Bitcoin Cash civil war: Markets favour ABC, but hashrate favours SV
Ideology has entered the picture, and this fork has what it takes to get ugly.
Bitcoin Cash is going through an exciting time. A contentious hard fork is set for 15 November, at which point Bitcoin Cash will be splitting into two separate chains: Bitcoin Cash ABC and Bitcoin Cash Satoshi's Vision (SV).
- Bitcoin Cash (BCH) ABC: Proposed by the ABC development team, this is the fork favoured by the market at the time of writing and backed by Bitmain and many others.
- Bitcoin Cash (BCH) SV: This is the variant proposed by Craig Wright, a controversial figure who claims, against a lot of evidence, to be Satoshi Nakamoto. Despite the market preference, he's made it clear that he's going to fight tooth and nail for fork victory. He has the apparent support of more hashrate right now.
In preparation for the divide, several exchanges have started selling experimental future tokens for these chains. At the time of writing, future ABC tokens are trading for US$409, while future SV tokens are trading for $108. Combined, this is exactly the current BCH price of $517. The markets are strongly suggesting that they think ABC token prices will be higher than the SV token prices in the future.
At the same time, Bitcoin Cash hashrate suggests that more hashing power favours SV.
This could get ugly.
A hashrate war is how contentious hard forks are won. This is when miners register their support for one version of a coin over another by mining on one chain and not the other. Both BCH blockchains will need miners to function, and both seem to have enough hashrate declaring support for their fork to really drag this out.
Sometimes forks get resolved quickly and one fork will fade out of the public eye. Other times, it can drag on indefinitely, as happened with bitcoin and Bitcoin Cash after they forked last year.
Price is a critical element of these hashrate wars because higher token prices typically hand a much stronger hashrate to one coin over another. This is because mining is driven by profits, so hashrate will follow prices.
Essentially, the higher a coin's price, the more hashrate it can afford to support. And the mining profitability difference between two competing projects will tend to consolidate at zero.
The chart below, for example, shows the mining profitability difference between bitcoin and Bitcoin Cash since the fork. As you can see, it's been consistently drawn to the middle point as miners switch to follow whichever network is more profitable at a given time.
Ideology aside, all evidence says miners tend to follow the money.
However, curiously, there's been a stark and uncharacteristic drop-off in Bitcoin Cash profitability relative to bitcoin in the last few days – visible as a dip on the far right of the above chart. At the time of writing, that indicates that mining Bitcoin Cash is only about 80% as profitable as mining bitcoin.
This is almost certainly due to the impending Bitcoin Cash hashrate war. It likely indicates people shifting mining power from bitcoin to Bitcoin Cash ahead of the fork. This extra hashrate increases the BCH mining difficulty, which in turn reduces the profitability of mining on that network. This theory is borne out by observing the recent surge in the Bitcoin Cash hashrate.
The reason it's significant in the context of mining profitability is because it suggests that miners are willing to go against immediate profitability for the sake of showing support for a fork.
And this miner support is leaning towards Bitcoin SV.
The chart below shows current Bitcoin Cash mining pools. Coingeek and SVPool and others both support the SV fork, as do others.
So ABC has the money, but SV has a lot of hashing power. And as Craig Wright has said, he and his minions have no qualms about using that hashing power to launch attacks against the rival fork using any means necessary.
Opinion: Money and ideology
At the time of the initial BTC/BCH fork, the debate was branded largely as a technical disagreement, which took on ideological overtones as people started arguing over whether Satoshi Nakamoto intended bitcoin to be a digital store of value asset or a peer-to-peer digital currency, while citing the same holy book – the bitcoin whitepaper.
Incidentally, the holy book (PDF) describes bitcoin as both peer-to-peer digital cash and a gold-like store-of-value asset at different points, making the entire thing a bit silly.
This fork has also been branded as an ideological struggle for the soul of bitcoin. To quote Craig Wright and his dog whistle, "Defend bitcoin in the 51% defense from the hordes of evil socialists seeking to destroy bitcoin. Save the future."
Historically, miners have always tended to follow the profits. Mining profitability differences have always snapped back to zero as though pulled by a rubber band. At the same time, the ideological call to arms here has been accompanied by miners going against profit incentives in favour of ideology.
Ironically, the ideology these miners are sacrificing profits to support is one of unbridled profit-driven libertarianism. It's a strange situation.
It's too early to say which side will win this hashrate war, but it might be quite drawn out given the apparent support enjoyed by both sides. Either way, it's going to be worth watching the spectacle on 15 November.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.