Bitcoin Cash (BCH) could split again this weekend.
The Bitcoin ABC software client left of the Bitcoin protocol in mid-2017 to form its own cryptocurrency: Bitcoin Cash. Since then, Bitcoin Cash has implemented a backwards-incompatible hard fork upgrade every six months, requiring a network-wide upgrade for all Bitcoin Cash clients. While most of these upgrades have gone relatively smoothly, a conflict within the Bitcoin Cash community in 2018 resulted in a split between Bitcoin Cash (the side that kept the original name) and Bitcoin SV.
Now, two years later (on November 15, 12:00 UTC, to be exact), another hard fork upgrade and another dispute within the Bitcoin Cash community could again result in a coin split.
What is the dispute? (And between whom?)
At the heart of the dispute is an upgrade called the Infrastructure Funding Plan (IFP). The IFP would, as a protocol rule, enforce that 8 percent of every block reward – the coins earned by miners – be delegated to software projects working on Bitcoin Cash, such as Bitcoin ABC.
According to the Bitcoin ABC team, the IFP – sometimes referred to as the ‘miner’s tax’ – would be designated through a new organization called the Global Network Board, made up of major miners and holders of the cryptocurrency. The Global Network Council will meet for the first time in January 2021, but afterwards not very many details have been disclosed about the selection of members or the process of distributing funds.
Bitcoin Cash Node – a software fork of Bitcoin ABC – is an initiative of several Bitcoin Cash developers and users who are against the IFP and have removed the upgrade from their source code.
There are a few different reasons why the IFP is controversial. Some philosophically reject the upgrade, believing that a “miner’s tax” is incompatible with the philosophy and original design of Bitcoin Cash (or Bitcoin). If miners earn less coins when mining a block, it should also result in a decrease in the hash energy securing the network. Other concerns with the IFP include the lack of detail regarding the distribution of funds, and they believe the setup could ultimately benefit Bitcoin ABC more than other clients. Bitcoin ABC’s attempt to make the change despite community opposition is also a concern.
Does The Hard Fork have any other protocol changes?
Yes, both Bitcoin ABC and Bitcoin Node will implement a new difficulty adjustment algorithm.
New Bitcoin Cash blocks (such as Bitcoin blocks) should be found about once every 10 minutes on average. However, because Bitcoin Cash shares a mining algorithm with Bitcoin, some Bitcoin miners occasionally switch to mining Bitcoin Cash when that blockchain is more profitable than mine. Since Bitcoin Cash usually only has a fraction of Bitcoin’s hash power, such a switch results in large swings in the amount of hash power on Bitcoin Cash. This, in turn, results in periodic bursts where blocks are found much faster than once every 10 minutes, followed by a jump in difficulty. The switched miners then return to mining Bitcoin, leaving the original Bitcoin Cash miners on a chain that is now less profitable. In addition, the sharp decrease in hash power tends to result in much slower block production. The hash power swings make the pace of transaction confirmation on Bitcoin Cash less reliable.
To help stabilize the pace of block production, the Bitcoin ABC team originally proposed a new difficulty adjustment algorithm called Grasberg. However, Grasberg would make an additional change: Block production would be deliberately delayed for several years to correct for “ historical drift. ” (For a number of reasons, including an earlier difficulty algorithm, Bitcoin Cash blocks have been mined faster than originally planned so far.)
However, the additional historical drift correction has been controversial within the Bitcoin Cash community. In fact, this was the original motivation behind the launch of Bitcoin Cash Node, which includes an alternative difficulty customization algorithm called ASERT. (ASERT is also new, although it predates Grasberg and was initially rejected by the Bitcoin ABC team.)
The Bitcoin ABC team eventually gave in to the implementation of ASERT, dropping Grasberg. This means that Bitcoin Cash ABC and Bitcoin Cash Node are compatible – except for the IFP.
Why has Bitcoin ABC released two versions of its software client?
Late last week, Bitcoin ABC announced that it will actually release two versions of Bitcoin ABC. One version of the software will enforce the IFP protocol rule as planned. However, another version will not and will therefore be fully compatible with Bitcoin Cash Node.
The Bitcoin ABC team will only work to make it a reality development roadmap on the version of their software that enforces the IFP protocol rule. (This roadmap includes a flexible block size limit and reduces the risk of unconfirmed transactions being issued twice.) The version without the IFP protocol rule will be minimally maintained to remain compatible with Bitcoin Cash Node, without further enhancements.
Is a coin split guaranteed?
First of all, it’s worth noting that Bitcoin Cash clients (both Bitcoin ABC and Bitcoin Cash Node) are programmed to break down the current protocol, so an upgrade from the hard fork is more or less necessary. The current version of Bitcoin Cash will almost certainly not live on.
And if Bitcoin ABC or Bitcoin Cash Node fails to attract enough hash power to produce a valid blockchain at all, there will be no coin split. Only the version that attracts enough hash power would live on.
In fact, a coin split would nothing but happens when both the Bitcoin ABC and Bitcoin Cash Node sides attract enough hash power to produce a viable blockchain, as long as Bitcoin Cash Node attracts more than half of the total hash power between the two.
There is another interesting scenario where a coin split is avoided. If Bitcoin ABC attracts more than half of all hash power between the two (and maintains this majority), Bitcoin Cash Node customers would actually be following the Bitcoin ABC blockchain. This is because the new Bitcoin ABC software has a soft fork regarding Bitcoin Cash Node. The protocol rules are the same, but with the IFP rule as an additional limitation.
In other words, Bitcoin Cash Node customers will accept if some of the block reward is delegated to a Global Network Council (or anyone else) they just won’t require that this happens. Blocks that the IFP funds do not delegate would be rejected by a majority of miners in this scenario and therefore not get into the blockchain at all, ensuring compatibility.
(There are some more complicated scenarios, with new hard forks, that could also lead to a coin split – but these are less likely and beyond the scope of this article.)
What can happen?
Currently, Bitcoin Cash Node has much more hash power support than Bitcoin ABC: more than 80 percent at the time of writing this article, versus less than 1 percent for Bitcoin ABC. Bitcoin Cash Node also appears to have significantly more community support, and major Bitcoin Cash support companies like Coinbase, Crack and BitGo have also indicated support for Bitcoin Cash Node. It therefore seems likely that (the name) Bitcoin Cash will live on through Bitcoin Cash Node and the compatible version of Bitcoin ABC. (It would probably also get the “BCH” ticker on most exchanges, although some may choose “BCHN” or some other variant.)
Whether (the IFP version of) Bitcoin ABC will attract enough hash power to produce a viable blockchain remains to be seen. But if it does, it has one strategic advantage over Bitcoin Cash Node. If it attracts more hash power than Bitcoin Cash Node even after the split has occurred (but only up to ten blocks), the Bitcoin Cash Node blockchain would (in theory) ‘collapse’ and essentially disappear as Bitcoin Cash Node customers would accept the Bitcoin ABC blockchain. All coins mined on the Bitcoin Cash Node blockchain and all coins received on the Bitcoin Cash Node blockchain would disappear with it. If Bitcoin ABC pulls in enough hash power to even make this a viable scenario, it could undermine confidence in Bitcoin Cash Node, potentially only helping Bitcoin ABC further. (In practice, however, this unlikely scenario itself can be countered by the Bitcoin Cash Node scenario via another protocol upgrade.)
All things considered, however, it seems very likely that Bitcoin Cash Node will live on as ‘Bitcoin Cash’ and Bitcoin ABC will create a ‘new’ cryptocurrency, which will most likely also be called ‘Bitcoin ABC’ (and probably with the ticker “BAB”) .
I hold BCH. Do i have to do something?
If you own the private keys yourself, you don’t have to do anything. When a split occurs, you can access both coins. (You may need to upgrade to new client / wallet software, depending on your client / wallet software.)
However, you may want to hold off on sending coins shortly before and after the hard fork occurs. Since neither Bitcoin Cash ABC nor Bitcoin Cash Node has implemented replay protection, sending one of the coins could accidentally result in sending the equivalent on the other blockchain. To make sure this doesn’t happen, wait until there is more clarity on this matter.
You may also want to hold off on receiving coins on the Bitcoin Cash Node blockchain. While the risk seems small, this blockchain could potentially “collapse” into the Bitcoin ABC blockchain if it attracts more hash power, and the coins you received will disappear with it. To be absolutely sure that this is not happening, you have to wait until there is more clarity on this matter.
If you hold your coins on an exchange (or other custody service) and a split occurs, the exchange will determine whether you receive both coins, or one of them (and which ones). Several exchanges have published announcements of their plans, most of which support the Bitcoin Cash Node side of a possible split, or both. Ask your exchange for more information (or withdraw your coins before the split).