Bitcoin Cash – The Sound and the Fury

This article briefly describes the political backdrop to the rise of bitcoin cash. We then proceed to compare bitcoin cash to bitcoin, and discuss the unique marketing methods employed by bitcoin cash proponents.  For those well versed in the history, feel free to Skip the Historical Background

The Coming Bitstorm

It is mid-2017. The bitcoin scaling debate has turned nasty and many fear a network split. Much of the mining and business communities advocated a hard fork to increase block size. Bitcoin developers and the majority of veteran bitcoin users supported an approach to scaling focused on maintaining bitcoin’s decentralized nature, and argued larger blocks would discourage node usage.

Their approach was the implementation of an innovation known as SegWit, which reduced the weight of bitcoin transactions by removing signature data from the blocks. Assuming 100% adoption of Segwit this would increase block size by almost 400% without increasing block weight, thus keeping overall blockchain growth at the same trajectory.

SegWit was a backward compatible soft fork and would take effect only when 95% of network hash power signaled acceptance to minimize any disruption.

Bitmain says ‘Nay’

That 95% hashpower proved insurmountable, due to the opposition of Bitmain CEO Jihan Wu. Wu’s opposition was threefold: 1) economic, 2) a matter of influence, and 3) preservation of an alleged secret mining advantage. Wu was most forthcoming about the economic reasoning, the most benign of the three reasons. He claimed Segwit transactions were unfairly cheap, a strange position considering the issue at hand was expensive transactions resulting from a failure to scale.

The second issue, that of Bitmain’s influence, is a more theoretical concept. SegWit was seen as an intermediate step on the path towards the Lightning Network, a tier-two protocol with potential to offer almost-instant and almost-free transactions. More importantly, these transactions would be effectively limitless and offered a fundamental solution to bitcoin’s scaling issue. They would also greatly diminish the percentage of overall transactions published directly on the chain, thus undermining the influence of the mining companies that process on-chain transactions.

And last, Bitmain was and is widely thought to benefit from a secret implementation of a technology known as ASICBOOST, providing their mining rigs a 30% edge in power efficiency. This has allowed Bitmain to dominate the market. SegWit has a “fix” which renders ASICBOOST unworkable.

Bitmain was joined by bitcoin personality Roger Ver. Ver made a fortune thanks to his early investment in bitcoin, some of which he used to invest into bitcoin businesses as well as advocacy for big blocks. While his advocacy for larger block size was both consistent – he supported a number of failed attempts to force bitcoin towards big blocks – and entirely legitimate, he began to inject very negative messaging into the debate which we believe has damaged the community.

In any event, the network was at an impasse and people were getting restless.

Users Strike Back

In February of 2017, a proposal was submitted for a User Activated Soft Fork (UASF). The UASF allowed full nodes to reject any blocks submitted by miners not signalling their acceptance of SegWit. Bitmain pushed back against UASF with what they termed a User Activated Hard Fork (UAHF), which implemented the blocksize increase and ignored the UASF implementation. The idea was that the UAHF would be implemented if the UASF activated.

It was at this point that the network was truly in jeopardy, and to prevent any contentious forks a group of business and mining leaders got together in May of 2017 to formulate a compromise New York Agreement (NYA), known as Segwit2X. The agreement stipulated that Segwit would be activated after which a hard fork would double the blocksize. This agreement was signed by, among other notable industry participants, Bitmain.

A short time after the agreement, the network successfully signalled SegWit, which took affect a month later. The UASF was thus abandoned; however, those behind UAHF forked anyway, and that fork is known today as Bitcoin Cash. The fork went ahead, at least ostensibly, due to the unwillingness on the part of bitcoin developers and the wider community to support the second part of the NYA, the 2 MB hard fork.

(As a side note, Segwit2X did actually proceed – it was a complete failure, riddled with technical incompetence, and literally collapsed upon launch.)

It is a bit out of scope, but the main reasons the network rejected the 2MB hard fork were:

1. It contrasted with the market’s decentralization-first disposition.
2. The process was seen as illegitimate as it clashed with Bitcoin’s consensus method of development.
3. It all felt a bit plutocratic, with a bunch of business owners getting together behind closed doors and then dictating their solution to an unreceptive market.
4. It was rejected by the community, as demonstrated by the comparative prices of segwit2x and non-segwit2x derivatives, with the former trading at a fraction of the latter.

Bitcoin Cash and Bitcoin Compared

We would like to discuss two different aspects of the bitcoin cash / bitcoin relationship. First, the comparative key performance indicators. How has development progressed? How does bitcoin cash stack up against bitcoin in price, usage, block size, and fees? And how has the wider network embraced bitcoin cash?

The second aspect is bitcoin cash’s marketing strategy.

Key Performance Indicators

Bitcoin Cash has made a tremendous amount of noise over the past 12 months, as those that have the misfortune of frequenting twitter can attest. Based on noise alone, Bitcoin Cash would seem to have convinced the market that it is the true bitcoin, the stated position of Ver and his supporters. At the end of the day however, numbers don’t lie, and though bitcoin cash supporters will protest that they are playing the long game, there are a number of data points suggesting it will remain a bit player.

Bitcoin Cash blocks are generally coming in between 50-80 KB, or 5-8% of one MB.

Segwit has rolled out to approximately 45% of the bitcoin network now, which allows for blocks in excess of 2 MB. Indeed, according to blockchain data the average block size each day from October through March was greater than 1 MB, and there have been a few blocks that have exceeded 2 MB.

This increase in blocksize – admittedly combined with decreased demand after the massive bull market at the end of 2017 – has cleared out the transaction backlog, known as the mempool.

Fees have fallen as a result. According to bitcoinfees.info:

These fees might be a few cents higher than bitcoin cash, but consider also the average size of the transactions:

Bitcoin Cash has settled in at less than 10% of bitcoin’s transactions, and falls 50% short of even litecoin’s transaction numbers. One bitcoin cash is now worth approximately 10% the value of one bitcoin. It has succeeded in offering a lower transaction cost than bitcoin by a few pennies, though transaction size is much smaller.

Let’s have a look at a few important non-commercial KPIs.

Developers and Nodes

Since launch, bitcoin cash upgrades have mostly been of the copy/paste variety; the block limit has been raised to 32 MB (backspace “8” Control V “32” in its place), and bitcoin developments are copied to the bitcoin cash code as needed. OP_Return size was increased to facilitate coloured coin / counterparty protocol type third-party integrations. Bitcoin previously had reduced OP_Return size to minimize spam and blockchain bloat so, again, this is mostly copy paste stuff.

Leaving aside that these developments do not require very skilled developers, the continued increase in block size despite limited demand smacks of development for twitter rather than serious innovation. 32 MB makes a good headline.

Bitcoin has scaled to meet demand, and though bitcoin cash proponents might argue that the scaling is insufficient, scaling innovation continues. Developers are working on the introduction of Schnorr Signatures which increases block capacity by another 25% without increasing weight. This was made possible after the integration of SegWit. And of course, the Lightning Network, a tier-two protocol offering nearly instant and nearly free transactions off chain via multisig “smart contracts”, will not make it to bitcoin cash, which hopes to avoid the need for lightning via on-chain transaction capacity increases. At press time, the Lightning network is growing quickly, with 10,000 payment channels and a 100 btc capacity. Secondary lightning marketplaces and wallet infrastructure is developing alongside the protocol.

We see the scaling efforts from the bitcoin development team as innovative and exciting. We find convincing the argument that lightning can become bitcoin’s tcp/ip stack, with lightning nodes playing the role of IPs and channels playing the role of TCP connections.

Bitcoin cash has not been able to attract top development talent, and it’s node distribution, long a KPI of the bitcoin network’s health, is over 50% hosted on alibaba servers (meaning they are likely from one source), one of the elements that prompted likely-Satoshi Nick Szabo to call bitcoin cash “centralized sock-puppetry”. (In response bitcoin cash proponents argue that non-miner nodes are not important anyway). Considering these nodes are the “peers” in the distributed peer-to-peer network, we do not find arguments that nodes are not important credible.

Faced with a lack of developer interest and poor comparative performance, Ver et al have retreated into an aggressive marketing posture, one area in which they hold a distinct advantage over bitcoin. The general strategy is to paint an alternative narrative making it difficult for unknowledgeable users to distinguish the fundamental value of bitcoin cash and bitcoin.

Brand Hijacking

Nothing infuriates Roger Ver more than someone calling bitcoin cash bcash. This is because without the word bitcoin bitcoin cash loses brand equity and will be judged on its development and network, like any other altcoin. The additional word “cash” also dilutes the brand, and so there has been a sustained effort to rebrand bitcoin as “bitcoin core” and thus level the playing field.

Bitcoin core is the open source bitcoin software which is located on github – similar to geth for Ethereum or bitcoin ABC for bitcoin cash – to which any developer may contribute. According to Ver, the bitcoin core github repository has been subject to a hostile takeover by the company blockstream. Blockstream was founded by developer Adam Back, the inventor of hashcash, the proof of work system used by Satoshi Nakamoto as bitcoin’s mining algorithm. According to Ver, blockchain nefariously works to divert bitcoin development towards layer two scaling solutions like sidechains or lightning, which will make them a ton of money.

This conspiracy theory is not born out by the contribution percentage from blockstream developers, nor their mandate. The process for submitting bitcoin improvement proposals to the wider community and gaining consensus has not changed.

To support these brand hijacking efforts, Ver purchased the website bitcoin com and transformed it into a cheerleader for bitcoin cash / source of disparagement for bitcoin. They advertise a bitcoin wallet, which places bitcoin cash above ‘bitcoin core’, which has confused some new users into losing money, users Ver has called ‘retarded’.

Ver is closely associated with the @bitcoin handle on twitter, which became active on January 8th of 2018 and has since been a constant stream of bitcoin cash praise / bitcoin disparagement. Again, for a newcomer to bitcoin who is unaware of this strange political hub bub, the @bitcoin handle would seem to convey some sort of authority.

Claiming with some merit that the moderators of r/bitcoin censored alternative viewpoints, Ver opened r/btc which has for the most part been a bitcoin cash echo chamber.

Satoshi Nakamoto’s ‘True Vision’

With bitcoin rebranded as bitcoin core and thus brand-equal with bitcoin cash in terms of number of words and letters, it is now simply a matter of determining which brand is the real bitcoin! And it is bitcoin cash that is the real bitcoin due to an adherence to the true vision of Satoshi Nakamoto as expressed in the white paper. The argument is based on a sort of textualist approach towards the white paper, a white paper which said nothing about lightning or Segwit. And Satoshi Nakamoto was himself a big blocker, as may be clearly discerned from cherry-picked quotes.

Leaving aside the obvious fact that the white paper is a technical description and not a religious manifesto, this is faulty for a number of reasons.

1. You can just as easily pull quotes to use as precident for lightning network by Nakamoto, Hal Finney, and Nick Szabo to name a few of many.
2. There were serious problems, such as transaction malleability, that were missed by the white paper and solved by Segwit.
3. The very concept is anti-innovation and against Nakamoto’s character as a technologist and innovationist.

Point being, discerning Satoshi’s exact view in 2010 of specific 2018 problems is not possible, because there is any amount of material that can be used to support any position. We can however, judge the merits of each argument based in large part on who is making them and their respective expertise and credentials.

Rogues, Trolls, and Astroturfing

It is fair to say that Bitcoin Cash is publicly led by the triumvirate of Roger Ver, Craig Wright, and Calvin Ayre. Jihan Wu is bitcoin cash’s most important supporter from a tangible perspective because without his support it would collapse. However his purpose is commercial in nature, and he seems uncomfortable being associated with these three. Here is Calvin Ayre “Plotting the death of btc”.

We have discussed Roger Ver. Craig Wright is most well known for his ‘fake Satoshi’ public embarrassment, though we find his ability to regularly show his face in public courageous. Calvin Ayre is the former owner of Bodog, and while there is not any reason that his opinions mean anything more than yours or mine, he does have a lot of money and marketing capabilities. For an in depth discussion on the relative merits of the people behind both projects, have a look at this excellent piece by hackernoon.

Messaging is disseminated via Mssrs. Ver and Ayre’s websites and twitter accounts. I should emphasize that there is a sizable percentage of honest folks of much greater intelligence than I that support bitcoin cash. However, there is little doubt that Ver employs an aggressive method of message distribution known as astroturfing, which masks paid shills as grassroots supporters.

This strategy began with Ver’s “bitcoin birds” project.

Additionally, paid Ver employees have been caught posing as alternative users. Regular twitter visitors who check out bitcoin threads will repeatedly see many of the same bitcoin cash users pasting the same messages, over and over, and generally trolling conversations with non-sequiturs. Twitter universe, you will probably recognize this guy:

And of course, in a Trumpian tactic, Ver and squad accuse bitcoiners of the same behavior – repeatedly, aggressively, and loudly – thus blurring the picture to instill in onlookers a misleading equivalence between the two sides.

These tactics have largely failed to convince the larger market that bitcoin cash is anything but a sideshow. Institutional investment focuses almost entirely on bitcoin. Mainstream futures markets and eventual ETFs also seem to be interested with bitcoin only. There has been zero migration of the top bitcoin developers to bitcoin cash, nor has there been a sizable switch among rank and file market participants. The constant stream of misinformation continues from Ver unabated, and one is left to wonder if this is the result anymore of simple concern in the direction of bitcoin, or has transformed into a matter of ego.