BCH hard fork: a community split with huge disparity in power

On November 16, 2018, everyone still remembers the computing power war between the two sides of the BCH fork. Unexpectedly, only two years later, BCH is going to fork again.

A few days later, on November 15, BitcoinCash (BCH) will carry out a semi-annual hard fork upgrade according to the previous system settings. This is not an ordinary upgrade. Like two years ago, this is a hard fork due to community disagreements. The focus of the disagreement is a plan called IFP.

But this time, the strength of the two sides is extremely different.

What is the IFP program?

The IFP plan, also known as the "Infrastructure Financing Plan", is a plan initiated by some large miners and supported by the BitcoinABC (hereinafter referred to as ABC) team to fund the development team. The purpose of this plan is mainly to solve the funding problems faced by the development team. This plan is also called the "miner tax" by the BCH community.

ABC's core developer Amaury Séchet has repeatedly expressed his dissatisfaction with the current situation of BCH developers in overseas communities. To simply summarize his complaint, "BCH developers have no money."

Unlike mainstream currencies such as BTC and ETH, the BCH development team has been developing on a voluntary basis so far. There is no fixed and stable funding to support the development work of team members, and developers have to bear a lot of pressure in life. If they are full-time developers, it means that they may not have a stable income, and part-time developers will not be able to devote themselves to development.

In order to maintain its independence, the team rejected some commercial investments. Although it has held several fundraising campaigns before and relied on community donations to help maintain the team's development process, compared to Bitcoin's $10 million annual development fund and Ethereum's $30 million annual development fund, BCH's donations are less than $1 million.

The IFP program is a solution for team thinking.

In this plan, a certain percentage of the 6-month BCH block reward (currently about 8%) will be used to invest in BCH software and public facilities construction. In other words, this plan will force all BCH miners to donate to developers.

This proposal, as expected, was met with strong opposition from overseas communities.

Miners defect

In fact, the controversy over BCH’s development funding has existed since last year. In November 2019, members of the BitcoinCash community published an article discussing how to solve the problem of team development funding and strengthen BCH’s decision-making ability. During the live broadcast, Bitcoin ABC developers and ViaBTC founder Yang Haipo discussed the idea of ​​establishing a BCH Foundation, including a voting committee, to resolve BCH’s controversial issues.

In January this year, Jiang Zhuoer of Litecoin Mining Pool also published an article titled "BCH Infrastructure Financing Plan", claiming to add a proposal to the BCH upgrade in May. In this proposal, which is supported by Bitcoin Jesus R0ger Ver, Yang Haipo and other bigwigs, 12.5% ​​of BCH's block rewards in the next 6 months will be donated to developers. "BCH mining pools that don't cooperate will have orphaned blocks!" Jiang Zhuoer is obviously very confident in this proposal.

But this proposal was not implemented.

Most miners and the community are strongly opposed to it, and many industry insiders such as Ethereum founder Vitalik Buterin and Litecoin founder Charlie Lee have questioned its transparency and decentralization. Even with the support of the big guys who account for half of the BCH computing power, IFP has not been activated as planned and has been delayed to November 15.

Interestingly, half a year later, Jiang Zhuoer no longer supported his previous proposal and chose the Bitcoin Cash Node camp, which is the BCHN camp that will be separated in this hard fork.

With the support of big miners, the computing power of the BCHN camp almost crushed BCHABC.

Among nearly 300 blocks, 241 blocks were mined using BCHN nodes, accounting for more than 80%, while almost no one in the ABC camp mined any blocks.

To take it to the extreme, after the hard fork on the 15th, it is possible that no one will use the ABC chain anymore.

BCHN New Team

Before looking at the BCHN team, let’s first understand the composition of the BCH development team.

Before this year, BCH had two development teams, Bitcoin ABC and Bitcoin Unlimited (hereinafter referred to as BU). The products of these two development teams accounted for 98% of the BCH network.

ABC is a veteran BCH development team and is well known to the public. They were the main development team that advocated forking BCH from BTC in 2017. Core developer Amaury Séchet has great power. If you remember, this ABC supporter named "Deadalnix" on Twitter claimed to be Satoshi Nakamoto at the beginning of last year.

Because of the emergence of IFP, the new team Bitcoin Cash Node was born in February this year. This is a team mainly composed of Bitcoin Unlimited and Electron Cash. The initiator is Freetrader, an early BCH developer. When BCH forked in 2017, he was a member of ABC.

Although the team has just been established, the support rate of BCHN is much higher than that of ABC. In the BCH Reddit discussion post, there is a post saying that 60% of miners have chosen to support BCHN. At the same time, the BCHN team also revealed that Chinese miners have chosen to support them. This statement has also been confirmed by some domestic mining pools. BTC.com’s Zhuangzhong Xiangludong stated that it has chosen BCHN as the node solution after the fork. At the same time, mining pools such as Coinbase and BTC.TOP have also announced that they have chosen to support BCHN nodes.

Miners seem to have made their choice, but for investors, how should they deal with the hard fork in a few days?

Impact of forks on investors

The hard fork two years ago can serve as a relatively effective reference.

On November 17, 2018, when BCH was divided into BCHABC and BSV, the price of BCH fell from US$505 to US$100 in just a few weeks, a drop of 80%.

It can be foreseen that this fork may still cause drastic fluctuations in token prices. Currently, many trading platforms including OKEx, Huobi, Binance, etc. have issued announcements, and will gradually suspend BCH recharges, withdrawals, and contract transactions starting from November 11. PayPal Finance also shared its views on the price trend of tokens after this hard fork. They believe that the hoarding effect begins with the fork, and the fork is equivalent to the distribution of candy at the beginning, so BCH futures may have a certain premium, which will be bearish for the basis. After the fork is completed, the price may fall back. At the same time, PayPal Finance also pointed out that "liquidity will provide support for both ends of the fork." In other words, traders holding BCH will obtain an equal amount and equivalent value of new coins in terms of liquidity (1:1 ratio). The emergence of new coins is likely to cause prices to rise first and then fall, with liquidity improving in the short term and high trading activity. But in extreme cases, price changes will reduce transactions, BCH futures prices will collapse, and BCH will be delisted.

This will flatten the liquidity.

BlockBeats recommends investors:

If your trading platform has not issued an announcement to support BCH forks, you should try to store BCH in a full-node wallet, because the platform may swallow the user's "candy";

Avoid transferring money during the fork period, as this may result in the loss of coins;

Invest with caution, as the price fluctuations before and after the BCH fork may be very drastic.

On November 6, the ABC team unexpectedly chose to compromise. They announced that after the fork, they would support both BCHN and BCHA chains, which means that ABC would launch a node client that supports BCHN.

In addition to the reason mentioned in the announcement that "companies that trust the reliability of the Bitcoin ABC client, including major sponsors, have asked us to create a software version compatible with the BCHN chain", the ABC team must have some concerns about the sustainability of its new chain after the hard fork. After all, continuing to develop for BCH is a prerequisite for the team to achieve its ultimate vision.

In the short term, it is foreseeable that after the BCH halving, the revenue will decrease. Since BTC and BCH have the same algorithm, the current BTC miner revenue is rising. The profit-seeking of miners may cause the BCH short-term computing power to be insufficient. If a large computing power enters the BCH network in the future, the computing power may be weakly centralized.

At present, the BCHN camp is likely to get the token name "BCH". However, future development still depends on the development capabilities of the team. If the BCHN team cannot maintain network development in the long term, the ABC team with strong development capabilities is likely to regain the market and miners' attention. Moreover, forcing miners to donate their income to BCH developers does not seem to mean an absolute reduction in miners' income.

BCH community enthusiast "Railway Tracker" believes that BCH block rewards donate 8% to developers, which will reduce miners' income. Therefore, some BCH miners will switch their computing power to other currencies using the SHA256 algorithm, resulting in increased difficulty for other currencies and decreased income for those currencies. However, BCH adjusted its difficulty due to the decline in computing power, and miners who stayed on BCH actually earned higher income. In other words, the computing power lost by BCH due to the "tax" stimulated the "difficulty" of other protocols, and the losses of BCH miners were averaged by the entire SHA256 algorithm.

Of course, the above are just speculations. We will have to wait and see where BCH will go.

References:

"What to do if BCH development funds are insufficient? ViaBTC founder proposes to establish a "Bitcoin Cash Foundation""

《The Behind-the-Scenes Team of Crypto Projects (Part 4): Comparison between the Development Teams of Bitcoin ABC and Bitcoin Unlimited》

《Empirical insights on BCHN》

"Dark secrets of the Grasberg DAA"

The cost of maintaining decentralized development - What are BCH developers complaining about?