The cryptocurrency markets remain in turmoil, in the midst of the worst market crash this year. The total market capitalization has dropped by more than $65 billion in the space of just a week, around 30% of the total value. As Bitcoin and Ethereum fall to their lowest price in over a year, the catalyst of everything may be the ongoing hash war within Bitcoin Cash network. A war which does not appear close to a resolution.
At the same time, trade volume has almost doubled, with many panicked traders rushing to sell off, or slide into stablecoins to protect from the carnage.
What Caused the Hash War?
Bitcoin Cash itself came about when members of the Bitcoin community disagreed over the direction of the coin’s code. As a result, the network forked in August 2017, and Bitcoin Cash was born.
A part of BCH’s ongoing philosophy is an agreement to fork and upgrade the network every six months. If a consensus is reached in the community, the network will continue on with the new code, remaining as one.
After a fork in May this year with no drama, the next planned fork on November 15th has been anything but. Two competing parties with different visions are refusing to submit, leading to two versions of the same blockchain, both trying to be the “real” Bitcoin Cash.
One chain, dubbed “Bitcoin Cash ABC”, is backed by developer Amaury Séchet, Bitmain CEO Jihan Wu and well-known crypto entrepreneur Roger Ver. The opposition, “Bitcoin Cash SV”, is lead by billionaires Craig Wright and Calvin Ayre. Both introduced differing plans for Bitcoin Cash’s next step, with Wright’s BSV proposal looking to revert the network to something closer to the original Bitcoin code.
While the crux of a decentralized Proof of Work currency is that the side with more contributors (i.e. miners) on its side comes out ahead, it’s proving to not be such an amicable democratic process. Both sides are ramping up their hash power (computing power dedicated to mining BCH) in order to win, and neither has indicated a willingness to concede.
Who Is Winning?
BSV was the early leader shortly after the split, as they initially controlled more miners on the BCH network. However, since then BCHABC has pulled away. Likely due to resources pulled by Jihan Wu’s Bitmain company, as well as others in support of the ABC fork.
Per BitMEX Research, BCHABC is ahead in blocks mined, and their token is holding a higher valuation on exchanges that are listing each separately. In addition, it appears miners supporting BSV are doing so at a significant monetary loss, so many are suggesting that the war has already been won.
Despite this, the BSV team is not backing down. Calvin Ayre wrote on Twitter:
“Nobody, including @ProfFaustus has any interest in chains that do not scale. Accepting my offer would have Craig completely out of the ABC chain. If not, hash war continues until the cheating transient hash is gone. #BitcoinSV #SatoshiVision”
Wright has also been vocal that they will not give up the fight, even if they are down in hash power.
What Does It All Mean?
Until there is a concrete resolution from both sides, we don’t really know what will happen with the network. There are several possible outcomes:
- One side wins out and becomes the “real” Bitcoin cash.
This is the outcome many expect will happen. If experts are to be believed, BCHABC has all but accomplished this already. A continuation of BCH under the democratic consensus is the intended resolution of the fork.
- No consensus is reached, and both networks continue on as their own token.
Just like the original Bitcoin/Bitcoin Cash split, if neither side budges, the two will probably continue on their own. Whether either token is able to reach the market share Bitcoin Cash had previously is up in the air. With support split in two, the value of each has also split. According to current prices on Binance, BCHABC is valued at $235, while BSV is $58. This is after BCH found a steady support line around $450 prior to the fork.
A third option, while unlikely, is that the infighting guts the entire BCH network, and the BCH token drops from the realm of the mid-large caps. This is tough to see, considering the resources backing Bitcoin Cash and the history it has had, but it is feasible that more casual BCH users could move away due to the instability. This could result in a temporary boost to the likes of Bitcoin, Ethereum or Litecoin, and in time a new coin from BCH supporters will likely rise.
A more worrying side-effect of the hash war is its effect on the market as a whole. We have already seen a near catastrophic dip in the market, coinciding with the BCH hash war. This could be due in part to the resources pulled away from Bitcoin or other major coins, and used to battle for BCHABC/BSV.
Most parties involved in the hash war, particularly Jihan Wu-run Bitmain, operate mining farms that cover other networks, including Bitcoin. As they dedicate all their miners to the Bitcoin Cash war, Bitcoin is experiencing its lowest hash rate since August.
With fewer resources dedicated to Bitcoin, its price is in free-fall. As is often the case, the rest of the market follows Bitcoin and is dropping at around the same rate. Panicked sell-offs result in more market uncertainty, which in turn brings about more FUD. It’s likely the markets won’t stabilize until the hash war is resolved.
In both the short and long-term, the war also has implications for the wider trust of cryptocurrency. The market already has trouble earning legitimacy from many, and a bitter in-fight in a top-5 coin just sets it back in this sense.
We could easily see BSV wave the white flag at any point, as it is not sustainable to continue the war indefinitely. Yet prominent minds in crypto have proven to be solid and unwavering, and from one point of view, it’s hard to imagine a stalwart like Craig Wright admitting defeat. If this is true, we may be in for an extended, drawn-out affair, which is unlikely to benefit anyone except crypto detractors.