Why is Bitcoin Cash Forking?
At the core of this is a dispute between Bitcoin Cash ABC (BCHA) and Bitcoin Cash Node (BCHN), two major BCH clients. Bitcoin ABC has proposed plans to introduce an Infrastructure Funding Plan (IFP), and plans to implement it via a hard fork tomorrow.
IFP would introduce a mining tax of 8%. That means that 8% of the rewards that miners receive for processing transactions would go to a software team developing the blockchain.
Bitcoin Cash
Bitcoin Cash Hard Fork: What You Need to Know
The Bitcoin Cash blockchain is set to undergo a contentious network upgrade this month, that may split the coin in two—and not for the first time. The proposed upgrade, at least for the BCHN v…
BCHN thinks the plan is likely to discourage miners since it reduces their profits. Moreover, there are fears that it’ll centralize the development of Bitcoin Cash around a single team.
Accordingly, Bitcoin ABC’s proposal is wildly unpopular and many people think that Bitcoin ABC’s fork will fail, since a minority of Bitcoin Cash users will use it. About 82% of miners use the BCHN full node software. This suggests that they are in opposition to the ABC fork.
How to Prepare for the Bitcoin Cash Hard Fork
Exchanges vary in their preparation for the hard fork. Here’s what you need to know about the large exchanges and crypto services.
Coinbase, a major cryptocurrency exchange, expects that the BCHN update will become the dominant fork. It will pause deposits and withdrawals of BCH until it has “determined the upgrade is stable,” it tweeted on November 5.
BitGo, a prime brokerage that has helped manage forks in the past, thinks there is a stark difference between the previous forks and this one—this one lacks the community support it needs to survive. “We will be shutting down all BCH services 12 hours prior to the fork on Sunday, November 15, 2020, at 12:00:00 AM UTC,” it said in a blog post.
“If PayPal knew that this sort of contentious hard fork was likely to happen, maybe they wouldn’t have added bitcoin cash at all to their roadmap,” Ver told CoinDesk in an interview, referring to PayPal’s recent announcement to add cryptocurrencies – bitcoin cash included – to its system. “So it is really a big problem to have these contentious hard forks. I’d like to see that come to an end.”
As of press time, PayPal hasn’t responded to CoinDesk’s request for comment on the upcoming fork event. Paxos, the company that provides crypto service for PayPal, rejected CoinDesk’s request to comment on the topic.
A Bitcoin fork known for forks
Unlike a “soft fork” that allows non-upgraded and upgraded nodes to still transact with each other, a hard fork is a software upgrade that implements a new rule to the blockchain that is not compatible with the older software.
Thus, developers tend to be extremely conservative about introducing hard forks and usually try to ensure there will be community consensus around these sorts of changes to the code. However, some hard forks have been contentious. In these instances, if some nodes on a network adopt a hard fork and others don’t, then the blockchain will split into two different versions: one with the old software and one with the new software.
Bitcoin Cash itself is a result of a hard fork from Bitcoin, after a group from the Bitcoin community, advocating the literal interpretation of Satoshi Nakamoto’s Bitcoin white paper, insisted on increasing block sizes. They pushed for a hard fork of the original Bitcoin blockchain, as they view low-cost, peer-to-peer transactions as the blockchain’s core value.
Today, as the most well-known fork of Bitcoin, the Bitcoin Cash network undergoes an upgrade every six months, and a chain split can occur when the community is unable to meet consensus requirements. An example is when Bitcoin Satoshi Vision (BSV) forked away from Bitcoin Cash on Nov. 15, 2018.
The Bitcoin Cash hard fork expected this coming Nov. 15 is the result of a blockchain update proposal from a group known as Bitcoin Cash ABC (BCH ABC), led by developer Amaury Sechet. The update has included a controversial new “Coinbase Rule,” which requires 8% of mined bitcoin cash to be redistributed to Bitcoin ABC as a means of financing protocol development.
Developers with ‘too much money’
This funding approach has triggered a debate within the BCH community regarding the governance and the development of the software that runs the Bitcoin Cash blockchain.
The group led by developers from BCH ABC holds there should be an organized and consistent effort in order for bitcoin cash to become a universal digital payment. Therefore, developers should be funded by the Bitcoin Cash network, according to Chris Troutner, a developer who formerly worked at Ver’s bitcoin.com and is close to Sechet’s BCH ABC group.
However, an opposing group against this funding mechanism, Ver included, said that because the software is an open-source protocol, developers should help improve the protocol on a voluntary basis and look for financial resources elsewhere.
Ver went a step further by saying the Bitcoin Cash network’s problem is developers have “too much money.”
“I think the way [Bitcoin] went off the rails from Bitcoin Cash is developers had too much money and then they started developing and tinkering with too many different things, which caused a problem in the network.”
Troutner, who told CoinDesk that he will support both chains after the fork, said the real issue behind the dispute is a collective hatred toward Sechet. Sechet’s BCH ABC has been leading the scheduled Bitcoin Cash updates for the past few years, Troutner said. And Sechet’s team has always wanted to implement this funding mechanism.
Ver said he didn’t think the fork will take place as planned, saying only about 0.2% of the blocks mined on Bitcoin Cash have signaled support for Bitcoin ABC.
As of press time, of the last 1,000 blocks mined on Bitcoin Cash, about 80% have signaled support for the Bitcoin Cash Node (BCHN) and only 0.3% for Bitcoin ABC, according to data from Coin Dance.
What the data may indicate is that a fork will take place because the software upgrade by BCH ABC is not supported by the majority of the miners, as more blocks are signaling support to BCHN. That will force BCH ABC to fork away from the old chain, said Aidan Mott, analyst at Messari.
What the data may indicate is that a fork will take place because the software upgrade by BCH ABC is not supported by the majority of the miners, as more blocks are signaling support to BCHN. That will force BCH ABC to fork away from the old chain, said Aidan Mott, analyst at Messari.
“If you think about it in terms of a game theory, some miners are probably legitimately signaling for BCH but other miners who are planning to mine on ABC probably are also signaling for BCHN because they want their competitors to mine on that chain,” Troutner explained. “That makes it easier for them to mine blocks on the ABC chain.”
Exchanges and ‘fork fatigue’
Ver’s early argument is service providers like PayPal can be frustrated by a cryptocurrency blockchain that’s constantly going through forking events. This sort of frustration is already happening at crypto exchanges. Even though it is unclear which chain will become the dominant chain after the fork, a few major crypto exchanges have already announced their support for BCHN, which will inherit the Bitcoin Cash name, assuming the BCH ABC would get the minority of nodes.
“regardless of the outcome of the fork.”
“Bitcoin Cash Node tokens will be called ‘Bitcoin Cash’ on our platform and represented by the ticker symbol ‘BCH,’” Kraken said in the post. “We will support Bitcoin Cash ABC ONLY IF the hash power on the ABC network is at least 10% of the hash power on the Bitcoin Cash Node network.”
“Exchanges have to put themselves in a position where they can know what their customers want, which means they understand the kind of the consensus of the miners but also they understand the positions of the development teams,” said Mott. “In this sense, it would be a pretty easy decision to just keep their support and only run Bitcoin Cash Node network software.”
Since prices of the two newly split cryptocurrencies will be decided by market supply and demand, exchanges play a significant role because they are the ones that allocate the new tokens to their customers.
Another important implication from Kraken’s post is that exchanges also get to decide which new chain will take the Bitcoin Cash name.
Ver claimed the reason Bitcoin Cash is less popular than Bitcoin is because the latter took the “Bitcoin” name after the hard fork. Ever since then, marketing has been one of the biggest obstacles for the mass adoption of Bitcoin Cash, according to Ver.
The market capitalization of bitcoin cash is approximately $4.88 billion at the time of writing, yet bitcoin has a market capitalization of $283.28 billion, according to data on CoinDesk 20.
“When the split happened, the Bitcoin Cash version had all the characteristics that made Bitcoin popular to begin with, but the other version that didn’t have those characteristics got the Bitcoin name and the infrastructure to go with it,” Ver said. “Bitcoin Cash has been rebuilding all of that infrastructure and its brand recognition basically from scratch.”
If that’s the case, BCHN will find itself ahead of BCH ABC, as evidenced by exchanges’ support, if it takes the name of Bitcoin Cash.
