Ryan Research Newsletter


Will Bitcoin Cash Float On?

One year ago, a maelstrom of debate around scaling Bitcoin ensued and out of it came Bitcoin Cash (BCH). Bitcoin Cash followers viewed the historical high fees, caused by blocksize supply constraints, as prohibitive to mass-scale adoption. By hard forking the dominant bitcoin blockchain, BCH became a life raft for those who desired larger blocks to lower fees. Is BCH sunk, sailing, or just treading water? Let’s dive in.

The BCH key performance indicators (KPIs) have maintained an average of about ten to twenty percent to those of BTC.

Volume transacted on exchanges reached all-time-highs in the early half of the year, even briefly exceeding BTC’s exchange volume on August 19 and November 11. Over 100 exchanges currently accept BCH, many of which added the coverage in the first half of the year. When the general crypto rally of late fall 2017 dissipated, exchange activity dithered away in Q1 to eight percent of BTC’s volume in and twelve percent in Q2.

Transaction volume occuring on the blockchain remained on average under ten percent of BTC’s on chain volume throughout the year, however this last month saw the number of transactions consistently increasing to about thirty to fifty percent of BTC’s.

Average fees stayed comparatively low ranging from about two to five percent of BTC’s fees, fulfilling one of the main goals of the hard fork. In other terms, BCH’s average fee was about a dime on most days while BTC’s was about a $5, even reaching north of $30 on some occasions. More recently, both blockchains have seen fees decline to under $1.

The most observed metric, price, saw very little deviation; it remained around twelve percent to that of BTC. The price saw all-time-highs of around twenty percent of BTC in the fall rally but slowly diminished back down to normalcy. Rather than overpriced from hyperbolic speculation or underpriced due to FUD, it would appear that investors have priced BCH inline with other KPIs in relation to BTC.

CoinDesk Research’s cryptoeconomic compass, shows similar activity levels in the price, network, and exchange categories. Notably, developer activity on the protocol level has been relatively low.

Surprisingly, bitcoin cash saw high levels of social activity, reaching about fifty-seven percent of BTC’s social activity. A subfactor driving much of the posting on the r/btc subreddit. Another key social media advantage has been the commandeering of the @bitcoin twitter handle with its 800,000+ followers.

However in adjacent social media communities, detractors cite the failure for BCH to live up to the impetus for its creation: big block usage. Brendan Bernstein, Founding Partner at Tetras Capital, put forth an analysis showing “only 1,400 out of 62k [BCH] blocks, or 2.2%, have been over 1mb”.

While there was enough enthusiasm to get BCH to fork in pursuit of the big block vision, actual economic demand has not followed suit. According to Bernstein, “forks are interesting in that they allow relatively controlled experimentation. The BCH fork presented an opportunity to test between layer 1 scaling through block size increases and layer 2 scaling through lightning network with BTC. After a year, it looks like the market would prefer to prioritize Bitcoin’s.”

BCH supporters would contend that while demand is down, the seeds of growth are being planted. Efforts to develop engaged offline communities through event meetup groups appear to have steady growth. According to the BCH Fund, there are 101 meetups in 40 different countries with about 12,000 total members.

Other growth can be seen in the development of new businesses and apps. Many of these entities are emphasizing the ability to perform low fee microtransactions and building consumer facing products.

One such app is CoinText which allows users to send and receive BCH through text messages. Its CTO, Vin Armani, said “when high fees and slow confirmation times began plaguing BTC, I shelved Bitcoin projects that I had been working on steadily for years…I know I wasn’t alone in walking through 2017 feeling discouraged…In this past year, Bitcoin Cash has brought hope and creative exploration back to Bitcoin.”

In addition to projects, it seems there has been growth in merchants accepting BCH. According to community-curated website, The Accept Bitcoin Cash initiative, 716 merchants accept BCH for the goods or services. For comparison, another community-curated site tracking BTC merchant adoption, Coinmap, suggests that there are over 13,000 merchants accepting BTC.

While BCH KPIs have mostly been unremarkable, one can’t deny the small but strong group of zealots keeping BCH afloat. However that zealotry could backfire with rumblings of BCH forking again and further splitting their small population. Cobra, the anonymous Co-owner of bitcoin.org and bitcointalk.org, has both criticized and complemented BCH this past year. He shared his current perspective:

“When Bitcoin Cash forked, I remember thinking it would fail. But over time, I’ve been impressed with how passionate and focused on merchants the community and technology is. When fees on Bitcoin got high, and Lightning clearly wasn’t ready yet, I became much less hateful, and started to see some of the benefits.” — Cobra