On November 13th Bitcoin Cash is forking to fix its biggest problem – a problem which has led to ridiculously high fees and pointless transactions.
If the fork is able to fundamentally upgrade some of Bitcoin Cash’s issues, it could be the start of a bull run for ‘Bitcoin’s biggest rival’. Today, we’ll talk about how all of this could affect your investment.
YOU WILL LEARN:
Why is Bitcoin Cash Forking?
When is Bitcoin Cash Forking?
Will You Get A Free Coin?
How Will This Affect Your Investment?
- What Is Bitcoin Cash?
- Why Is Bitcoin Cash Forking?
- How Will They Fix The Issue?
- Will You Get A ‘Free’ Coin?
- How Will This Affect Your Investment?
- Follow Future Posts
1. WHAT IS BITCOIN CASH (BCH)?
Many of you may not even be aware of this as the big news in Cryptos recently has all been about the recently cancelled Bitcoin fork. However, the previous fork of Bitcoin called Bitcoin Cash is about to hard fork again.
In today’s article, we’ll go through some information to explain why Bitcoin Cash is forking again, how it will affect your investment and whether this had all been timed intentionally to disrupt Bitcoin
A Recap of Bitcoin Cash
For those who can’t remember, Bitcoin Cash is a hard fork that occurred on August 1st 2017 from the original Bitcoin. The split occurred because a part of the Bitcoin community believed that the upgrades to Bitcoin were simply not enough.
They argued that the change from 1mb to 2mb block sizes (which would double transaction speeds) was insufficient to allow the network to grow and be used by millions – potentially billions – of people worldwide.
Therefore, Bitcoin Cash was created as a hard fork of Bitcoin with an upgrade to 8mb blocks which increased transaction speed 8x
That’s the short recap, now let’s move on to why Bitcoin Cash is going to undergo a hard fork very soon.
2. WHY IS BITCOIN CASH FORKING?
When Bitcoin Cash split from Bitcoin, only 5% of the original Bitcoin miners were mining it. Also, the price was much less than Bitcoin; launching at around 1/10th of Bitcoin’s price.
With those numbers, Bitcoin would be far more profitable to mine than Bitcoin Cash resulting in very few people choosing to mine BCH.
If the team behind Bitcoin Cash had allowed this to happen, the network would have struggled to survive which is why they introduced a Difficulty Adjustment Algorithm (DAA) that began by severely reducing the difficulty of mining Bitcoin Cash and then regularly updated this difficulty in order to ensure that BCH always remained similarly profitable to Bitcoin.
In turn, this promoted some Bitcoin miners to mine Bitcoin cash too and allowed it to ‘survive as a minority chain’. While this strategy may have worked in the short term, it has caused issues for the longer term viability of the network.
What’s The Problem With This?
We’ll briefly break down some background information for you guys now to explain why this has caused problems:
Bitcoin was built so that a new block would be found every 10 minutes, regardless of how many miners are searching for them. This is achieved by constantly updating the difficulty; when there are more miners, difficulty increases and, when there are fewer miners, difficulty decreases.
Bitcoin Cash was intended to be the same. However, the reality has been far from that. Due to the constant varying numbers of miners working to mine Bitcoin Cash, the difficulty varies so much that there have been times where blocks are found as infrequently as once every 4 hours and as regular as 61 in a single hour (1 per minute)
Obviously, this is nowhere near the target value of 1 block found every 10 minutes.
What’s The Downside Of Random Block Times?
These are the main issues:
- Varying transaction times
- Excessive fees paid to miners at times
- Too low fees paid to miners at other times causes them to switch to Bitcoin
- Too many blocks mined
Arguably the most significant issues from the list above – as far as the Bitcoin Cash development team are concerned – is the fact that too many blocks have been mined and therefore BCH have now mined more blocks than Bitcoin.
Why Does Block Number Matter?
Every 210,000 blocks, the mining rewards for Bitcoin halves – originally, miners were rewarded with 50 Bitcoin for every block they added. Then, it was 25 Bitcoin and now it’s 12.5. You can actually see a live updating website which shows when the next Bitcoin halving event is occurring here if you wish.
Due to the poor difficulty adjustment algorithm that Bitcoin Cash has been using, they are 7,800 blocks ahead of Bitcoin. In layman’s terms, this puts Bitcoin Cash (BCH) 55 days closer to reaching the next halving event than Bitcoin.
The sooner that BCH reaches the mining reward halving, the sooner that mining rewards will decrease.
What Will Happen When BCH Mining Rewards Halve?
Imagine you are a miner and you’re able to switch between mining Bitcoin and Bitcoin Cash with relative ease. Now, let’s say that you can see a 100 day period coming up where Bitcoin Cash is offering just 6.25 BCH per block whereas Bitcoin is still offering 12.5 BTC.
Which Would You Mine?
From the perspective of a business driven by profits, it’s an obvious choice for Bitcoin Cash miners to switch back to Bitcoin.
This could lead to a miner exodus from the Bitcoin Cash network which would be a devastating blow – it would reduce transactions speeds to horrendous levels and most likely cause price to fall as a result.
Summary So Far
To summarise so far, Bitcoin Cash is undergoing a hard fork to alter the initial difficulty adjustment which was critical for their short-term survival but slowly destroying them in the long-term.
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3. HOW WILL BITCOIN CASH FIX THE ISSUE?
In order to overcome this problem, Bitcoin Cash will be forking in order to introduce a new difficulty algorithm which aims to ensure more stable block times regardless of how many miners are mining it.
When Is Bitcoin Cash Forking?
Bitcoin Cash will fork on November 13th
Doesn’t that date sound a little close to when Bitcoin has originally planned to hard fork occurring on 15th November? My guess is that Bitcoin Cash are having their hard fork so soon before Bitcoin’s as a method of trying to disrupt Bitcoin.
The aim could be to prove that they can overcome their biggest issue to date while Bitcoin is undergoing its largest threat to date.
As it turns out, Bitcoin have delayed their fork due to a lack of consensus within the community.
4. WILL YOU GET FREE COINS?
Most of you will probably be thinking of the original Bitcoin Cash hard fork throughout this article and wonder if you’ll receive a ‘free coin’ as a result.
In this case, the answer is almost certainly no.
Firstly, forks never actually produce a free coin. If this were the case, why wouldn’t Bitcoin fork every week and produce hundreds of free coins for the coin holders.
If you want to learn more about where the true value of the ‘free coin’ comes from, check out our article here.
On top of that, a new coin is only produced when two groups within a cryptocurrency disagree during a hard fork and thus split off, going in different directions.
In the case of this Bitcoin Cash hard fork, it seems to be unanimously agreed throughout the community that this fork is needed and thus there is no need to create a second coin.
5. HOW WILL THIS AFFECT YOUR INVESTMENT?
The truth is, this won’t really affect your investment much if you’re already invested into Bitcoin Cash.
If anything, this is an upgrade to the network and could provide the necessary stimulus for BCH to enter a bullish period in the market.
That’s the end of the article! Thanks for stopping by and don’t forget to check out our other articles for regular Crypto/ICO reviews and market updates.
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Disclaimer: None of the above is financial advice. Always do your own research.
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This article has been provided by our Business Analyst; Joseph Abiy.