Writing about Bitcoin Cash even as recently as two weeks ago would have been more akin to giving play-by-play for a heavyweight prizefight than a sober and considered blog post about decentralized payment systems.  Now that the dust has settled a bit, however, we can evaluate the situation with some degree of clarity.

Bitcoin Cash (BCH), henceforth “BCash,” is the cryptocurrency resulting from the August 1, 2017 hardfork of the Bitcoin blockchain.  BCash is not a “legacy” chain resulting when a group of users, nodes, and miners prefer to use an old protocol over an implemented upgrade.  Instead, BCash was a proposed upgrade – hoping to address scaling issues – that was only accepted by a subset of the community.

Bitcoin will need a scaling solution of some type.  The most popular cryptocurrency has seen its usage explode to the point that the 1MB maximum blocksize is hit on every block.  Transaction fees have increased commensurately, from about $0.25 in December 2016 to over $4 for a standard transaction at the present time.  Since an important part of the (practical) appeal of blockchain-based currencies is that their transaction cost is lower than, for example, wire transfers and the SWIFT network, this is a serious issue.  

To give a sense of how much work needs to be done at the moment, BTC can handle 7 transactions/second while the VISA network handles – on average – 2,000 and has a claimed maximum capacity of 56,000 transactions/second.  The Bitcoin core development team has been accused of deliberately allowing the Bitcoin protocol to veer into the full-block, high-fee territory as part of a deliberate strategy to make Bitcoin more of a store of value (money) than an efficient transaction protocol (currency).  

BCash introduced two new innovations to boost the overall number of transactions/second; a larger maximum block size, and an “Emergency Difficulty Adjustment” to allow more blocks to be processed during times of high use.  The latter innovation was essentially a failure, but the BCash developers recognized that, hardforked again and basically de-clawed the procedure.  Okay, there was a bumpy patch, but BCash now has a higher maximum transaction rate and anyone who had Bitcoin can now use BCash since their public keys were kept in the forked blockchain.  What’s the problem?

First, the technical claims about blocksize are not universally accepted.  While scaling Bitcoin is a real challenge, simply increasing blocksize is – at best – a temporary solution.  Let’s accept the premise that Bitcoin is going to be the world’s reserve currency for one euphoric moment; the world’s reserve currency must process more than 7 transactions per second and it must be essentially free.  The Segregated Witness upgrade has the same goal and makes an effective 4MB blocksize, To scale to an actual share of global commerce, off-chain or side-chain transactions will be absolutely required. However, these are more difficult for the lay-Bitcoin-user to understand and the sheer ease of comprehensibility seems to leave the public fixation on blocksize.  One important person in the space, computer scientist and cryptographer Nick Szabo, compared letting user sentiment to dictate blocksize to allowing people who get their residential power from nuclear energy to vote on how thick the reactor shielding is.  As one of the few people on Earth who is qualified to comment on both sides of the analogy, I’d say it’s somewhat hyperbolic but gets the point across. (n.b. This also highlights how active and socially invested the Bitcoin user community is.)

Secondly, the Rube-Goldberg “Emergency Difficulty Adjustment” algorithm that BCash used turned out to be a failed innovation.  The mining pools quickly figured out how to game the code to be able to mine tens of empty blocks in the time a single Bitcoin block was dutifully filled and added to the BTC blockchain.  Having your solution require a hard fork within four months of unveiling it is not a sign that your development team did a good job of systems engineering.  

BTC vs. BCH blocks mined per hour: https://fork.lol/blocks/time
Finally, the fees for BCH transactions are so low, not because they have the scaling solution, but rather because there are so few BCH transactions compared to Bitcoin.  In this case, the BCH promoters are passing off failure to adopt as a triumph of engineering.  Code can be ugly, but it will never compare to human behavior.  

BTC vs. BCH transactions chart source: https://fork.lol/tx/txs

By any measure, the group promoting BCash as “the new Bitcoin” is not acting ethically.  The “Bitcoin Cash” name and the BCash logo seems like it’s designed deliberately to confuse new cryptocurrency users.  The real intention is to co-opt the brand, which is why the BCash promoters are so adamant about its use. (Obviously, we – like many others – use the more sensible “BCash” over “Bitcoin Cash.”)  While personal character should not be an issue in the world of trustless, decentralized, payments, it is worth mentioning that two of the most prominent BCH promoters are are surrounded with a cloud of controversy.  Craig S. Wright is most famous for his fraudulent claim that he is Satoshi Nakomoto and Roger Ver is still shadowed by his defense of the solvency of the Mt. Gox exchange months before its collapse.  Ver was revealed as the owner of Bitcoin.com (not to be, but obviously will be, confused with Bitcoin.org) which pushes the BCash adoption agenda.  The internet is dripping with stories of users who confused the two even to the point of permanently losing funds by accidentally sending BTC to their BCH address.  

Worse than passively-confusing branding, the BCash promoters have been accused of astroturfing (fake grassroots) social media campaigns and even attacking the Bitcoin blockchain by spamming transactions from an armada of new nodes in order to drive up BTC transaction fees.  These two activities explain the weird price action and transaction backlog between November 10th and 12th, 2017.  This corresponded with a large social media presence of BCash “enthusiasts” with a coherent narrative about “the flippening.”  The market cap of BCH biefly hit the #2 cryptoasset spot, surpassing Ethereum before tumbling back down and the stories of new cryptocurrency investors who sold BTC for BCH at the high and were wiped out by the trade echoed through the same social media platforms.  

Why does ugly matter?  Well, in the brave new world of voluntary currency, brand loyalty matters.  Consider, for example, the outlandish undervaluation of Ripple, the much-despised “banker coin” until the pressure of market forces finally blew the lid off of it with a 50x price increase.  Users, merchants, and exchanges may now be scared to touch the stigmatized BCash project.  Even after they doubled their own blocksize, Twitter barely has enough characters to allow someone to defuse and qualify a post that isn’t explicitly anti-BCash.   In addition, the number of BCH core developers is already small and the path of destruction and disinformation the BCash project left behind it last month couldn’t possibly incentivize new developer talent to join the team.

The large US-based exchange Coinbase had a controversial take on the August split.  Initially, Coinbase said they would not support the fork and any user who wanted to control their BCash would have to move their Bitcoin off of the exchange to a wallet or supporting exchange in order to do so.  Their announcement gave fairly short notice and the user reaction was swift and vociferous.  In response, Coinbase relented and promised to allow users to access their “rightful” BCash as soon as they were able to engineer a solution.  The currently-projected timeline for that is the 1st of January, 2018.  So on New Year’s Day, millions of users (the exact number is unclear, but probably between 5 and 8 million) will have access to BCash equivalent to what they held in their accounts at the time of the fork.  Given the currently-implied number of active BCash users, the influx could be the day of reckoning for BCash, one way or another.

Where do we stand now?  Well, three weeks (half an eternity in crypto-time) after the November “attack,” BCH is still firmly trading in the $1000+ USD range.  The BCH/BTC chart, slinking off to the bottom right, suggests that “if you come at the king, you’d best not miss” might be the story.  If the trend holds, BCH might take its place as a solid alt-coin with huge blocks and low demand, great for online purchases at an airport’s duty-free shop.

In general, any fork of the most successful cryptocurrency with a new protocol must be considered seriously.  It seems, promotion aside, BCash is aiming at a ledger with lower transaction fees which is appealing for more day-to-day retail purchases in the developed world or more general currency in the rest of the world.  The most likely scenario is that the Bitcoin core adopts whichever BCash innovations prove successful and it’s not an either-or proposition.  They should understand the warning shot that was fired: Innovate and solve scaling problems or you’re forked.

The principals at SoundCrypto all have the BCH we received at the time of the August 2017 fork and plan on letting the price action tell us what the world decides.  However, we have been very active traders at times and are very tuned in to the space.  If you are starting to average into your first cryptocurrency position, it should be in Bitcoin and not be dissuaded by the marketing confusion and hype.