bitcoin Cash network just went through another hard fork after being originally created as a 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% tax on gross rewards that miners must 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, indicating that miners may generally favor BCHN over BCHA. The last common block of Bitcoin Cash mined before the fork was by Binance, and the first block to split the chain in two was mined by AntPool.
Another fork lasts longer
It is not the first time that the Bitcoin Cash community has witnessed a fork event. The first fork of the network occurred in August 2017, followed by another fork in November 2018, through which it was split into Bitcoin Cash ABC and Bitcoin Cash SV (BSV). With this latest token named “Satoshi Vision”, this split was made with the intention of keeping Bitcoin true to its original vision of the currency used for daily peer-to-peer transactions.
Over time, Bitcoin has gained value and received increasing attention, resulting in the token being used more as an investment vehicle than for day-to-day transactions as initially intended. In addition to a departure from the original vision, Bitcoin has also faced scalability issues, in which the network was unable to handle a large number of transactions due to its 1 megabyte block size. This caused transactions to spend a significant amount of time in queues waiting to be confirmed.
This problem was solved by Bitcoin Cash. On his “Strees Test Day”, the number of transactions on the BCH network rose to 25,000 per block with no increase in fees, compared to 1,000 to 1,500 transactions per block seen with the Bitcoin network. However, the last hard fork, on November 15 this year, was driven by reasons other than improving network efficiency.
A hard fork is generally good for an asset that has not been through a fork, as it creates a clear segmentation of the different strengths of the network, allowing participants to choose which of these strengths has the greatest impact on them. It also often leads to the value of the resulting coins being higher than the original coin. However, due to the differences in incentives for forked coins, one of the coins usually starts to take the lead while the other lags behind, losing most of its market capitalization and becoming more prone to attack. 51%.
Implications of the current fork
This particular hard fork was driven by miners’ split over the proposed rule that requires 8% of the mined BCH to 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 has removed the source code for the additional tax that BCH miners would otherwise incur.
Ashu Swami, CTO of Apifiny, a liquidity and solutions provider for the cryptocurrency industry, told Cointelegraph why BCHN is seeing stronger support: “Both the mining camp and advocates of decentralization are supporting him. As a result, many big-name exchanges such as Coinbase and Kraken have also lent their weight to this side.“. He further added:”There is a high probability that the other currency, the BCHA, will not survive more than a few months“Bitcoin.com COO Roger Ver, a longtime Bitcoin Cash supporter, desire luck to the BCHA node, indicating that it is not part of the cohort that caused the split.
Since the fork, BCHN’s hashing power appears to be the more dominant of the two. Swami believes that the 8% tax on BCHA’s gross reward is the reason, but that could change quickly. He explained:
“What they [los mineros] do at any given time will depend on the relative rewards of those two currencies. Since both BCHN and BCHA will share the same Proof-of-Work algorithm, the hashing power can be very quickly reallocated between these currencies. If due to any factor the price of BCHA remains high enough that even after 8% tax it has a higher return on mining investment than BCHN, then all rational miners will instantly redirect their hashing power to BCHA, unless they are deliberately willing to take the loss to manipulate the price in the future. “
However, 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, told Cointelegraph about the possibilities:
“It does not necessarily mean that it will disappear completely – there are many examples of minority chains resulting from a fork and moving forward – but it certainly seems more likely that the BCHN will be the dominant chain in the future.”
Even before the fork, the data suggest that 80% of BCH miners were in favor of the Bitcoin Cash Node, which is now reflected in the mining data following the fork. Days before, Bitcoin Cash was trading at all-time lows compared to Bitcoin. The price of BCH then fell to a low of $ 233.96 before recovering to levels prior to the $ 250 fork.
However, Bankman-Fried explained the underlying reason for the drop: “Through the fork, ‘BCH’ started out as ‘BCHN + BCHA’ but ended up representing only BCHN – so its price should drop by the price of BCHA, similar to a dividend or stock split.Even though the $ 20 price of BCHA immediately after the fork matches this logic, the coin has lost 20% of its value since then and is trading at about $ 16.
The price of Bitcoin Cash has almost rebounded to pre-fork levels, but it is clear that a hard fork event brings uncertainty to both investors and miners as to pre-fork and post-fork currencies. Given that this particular fork had a centralizing impact on a decentralized network, it looks like a power struggle between miners and developers. Swami further expanded this dichotomy:
“Giving mining rewards to the Blockchain team is going to erode the decentralized nature of the chain and make it more government-like. Therefore, there is very little support for this fork. Unfortunately, the development team is the one that supports this fork and upsetting this team doesn’t bode well for the coin either. This has created some anxiety in the market about the long-term future of BCH or its post-fork coins. “
This uncertainty could be the real reason that assets managed by institutional investors like Grayscale Investments’ Bitcoin Cash Trust fell by $ 1.6 million before the fork. This sense of insecurity appears to be absent from retail investors, as they deposited $ 1.5 million worth of Bitcoin Cash with various exchanges prior to the fork, rather than immediately selling the asset, as inferred from the ChainAnalysis trading activity.
For now, It appears that the community-driven implementation of BCHN seems to have taken the lead, as can be seen by the higher hash rate. The fact that BCHA miners have to pay an 8% tax on mining rewards to the development team leaves the token susceptible to further price instability and even network attacks. Swami believes that the 8% rate is simply too high, considering that current miners earn around 10% to 15% of gross margin, which means that 80% of miners are likely to leave the BCHA network to return. to that same margin.
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