It’s like the Confederate attack on Fort Sumpter, but for geeks.
At 18:00 UTC on November 15th, the newly upgraded Bitcoin Cash network mined two new blocks. But some bitcoin cash miners’ servers marked these blocks as invalid – throwing two warring Bitcoin Cash camps – Bitcoin Cash ABC and Bitcoin Cash SV – into a battle for survival. It may well be only one can survive. The other could be totally annihilated.
Specifics: The Bitcoin Cash network just completed a hotly-contested scheduled protocol upgrade. But unlike previous protocol upgrades where there was widespread consensus about what upgrades were needed and how to implement them, this upgrade saw widespread disagreement about how the bitcoin cash protocol should best evolve to support users and merchants that support Bitcoin Cash.
nChain responded to the planned update by developing an alternative Bitcoin Cash implementation, Bitcoin SV – a full-node implementation they claim was developed to provide better support for what they call the “Satoshi Vision.” Hence the “SV” in the name.
nChain is issuing a public appeal to miners to use their “hash power” to support the SV implementation under “Nakamoto Consensus Rules.”
In the weeks leading up to the November 15th upgrade, nChain provided miners and exchange operators with the technical details for supporting Bitcoin SV transactions, and the two camps lined up their servers in preparation to engage in what observers call the Hash War.
Meanwhile, bitcoin holders were walloped in a round of selling this week, pushing the asset down to its lowest level in more than a year. At press time, the coin is trading at $5,539.17 – off more than 60 percent off its peak. The contagion also hit Ethereum, litecoin, ripple and bitcoin cash, each down by double digits.
November 15th saw the completion of the hard fork in the Bitcoin Cash chain, driving a wedge between Bitcoin SV and Bitcoin ABC users. The two protocols are no longer directly compatible with one another. However, Bitcoin Unlimited, another important Bitcoin Cash implementation, has announced its neutrality and its intention to remain neutral. It will be compatible with both SV and ABC until the digital cage match is resolved.
Miners are now voting for the protocol they want to go with via their hash power under Nakamoto consensus rules. The implementation with the most computing power behind it will likely win, and the losing currency will be consigned to oblivion.
Initially, Bitcoin SV was the favorite, after it seemed to have lined up about 40 percent of the current bitcoin hash total right out of the gate.
At issue: The ‘longest chain’ rule – in which the nodes running a given crypto asset that encounter two competing bitcoin simultaneously recognize by default the longer of the two blockchains – on the theory that the longer blockchain is the more complete and up-to-date blockchain. The other blockchain is eliminated from the system.
In the hours leading up to the hard fork, BCHABC had the advantage in that about 75 percent of node operators were running the ABC client software, vs. only about 8 percent of node operators running SV.
However, SV supporters, bolstered by the intervention of Craig Wright and Calvin Ayre, have declared a jihad against ABC, vowing to aggressively mine empty blocks and reorganize the block chain using their hash power until ABC succumbs. nChain claimed to have over 40 percent of the available hash power supporting SV before the hard fork happened.
But mining strength is only part of the picture: Currencies rely on network effects of merchants and vendors who can be trusted to accept the currency in the future – and this may be the decisive factor: Companies supporting bitcoin cash have generally indicated their support for the ABC variant, and will include ABC rather than SV under the Bitcoin Cash header.
nChain, the developer of SV, argues that the BCH business community should recognize the protocol with the longest and most complete blockchain with the most legitimate and sustained Proof of Work. We will shortly see whether that argument holds sway among merchants and vendors.
If SV can’t maintain at least price parity with ABC will miners continue to mine SV at a loss just to prove a point? Jonathan Bier, head of research at BitMEX, says no. On the 14th of November, Bier told Bloomberg editors that “the economics will support BCHABC and reject SV (Satoshi’s Vision). SV will have a low price and miners will leave it in a few weeks.
Trading and volatility
As is to be expected, we’ve seen major volatility on the exchanges, with SV (trading under the symbol BCH SV) falling from a peak of 243.79 on the 14th of November to just $98.05 at press time on the 15th.
But Bitcoin ABC seems to be fighting back, rising from a low of $201 on the 14th to $296.48 at press time on the 15th. This is partly due to the intervention of Roger Ver, owner of Bitcoin.com, who has routed all his significant hash power to support the BTCABC chain.
Until the outcome of the Hash War is decided, Bitcoin Cash is probably an appropriate holding only for the most speculative and risk-tolerant consumer. At this stage, it looks like ABC will prevail, judging from price signals alone. But stay tuned.