Ethereum fees explained: How rising gas prices impact UX and adoption
A forking history of Bitcoin Cash: Background, causes and implications of the latest chain split
A deep dive into the contentious history of developing Bitcoin's biggest competitor
On Nov. 15, 2020, a controversial upgrade to the Bitcoin Cash network caused a chain split in the major cryptocurrency. The contention leading to the split centered around a proposal to introduce a developer fund as part of the protocol's block reward. With neither those supporting the change nor those against it willing to back down, two versions of Bitcoin Cash emerged from the split: Bitcoin Cash ABC (BCHA) and Bitcoin Cash Node (BCHN).
In the following article, OKEx Insights looks at the circumstances surrounding the split while considering its background, the competing views of the factions involved, Bitcoin Cash's history of hard forks, as well as the potential implications for the project(s) going forward.
Bitcoin Cash's chain splits (again)
Like those before it, the Bitcoin Cash chain split on Nov. 15 occurred because of an irreconcilable disagreement among those supporting the network. On one side of the dispute was Bitcoin ABC, the long-serving group leading Bitcoin Cash development. It has been advocating throughout 2020 for a developer fund — also known as the Infrastructure Fund Proposal, or IFP — to be part of the protocol's mining reward.
Representing the widespread opposition to the IFP was the more recently formed developer group Bitcoin Cash Node. Prior to the scheduled network upgrade in November, Bitcoin Cash Node put out its own node implementation. The Bitcoin Cash Node software was launched in March 2020 and included other network upgrades. However, the controversial IFP code was left out.
In the run-up to Bitcoin Cash's scheduled upgrade in November, it became clear that community consensus over the IFP was still lacking. Despite being championed by the developers that were instrumental in creating the Bitcoin Cash network, an overwhelming percentage of BCH miners switched over to the Bitcoin Cash Node implementation ahead of the upgrade date. This prompted several notable companies to state that BCHN would take the Bitcoin Cash name following any subsequent chain split.
On Nov. 15, the Bitcoin Cash blockchain did indeed split, creating one version of the cryptocurrency with an 8% developer fund as part of the block reward and one without it. In the days since the split, BCHN appears to have emerged as the dominant chain — both in terms of hash rate and price. At the time of writing, BCHN commands around 1.34 EH/s compared to BCHA's 0.0075 EH/s. Meanwhile, BCHN is trading close to $290 and BCHA is trading around $20.
Origins of the contentious hard fork
To those not paying close attention to the Bitcoin Cash ecosystem, the latest chain split might seem sudden. However, the issue of a developer fund being part of the block reward has long been a bone of contention in the community.
As far back as March 2018, Bitcoin Cash miners and influential developers have been discussing allocating a portion of block rewards to fund the project's development. Meeting after a Hong Kong conference hosted by Calvin Ayre's CoinGeek, the group initially toyed with the idea of allocating 1%–10% of the block reward to developers, with sources differing on the exact percentage. With BCH trading close to $1,200 at the time, a 1% allocation, if implemented, would have generated a monthly pot of around $650,000.
The concept of diverting a percentage of a network's block reward toward funding infrastructure development was not invented by Bitcoin Cash proponents, however. Both Dash (DASH) and Zcash (ZEC) feature similar in-built developer incentives. In fact, with a recent network upgrade, the latter cryptocurrency pivoted away from what was referred to as its "Founder's Fund" — which was intended as a temporary measure — toward a "Dev Fund." Regardless of the name of the much-discussed feature, a percentage of the network's mining rewards still goes toward those building the project.
Although discussed in 2018, BCH miners did not attempt to implement a developer fund at the time. As evidenced by numerous debates on r/BTC — a Bitcoin Cash-friendly subreddit, despite the name suggesting otherwise — the issue continued to divide the community in the months that followed. Meanwhile, funds, like those announced by Roger Ver in November 2019, and community donations continued to finance various aspects of the project's development.
In January 2020, an escalating debate turned into something more concrete. Jiang Zhuoer, the CEO of leading Bitcoin Cash mining pool BTC.TOP published a Medium post, in which he stated that several influential BCH miners were in favor of a 12.5% share of the block reward going toward infrastructure development for a period of six months. Along with Zhuoer, the post claimed Antpool's Jihan Wu, ViaBTC's Haipo Yang and Bitcoin.com's Roger Ver were initially supportive of the proposal.
Once again, passionate debate flared up within the BCH community, with most objectors taking particular issue with the following statement from Zhuoer's post:
"To ensure participation and include subsidization from the whole pool of SHA-256 mining, miners will orphan BCH blocks that do not follow the plan. This is needed to avoid a tragedy of the commons."
Following community backlash, which included Bitcoin.com's withdrawal of support, Zhuoer published a second post on Jan. 31, 2020, in which he restructured the IFP. However, prior to Zhuoer's follow-up, Bitcoin ABC's lead developer and self-described "benevolent dictator," Amaury Séchet, added his support to the proposed developer fund.
Séchet and Bitcoin ABC would go on to add the code for an amended developer fund to its latest node implementation before the Feb. 15 cutoff date for the next network upgrade, scheduled for May 15. The updated IFP would award 5% of block rewards to developers, which would only go into effect if triggered by miners. Despite efforts to sway the community, the IFP code was ultimately not included.
However, fear that the controversial upgrade would be implemented prompted the more recently formed Bitcoin Cash Node team to act. Since Bitcoin ABC did not remove the code for the IFP prior to the May upgrade date, the group launched its own software without the contentious funding scheme.
Although not supported by miners in May, Bitcoin ABC did not abandon the IFP. On Aug. 18, ahead of the next scheduled network upgrade in November, the developer group launched Bitcoin ABC 0.22.0. The new software once again featured an amended IFP — this time, with an 8% coinbase reward and a distinct shift in tone. What was originally voluntary had apparently become mandatory.
Prior to the Bitcoin ABC software release, Séchet wrote:
"While some may prefer that Bitcoin ABC did not implement this improvement, this announcement is not an invitation for debate. The decision has been made and will be activated at the November upgrade."
With Bitcoin ABC committed to the IFP and Bitcoin Cash Node — along with a majority of BCH users — continuing to oppose it by maintaining its own software, a contentious hard fork and subsequent chain split became all the more likely. Ultimately, it would be for the network to decide which implementation of Bitcoin Cash to follow.
Still lacking consensus as the day of the scheduled upgrade arrived, the network indeed split — creating BCHN (subsequently referred to by much of the industry simply as Bitcoin Cash) and BCHA.
Developer funding: Why no consensus?
Despite immense opposition to the highly contentious proposal eventually enacted by Bitcoin ABC, the issue of developer funding is clearly a poignant one. The fact that developers cannot fully commit themselves to maintaining a project without financial compensation is difficult to get around. Séchet himself referenced Bitcoin ABC's struggle for funding via Twitter in 2018, stating that "Engineering don't grow on trees."
However, the IFP and every other proposed solution to date have drawbacks.
Perhaps the largest objection to funding via coinbase rewards is its potential to promote greater centralization of the network. Miners operate as businesses. Diverting a percentage of the block reward toward infrastructure development represents an attack on their profits.
With several different cryptocurrencies sharing the same SHA-256 mining algorithm, those miners not fully committed to supporting a particular cryptocurrency would simply divert their hash power to mine where it is more profitable. The result would be a lower overall hash rate concentrated among fewer miners. In such a scenario, the financial commitment required to attack the network — and, by extension, the protocol's overall security — drops.
However, some, including Séchet, reasoned that such a decline in hash rate would be trivial. The Bitcoin ABC developer has argued that adequately funded development would strengthen the network in other ways. According to Séchet, the actual impact of the IFP would be negligible, from a security standpoint.
Another issue with the IFP relates to the way Bitcoin ABC pushed it. As Jonald Fyookball, the lead developer of the Electron Cash wallet, reasoned in a post, previous efforts to fund development via block rewards were either voluntary or would allow the miners themselves to choose which teams to support. However, without requiring miner activation and with 8% of the block reward going to a single address reportedly controlled by Séchet and "his loyalists," Fyookball claimed, "It's essentially nothing more than one man's decision to siphon millions of dollars worth of (unearned) Bitcoin Cash directly to his own wallet."
In the months leading up to the contentious fork, myriad other concerns have been raised.
These include such a "tax" being ideologically at odds with the ethos behind Bitcoin — i.e., it putting too much power in the hands of a single group of developers, its lack of accountability in terms of the actual development work it incentivizes, and the increased likelihood of a network split that would surely damage Bitcoin Cash's credibility in the industry.
All that said, there are valid concerns about alternative funding mechanisms, too. Both the Bitcoin and Bitcoin Cash networks have previously drawn on both corporate funding and community donations. However, as Séchet pointed out on the Rice Crypto YouTube channel, such efforts do not necessarily encourage development that is aligned with the interests of the wider community. He contends that Blockstream's influence over Bitcoin funding steered the dominant cryptocurrency protocol away from its usage as primarily a peer-to-peer payments network and toward a store of value. This, according to Séchet, is at odds with the majority of the early Bitcoin community's wishes — which, prior to the August 2017 Bitcoin/Bitcoin Cash chain split, was committed to pushing greater merchant adoption. Warning of the risk of capture by "well-funded saboteurs," Zhuoer expressed a similar sentiment regarding corporate funding in his January 2020 post detailing the earlier IFP.
In critiquing the notion of community donations funding development, Séchet stated that such a funding model encourages developers to only work on projects that attract a lot of attention. This effectively neglects seemingly less attractive, but no less crucial, work on a protocol. Again speaking to Rice Crypto, Séchet compared cryptocurrency infrastructure with that of electricity providers. The Bitcoin ABC developer stated that most users don't really care how something works; the important thing, for them, is only that it does work. Relying on visibility for such development funding, according to Séchet, is "very bad for infrastructure."
Regular upgrades, regular chain splits?
Unlike Bitcoin, Bitcoin Cash has been committed to biannual network upgrades for most of its existence. Every year, in May and November, developers have the opportunity to make upgrades to the network. With frequent opportunities to amend code and implement new features, it's hardly surprising that the network has seen more than one contentious chain split.
While many of the upgrades to date have been completed smoothly, every proposed change invites the possibility of disagreement. When disagreeing parties command sufficient influence, the network is at risk of splitting.
The Bitcoin Cash network itself was created as a result of such a contentious hard fork. Years of dispute within the Bitcoin community over how best to scale the network culminated in a chain split in August 2017. Some supported increasing the limit on the size of blocks to allow the network to process more transactions per second. Meanwhile, others claimed that such an increase would have a centralizing effect on the network — since more expensive hardware would be required to support it. This would limit the number of operators that could afford to participate and would hurt network security.
Instead, they proposed the use of second-layer scaling methods and backed an upgrade known as Segregated Witness, popularly referred to as SegWit. The change, implemented by a soft fork, made more efficient use of block space by storing only crucial transaction data to the blockchain. With each transaction requiring less block space, each block would be able to accommodate more transactions.
Disagreement between the two factions came to a head in August 2017. Refuting that second-layer scaling was the optimal path to follow, those that supported bigger blocks introduced a hard fork to increase the block capacity. Lacking widespread community consensus, the chain split into two distinct cryptocurrencies: Bitcoin with SegWit and Bitcoin Cash with larger blocks.
Although supported by various industry participants, including former "Bitcoin Jesus" Roger Ver, Bitmain co-founder Jihan Wu and Satoshi Nakamoto claimant Craig Wright, Séchet himself is often credited as being the chief architect of the original Bitcoin Cash hard fork.
Just months after its creation, issues with Bitcoin Cash's difficulty adjustment algorithm forced the network to hard fork again, introducing another upgrade. Again, Séchet was central to the change, as it was Bitcoin ABC's DAA proposal that the community accepted. The upgrade sought to address the wild hash rate fluctuations that had plagued the network following its creation.
In May 2018, Bitcoin Cash underwent another non-contentious hard fork. This time, the upgrade further increased the block size to 32 MB and added several other features. These included the re-enabling of code previously disabled in Bitcoin prior to the August 2017 network split. The upgrade not only sought to increase Bitcoin Cash's overall transactional capacity but also added additional functionality — including the storing of arbitrary data not directly related to the cryptocurrency, itself.
Over the next six months, a division emerged within the Bitcoin Cash community. Members were becoming concerned with the Australian computer scientist Craig Wright and his ever-growing ego. Wright, backed by CoinGeek and its founder, Calvin Ayre, had become increasingly hostile toward the project's developers. CoinGeek had quickly risen to become the network's largest miner and had begun to attempt to exert more control over its direction. Although the tweets themselves have since been deleted, Reddit posts from the time alleged Wright had claimed via Twitter that developers are subservient to miners and those in disagreement would be replaced.
By November 2018, the division came to a head with Wright and his followers implementing a hard fork that would increase the block size to 128 MB, thereby creating Bitcoin SV (BSV). Meanwhile, the Bitcoin Cash supporters that opposed Wright, including Bitcoin ABC developers, sought different protocol changes. Their proposed network upgrade would maintain the Bitcoin Cash block size but amend its scripting language.
Following the chain split, Wright, along with Ayre and CoinGeek, immediately launched a so-called "hash war" against Bitcoin Cash, attempting to cripple the network using their apparently superior hash power. However, the effort failed, and BCH has consistently retained market dominance over BSV in the years that followed.
Since the BCH/BSV chain split, the Bitcoin Cash network has been updated every six months — predominantly under the guidance of Bitcoin ABC. Although its block size has remained consistent, the network has undergone other slight changes. May 2019 saw Schnorr signatures attempt to bring additional privacy to the network, and a clean-stack rule enabled the recovery of coins accidentally sent to BTC addresses. In November 2019, the support for Schnorr signatures was further enhanced, and a second network change addressed third-party malleability vectors.
Alongside fierce debate over the IFP, changes were made to Bitcoin Cash at both the May and November 2020 upgrade dates, too. The former introduced two changes to consensus rules — SigChecks and OP_Reversebytes — along with other changes that did not impact consensus rules. The November upgrade not only added the network-splitting, non-voluntary IFP into the Bitcoin ABC implementation, but another change to the DAA intended to address continuing inconsistencies with block times. Interestingly, both versions of Bitcoin Cash introduced the latter update, despite Bitcoin ABC previously rejecting the proposed algorithm.
How do repeated chain splits impact Bitcoin Cash?
In general, chain splits are perceived as being bad for a cryptocurrency.
When a network divides, some in the community follow one fork and some go along with the other. This includes miners, developers and the users themselves. Aware of the potentially detrimental impact of a contentious hard fork, Bitcoin Cash Node developers stated numerous times before the November 2020 chain split that they opposed dividing the community over the issue of the IFP. Miners departing a network reduce its overall security as the hash rate drops and the cost to attack it falls.
Meanwhile, developers usually choose to focus their energies on one of the forks. This means there is less talent working on improving the infrastructure surrounding a cryptocurrency. Interestingly, despite creating the division that caused the November 2020 split, Bitcoin ABC appears to be continuing its support of the Bitcoin Cash Node implementation. Prior to the hard fork, it released its own software for those that did not support the IFP but wished to continue using Bitcoin ABC.
Finally, whatever user base the project has prior to a split is also divided. Fewer users of a network limit its overall utility and relevance in the wider cryptocurrency industry. On the other hand, chain splits do create greater choice for users, allowing the market itself to determine what it truly values. In the example of the August 2017 BTC/BCH split, Bitcoin users could choose to support a Bitcoin implementation striving to serve primarily as a store of value or one more focused on becoming a decentralized payments network.
Additionally, chain splits may remove apparently toxic elements from a community. In the November 2018 BCH/BSV hard fork, Wright and CoinGeek forking off to create Bitcoin SV was seen as a great triumph in the Bitcoin Cash community — since many did not like the direction they were attempting to take the cryptocurrency. In a recent interview on Charlie Shrem’s Untold Stories, Séchet confirmed that Wright's departure was beneficial to the Bitcoin Cash community. Similarly, in 2017, those wanting bigger blocks — deemed toxic by many in the BTC community — were free to fork away and experiment with different network rules. Ultimately, the market is then left to choose which side of a fork has greater value.
However, there is another potential consequence of a chain split that concerns the wider industry. Cryptocurrency adoption relies on the support of various companies, such as exchanges and wallet providers. Each time a cryptocurrency splits, those providing services have to decide how to respond. Code changes require companies to update the software driving their own systems. This forces them to deploy capital in ways they may not have expected. The disruption to services that repeated chain splits cause no doubt frustrates many companies.
Roger Ver highlighted this point prior to the recent Bitcoin Cash hard fork. Stating that markets were not fond of the kind of uncertainty that chain splits create, he told CoinDesk that he'd like to see such contentious hard forks become a thing of the past. Calling them a "big problem," he reasoned that the Nov. 15 split could put companies off supporting the network — particularly those new to the industry. In his own words, he even reasoned that "if PayPal knew that this sort of contentious hard fork was likely to happen, maybe they wouldn't have added bitcoin cash at all to their roadmap."
Given that a lot of the industry sees PayPal's support for limited cryptocurrency functionality as a huge boon for adoption, Ver's concerns may be justified. Without the support of the wider industry, cryptocurrencies may struggle. This can be evidenced by Bitcoin SV's price performance following its delisting from many major exchange platforms in 2019.
Still struggling for funding?
Although Séchet and Bitcoin ABC now have a source of funding, it remains to be seen if it will allow them to improve either branch of Bitcoin Cash in any meaningful way. On Nov. 21, for example, just 70 BCHA blocks were mined. Therefore, block rewards for the entire day were 437.5 BCHA. At current prices, that's a fiat value of around $8,750. The developer fund, at 8%, would have awarded approximately $700. Assuming the project survives after the mining difficulty of BCHA eventually adjusts to produce a block around every 10 minutes — which it has not yet achieved — each day, the mining reward will total 900 BCHA. Again, at current prices, that's around $18,000 a day and 8% of that is $1,440.
With such a low projection, some may wonder whether it is really worth jeopardizing Bitcoin Cash's reputation for such a sum. Time will tell if Bitcoin ABC will garner enough support to bring its price to a level that will adequately fund a team of professional software engineers. However, given how far the group's reputation has plunged in recent months over the whole IPF debacle, that's anything but a given.
OKEx Insights presents market analyses, in-depth features, original research & curated news from crypto professionals.