Executive Summary

Bitcoin Cash has an opportunity to capture a large market share of the cryptocurrency market; it is extremely unlikely to overthrow Bitcoin as the number one storage cryptocurrency. Bitcoin Cash is targetting itself as a peer-to-peer electronic cash transfer blockchain — not a value-storage blockchain. Expect high variability in mining profitability and block times in BTC and BCH in the following weeks, with changes in algorithms and hardforks bringing further uncertainty on this matter.

Introduction

In my last article I made predictions regarding the Bitcoin (BTC) SegWit2X fork based on the facts that were available to me at the time. You may all know by now that the principal players behind the New York Agreement (NYA) called off the fork — this was a surprise to many, causing immediate volatility in the market price of Bitcoin and subsequently in other crypcocurrency prices. To top this off, an unknown number of other members of the NYA decided to honour the Agreement. This article will not delve into the details of the SegWit2X fork.

Here are a few of the facts that I believe are relevant to understand if BCH is really a threat to BTC.

This is not investment advice so please make your own decisions about your portfolios.

Mining Profitability

As of 12 November 13:57 GMT, BCH is 69.6% more profitable to mine than BTC. Moreover, the BCH blockchain is currently operating at 10% of the BTC chain’s difficulty. Assuming a miner does not take future price movements into account, there is a clear and significant incentive for a BTC miner to switch to mining BCH. However, many miners most likely take future profitability into account too when mining any coin.

The Fork Factor

Miners, and of course traders/speculators will most likely take the upcoming Bitcoin Cash hardfork into account when considering switching chains. Why is a fork needed? Over 45 blocks were mined on the BCH chain in the last hour (as of Nov 12; 14:35 GMT) — for a blockchain that aims to mine only one block every 10 min, the number of blocks being created is over 650% greater than it should be.

The addition of a relatively sophisticated Difficulty Adjustment Algorithm (DAA) appears to be the key feature of the upcoming hardfork. Here is what the website indicates.

“The new DAA algorithm seeks to accomplish the following objectives: 1. Adjust difficulty to hash rate to target a mean block interval of 600 seconds. 2. Avoid sudden changes in difficulty when hash rate is fairly stable. 3. Adjust difficulty rapidly when hash rate changes rapidly. 4. Avoid oscillations from feedback between hash rate and difficulty. 5. Be resilient to attacks such as timestamp manipulation.”

I could not identify any evidence of prior testing of this DAA; therefore I find it difficult to form an opinion on the robustness of the code behind this upgrade. It is clear, however, that this is a long awaited upgrade to many BCH miners and of course investors. Is this enough to incentivise a “flippening” is anybody’s guess at the moment.

The BTC Hardfork(s)

If a SegWit2X fork does in fact happen it will likely lead to further reduction in hashpower on the BTC chain. While this may lead to a short-term adaptive period where difficulty adjusts, fees will inevitably rise once again and the average block times will increase. I recommend keeping an eye out on the blockchain for such signs before making large transactions.

Also for information, there is also a Bitcoin Gold hardfork upcoming, planned to occur around 19:00 GMT (Nov 12). Since ASIC miners will not theoretically be able to mine this new coin, this hardfork is not expected to amplify the shift in hash power away from BTC.

Feature Comparison

As indicated in my previous articles:

Bitcoin has a 1MB block and SegWit

Bitcoin Cash currently has an 8 MB block with NO SegWit

Bitcoin Cash will most likely continue to lack SegWit as the coin community intends to increase transaction capacity purely by creating larger blocks; this contrasts with the Bitcoin Core community that intends to create additional levels on top of BTC with features such as the Lightning Network, Atomic Swaps, etc. to expand the transactional capacity to handle considerably greater transactions per second.

Exchange Acceptance

A potentially key factor determining the popularity of a value-storage coin is the widespread existence of trading pairs with Fiat currency and altcoins for trading.

Many exchanges were previously part of the NYA and have already warmed up to the Big Blocker community — therefore it would not be surprising to see them setting up new BCH trading pairs in the coming weeks.

Future Roadmap and Developer Community

Bitcoin Core continues to have several influential developers supporting it; therefore expect continued updates on the original chain in the coming weeks. It has however been of considerable concern to many as to how slow this group has been on introducing updates to the Bitcoin Core software.

It is clear that most developers are part of the Core / BTC chain. However some key developer figures have been moving over to the Big Blocker chains — examples include Jeff Garzik and Gavin Andersen, previously influential BTC Core developers who are known to have moved on to the Big Blocker community. The main concern from the community is that the Big Blockers have not been transparent on features of their code and upcoming updates — this has strongly affected community trust in BCH and the SegWit2X fork. This does not seem likely to change as of now.

Fees

Since this is a well known issue currently with the BTC chain, I will not delve into this. However, we can clearly see a considerable difference in the fees between BTC and BCH.

Transaction Volume and More

There have been previous indications of transactional volume attacks on BTC, which would be of obvious benefit to BCH. However these rumours do not seem to have been confirmed and I will not comment on them.

Trading in the last few days

The last few days have seen a massive influx of fiat currency into BCH, particularly on Korean exchanges that have rallied ahead of other exchanges in price. Korean cryptocurrency investors are known for heavy speculation, leading to Korean regulators recently banning ICOs. The Korean market alone can therefore not be used to infer that there is considerable international demand for BCH. Other exchanges, especially Western exchanges must form part of the overall picture.

That being said, CoinMarketCap.com on Nov 12 decided to exclude the price of BCH on Bithumb and some other Korean exchanges from the average BCH price; an immediate apparent sell-off may have potential resulted from this delisting as Western traders continued to sell the coin, while the buyers were taken out of the picture. Such selling may continue into the coming days or weeks, even with Korean markets resuming trade.

No technical analysis required to notice the volatility

Closing Comments

The BCH or Big Blocker community are in an ideal position to capitalise on the volatility of the current market and capture a significant share of the cryptocurrency market cap.

While this may be the biggest push from the Big Blockers that we have witnessed, it will most likely not be sufficient to overthrow BTC as a leading value-storage cryptocurrency; however if other factors such as a dropping BTC hashrate with high fees, a SegWit2X hardfork at an undesirable time for BTC, and the listing of new BCH trading pairs on exchanges all fall into place for BCH we will witness considerable drama lined up in the following weeks.

Do not let volatility surprise you, this is still the early days of cryptocurrencies. Exponential growth can quickly make or break portfolios, so be sure to stay diversified.