Bitcoin Cash has been receiving a lot of attention after it’s November 15th hard fork; the fork incited a hash war between miners, caused most cryptocurrency exchanges to pause Bitcoin Cash transactions, and may have been the onset of the most recent downturn in the market causing the cryptocurrency market cap to fall by about 20% over a five day period.
The Hash War
When it came time for the Bitcoin Cash protocol to upgrade, instead of all nodes on the network making a uniform upgrade, some individuals within the Bitcoin Cash community had an issue with the features being implemented into the protocol. This group of individuals–spearheaded by Craig Wright and Calvin Ayres–took it upon themselves to create their own version of a Bitcoin Cash update–and this is where the problems began. If there are two parties, claiming that their upgrade is the update for Bitcoin Cash, then which parties protocol can we actually call Bitcoin Cash?
In situations where this is the case, the party who has the most hash power supporting their network and the longest blockchain is the party who we say has the original chain–the one that we call Bitcoin Cash; and the party who owns the chain with less hash power supporting it and fewer blocks on its chain is the one that we say was created from the fork.
Shortly after the update took place and both Bitcoin ABC–spearheaded by Jihan Wu and Roger Ver–and Bitcoin SV (Craig Wright and Calvin) went live, the race was on to become the blockchain network with the longest chain and the most hash power supporting it.
You might be wondering why it is important to be the network with the longest chain and the most hash power. It is important to have the most hash power because that would mean that more miners are dedicating their computing power to group transactions into blocks and add blocks to the blockchain. In a sense, the network with the most hash power and the longest chain is the most efficient blockchain; lack of hash power could translate into a longer wait time for transactions to get grouped into blocks and added to the chain–which could slow down the rate transactions occur at on the network.
Being the chain with the most hash power supporting it was so important to the Bitcoin ABC camp that Roger Ver switched over all of the hash power from the Bitcoin.com Bitcoin mining pool to the Bitcoin Cash pool so that Bitcoin ABC would have more hash power supporting it in hopes that they could build up their block height faster than Bitcoin SV. .
Although the race between Bitcoin Cash ABC and Bitcoin Cash SV was a back and forth battle for about the first 48 hours of the split, it has since become clear that Bitcoin ABC has won this war and is the protocol that we will continue calling Bitcoin Cash. On the other hand, Bitcoin Cash SV was the token that was created from the fork.
Effect on the Market
However, the hard fork had a negative impact on the Bitcoin Cash market–neither Bitcoin Cash or Bitcoin Cash SV appreciated after the fork, and in large, the entire cryptocurrency market has taken a turn for the worse since the fork took place.
Since November 15th, the cryptocurrency market cap has dropped 24%, more specifically, the fork has had a significant impact on the price of Bitcoin Cash. Unlike when Bitcoin Cash was created when it forked off of the Bitcoin network and both assets appreciated afterward, Bitcoin Cash and Bitcoin Cash SV have both decreased in value.
On November 15th, Bitcoin Cash was at a high of $453.24, but after the fork took place around 6:00 UTC, it’s valued quickly declined. Just one day later, Bitcoin Cash was valued at $380.49, and one week afterward (November 22), the value of Bitcoin cash had dropped more than 50% from it’s November 15th all-time high, to a price of $200.58.
If you think that’s bad, Bitcoin Cash SV performed even worse than Bitcoin Cash.
Bitcoin Cash SV was valued was at a high of $175.76 on November 15th, declined to $78.98 by November 16th, and one week after the fork (November 22) Bitcoin cash dropped 78% in value to a price of $37.82.
Now compare that to when Bitcoin Cash was created when it forked off of the Bitcoin chain on August 1st, 2017. On August 1st, Bitcoin Cash was valued at $293.47 and just one day later (August 2nd, 2017) it reached a value of $727.54. Seven days later (August 8th, 2017) Bitcoin cash was valued at $372.67–lower than the value it reached on August 2nd, but still, more valuable than it’s original post-fork valuation.
And Bitcoin was valued at $2809.71 on August 1st, $2724.09 on August 2nd, and $3370.48 on August 8th. Even though the value of Bitcoin decreased the day after the fork, Bitcoin had increased by 20% over a seven day period from the time of the fork.
The Bitcoin Cash fork has been quite different from when Bitcoin Cash original forked off of Bitcoin–so much so that some might say that the BCH/BCH SV fork may have even taken us deeper into the bear market. If things can be forked, and an entity is powerful to campaign the fork like Roger ver + Jihan Wu and Craig Wright + Calvin Ayres, then there are strong chances that there will be a fork. After all, who doesn’t like free money?
But was that money actually free? Miners have to pay for the electricity their mining rigs consume when they work toward solving blocks–the more rigs you have, the more your electricity bill is going to cost. To cover some of the electricity expense, miners typically sell back some of the coins that they have mined to either profit or cover the expense. However, because Bitcoin Cash and Bitcoin Cash SV declined in value, miners have been mining at a loss. According to cryptocurrency investor Alistair Milne, Bitcoin ABC has spent $3.25million to mine $1.9million of $BCHABC ($1.35mil loss)
And Bitcoin Cash SV has spent $2.15million to mine $370,000 of $BCHSV ($1.78mil loss).
Although a fork may create “free money” for your average retail investor, those who are doing the heavy lifting on the blockchain network–the miners–have been losing money due to the fork. However, if you have a substantial platform that allows you to build support for your token’s campaign and get the token trading on an exchange–like Jihan Wu, Roger Ver, Craig Wright, and Calvin Ayres did–,in a sense, it doesn’t matter how usable the token is or if it generates any real economic value. Because at the end of the day, it’s creators will most likely have made millions of dollars–regardless of how the cryptocurrency market performs in the grand scheme of things.