Bitcoin Cash (BCH) was first introduced as a competitive currency on August 1, 2017. The basic idea is to use the Bitcoin protocol while increasing the block cap, which will allow the cryptocurrency network to process more transactions at a lower cost. In addition, BCH does not use the SegWit Quarantine Witness upgrade, which was added to the Bitcoin network in the same period by a soft fork.
Although BCH did not attract much attention at the beginning of the launch, it clearly stated that it would not be moved by the so-called “New York Consensus” signatories, insisting on the reputation of expanding the Bitcoin block ceiling through hard forks.
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On November 8, 2017, BCH prices soared from 0.08333 BTC to an all-time high of 0.24613 BTC, as six CEOs involved in the New York Consensus formally abandoned SegWit 2x hard forks. The surge in BCH currency prices has also brought more media exposure, especially for CNBC.
However, the price of BCH may never exceed the historical high created in November 2017. In fact, since then, BCH's price for BTC has fallen by 87.5%. In dollar terms, the current price of BCH has shrunk by 91% from the historical high set in December 2017.
Despite the rumors of “BCH big reversal” from time to time in the past few years, the fact is that the various indicators that measure the success of the BCH network have only worsened over time, especially when compared to BTC.
Let's take a closer look at the three main reasons why BCH has not achieved much actual success so far.
1. The main role of Bitcoin is value storage
Perhaps the most obvious cause of BCH failure is that the vast majority of people who use BTC and other cryptographic assets are more concerned with cryptocurrencies as a value store rather than as a payment tool.
According to blockchain analysis firm Chainalysis, 90% of Bitcoin network activity is related to exchanges. And this number only includes the number of transactions. If measured by transaction volume, the proportion of exchanges involved in Bitcoin network activity should be higher, precisely because transactions involving exchanges are often higher value transactions on the network.
In addition, when looking at the ratio of the recent BTC fee market to the exchange's activities, it is clear that the fee will increase as the exchange's activities increase.
The data illustrates the simple fact that not many people will pay with BTC and other cryptocurrencies. This may be due to various issues with payment using currently existing cryptocurrencies, such as tax issues, price fluctuations, and poor user interface.
In addition, the need to use BTC as a means of value storage is blocking block space that may be used for payment. As a result of increased costs, the requirement to obtain BTC as a value store actually undermines the functionality of BTC as a means of payment.
Perhaps more people in the future will eventually want to use BTC for payment, but this is unlikely to happen until the volatility of digital assets is reduced. Xspo CEO and PayPal board member Wences Casares outlined how BTC became a currency a few years ago, and in his view it must become a trusted repository of value before it becomes a useful medium of exchange.
Of course, there is nothing wrong with developing a use case for BTC as a medium of exchange, as BTC is still evolving as a value store, and more and more startups are using Lightning Networks (more on this later).
As long as the main interest of most BTC users is to acquire a new asset class, it seems that transaction costs will not be their focus. In other words, all the reasons for BCH's existence (larger block caps can reduce costs) do not seem to meet market demand.
As Andrew Poelstra of Blockstream explained in the past, it is still in the early stages of bitcoin development. When the focus of attention is almost entirely on the value storage function of this technology, only one piece of BTC really needs to do. The thing is not to collapse.
Obviously, if the BTC can now achieve a lower fee, that's great, but because of the network effects around the current consensus rules and the scalability limitations of the network in order to maintain decentralization, this is not easily achievable. . The network effect of BTC also makes it difficult for BCH to gain a place in a reliable value storage.
2. Network effects around Bitcoin
BTC has a first-mover advantage, and the reality proves that this advantage is difficult to overcome. The innovation of BCH is that it relies on the network effect of BTC from the beginning, but this strategy may only exaggerate the market value of BCH in the short term, but it has not caused long-term interest of investors.
The network effect of BTC also makes it difficult to change this network through hard forks. This is probably why SegWit was adopted and SegWit2x hard forks were abandoned.
The future market for 2x hard forks indicates that the community will split, and most people in the network will choose to maintain the status quo, which is why miners choose to give up the plan. These miners do not want to operate at a loss for a long time. In other words, those who use BTC as a means of value storage are those who make rules. Miners and those who primarily use BTC as a medium of exchange have little say on this issue because the incentives that miners receive give them the option to tap into the blocks that will bring the most profit.
In terms of important indicators such as hash value and liquidity, BCH is far less than BTC. According to Messari's OnChainFX, BTC's 24-hour trading volume "Real 10" and adjusted trading volume combined with a target of $4,508,547,091, while BCH's same indicator was $187,185,219.
In addition, this data does not take into account the median BTC transaction fee of $0.70, while the median BCH fee is well below $0.01. In other words, BTC users are very willing to pay extra for using this particular cryptocurrency network.
According to fork.lol, in terms of hash values, the computational power of BCH is approximately 2.7% of BTC. As Carter Lee, founder of Litecoin (LTC), has explained in the past, if a cryptocurrency only accounts for a few percent of the total hash of a particular hash algorithm (in this case, SHA-256), then the bitcoin consensus The security of the agreement (Nakamoto Consensus) will be interrupted.
Perhaps the most shocking indicator associated with BCH's weaker hash is that earlier this year, only BTC miners charged more than BCH miners' entire block rewards. Next year, these problems with BCH may get worse. By the time, the BCH network will halve the block rewards before the BTC.
Compared with the main competitors (BCH and LTC), which mainly provide low-cost transactions, the BTC network still processes more than 7 times the transaction volume per day, while users in the dark-net market still prefer BTC instead of others focusing on privacy. Alternative currencies (although software wallets like Wasabi Wallet and Samourai are also helpful in this area).
The preferences for BTC can be attributed to factors such as liquidity, hash, brand recognition, and universal acceptance—all of which are part of the overall network effect of BTC.
Whether it is a new coin or a BTC hard fork attempt, it is difficult to overcome the network effect around the status quo.
Because of these factors, it may be better for those who want to see BTC or other cryptocurrencies to become a medium of exchange for development on the BTC network, rather than building a completely new network from scratch on a stand-alone basis.
3. Competition from other competing currencies and Bitcoin Layer 2 agreements
The third reason BCH is struggling is the high level of competition brought about by the competition.
As another cryptocurrency that focuses on low transaction costs, LTC has been six years ahead of BCH, and its gap with the BTC code base is not that big, so it can easily integrate all the changes in the Bitcoin core into Wright. In the core of the coin. For example, LTC even adopted SegWit before BTC, and this coin has also been integrated into the lightning network.
Although the original selling point of Ethereum is the “world computer” that allows developers to build smart contracts, the platform has recently shifted its focus to decentralized finance (DeFi). More ETH supporters now treat this competing currency as a currency rather than digital oil. ETH is more fluid and functional than BCH, so there is no reason for those interested in low transaction costs to choose BCH instead of ETH.
In addition, BTC certainly has its own products for low-cost transactions.
Lightning Networks allows users to make instant, low-cost payments in a low-trust environment and has been adopted by key bitcoin companies such as Bitrefin and Fold, making it easier to use BTC at well-known retail stores such as Amazon and Starbucks.
While the vision of trusting sidechains has not yet been realized, federal sidechains such as Liquid and RSK offer additional alternatives for those willing to choose to use BTC as their licensed blockchain for their native tokens.
With Paul Sztorc's drivechain proposal, BTC users will see more decentralized sidechains in the near future. It is worth noting that the RSK program slowly migrated from the federal mechanism to a network that combines the federation and the drive chain model.
In addition, through the Schnorr signature and Taproot proposals, great progress has been made in how to use the block space on the Bitcoin network more effectively and at the same time with greater privacy.
Many problems are related to hard forked BTCs, and a new currency lacks sufficient liquidity. Therefore, the best choice to achieve the original intention of BCH to reduce the fee may be to build an additional agreement on BTC, the current most liquid and most used cryptocurrency network.
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