Bitcoin Cash Hard Fork Preview:
May 15th 2018

Bitcoin Cash Hard Fork Preview:
May 15th 2018

Currently the fourth-largest cryptocurrency by market capitalisation, Bitcoin Cash - itself created in a fork from Bitcoin at the start of August last year - is scheduled for a hard fork on May 15th. In this post, we look at the key protocol changes to be introduced and their likely implications.

Currently the fourth-largest cryptocurrency by market capitalisation, Bitcoin Cash - itself created in a fork from Bitcoin at the start of August last year - is scheduled for a hard fork on May 15th. In this post, we look at the key protocol changes to be introduced and their likely implications.

Written by
Emmanuel Alamu
and
Nathan Jessop

Written by
Emmanuel Alamu
and
Nathan Jessop

May 2, 2018

May 2, 2018

Bitcoin Cash (BCH) was founded on the belief that the fees of transacting Bitcoin were crippling adoption and as such, immediate fee relief was needed. In the opinion of the “big-block” community, the quickest and most efficient way to accomplish this was by increasing the block size while other long-term solutions (e.g, off-chain scaling, such as the Lightning Network) are being developed.

On August 1st, the BCH community did exactly that by making a contentious change to the protocol to increase the block size limit to 8MB. The upcoming hard fork extends the original vision for on-chain scalability through larger blocks whilst adding extra functionality to the blockchain.

Bitcoin Cash (BCH) was founded on the belief that the fees of transacting Bitcoin were crippling adoption and as such, immediate fee relief was needed. In the opinion of the “big-block” community, the quickest and most efficient way to accomplish this was by increasing the block size while other long-term solutions (e.g, off-chain scaling, such as the Lightning Network) are being developed.

On August 1st, the BCH community did exactly that by making a contentious change to the protocol to increase the block size limit to 8MB. The upcoming hard fork extends the original vision for on-chain scalability through larger blocks whilst adding extra functionality to the blockchain.

We are paying close attention to the Bitcoin Cash ecosystem right now as it ventures into this major upgrade in just under a couple of weeks. A number of features will be deployed through this software upgrade. Below are the key proposed changes for BCH in this hard fork and beyond to be mindful of.


32MB Blocks

Likely the most well-known upcoming change is the increase of Bitcoin Cash's block size to 32MB, a quadruple increase from the existing 8MB block size. This block size increase will allow for an increased amount of transactions per block in instances of increased demand. However, the reality is that BCH is currently not utilised enough to see the differences of bigger blocks. Over April, the average block size for BCH was roughly 0.06652817MB. The average monthly BCH block would have to increase 120x in size to even fill an 8MB block; I.e, BCH would need far larger volumes of transactions on its chain before an 8MB block is even fully utilized.
 
An increase in block size will not suddenly give BCH more transaction activity. Instead, this block size increase will allow BCH to handle larger transaction volumes in the future, and shows how BCH can improve accessibility of those using BCH for use cases which demand smaller and more frequent, peer-to-peer transactions.


Opcodes Enabled

Alongside the block size increase, it has been mentioned that there are several original Bitcoin blockchain script operation codes (opcodes) that were removed. Expansions of the scripting front will grant BCH developers freedom to extend the functionality of the blockchain.
 
Notably, apart from the 10+ opcodes being greenlighted, the OP_RETURN data carrier size will increase from 80 bytes (the same size currently permitted in BTC) to 220 bytes. In layman terms, an OP_RETURN is essentially an output field in a transaction that allows a user to add extra data to a transaction. For example, a hash of a document could be encoded and added to the OP_RETURN field, allowing you to prove that the document existed in that exact state on the timestamp of that block. The implication of this time-stamping functionality is the possibility for proof-of-existence to be utilized on the BCH blockchain.


OP_GROUP Delayed

Given the controversy surrounding reaching consensus on this particular opcode, OP_GROUP will not be included in this upgrade, although it is planned for November 2018. We still believe it’s worth highlighting the implications of this future enhancement.
 
OP_GROUP seeks to find ways of establishing tokens on the Bitcoin Cash network, similar to the ERC-20 token standard that we are accustomed to on the Ethereum network. Basically, it allows for a satoshi to become a token so that, like ETH tokens, the satoshi can represent all sorts of real-world assets and bring smart contract functionality to the BCH network. Although these tokens would be relatively limited in use compared to Ethereum’s Turing-complete capabilities, it would lay the groundwork for BCH to establish a stronger footing, competing directly with ETH.


Conclusion

Implementing a fork of this magnitude is inherently difficult. You have to ensure that the majority, if not all, of the infrastructure providers such as miners, exchanges, nodes and wallet services, in addition to parties developing the software implementations of BCH including Bitcoin ABC, Bitcoin XT and Bitcoin Unlimited are aligned. We expect price volatility in the lead up and in the aftermath of the afternoon of the 15th - roughly 4pm UTC - as the uncertainty around the fork comes into play.
 
Nevertheless, there is a lot of long-term potential for BCH development as a result of this upgrade. If implemented successfully, investors may take this as a green light to rebalance their portfolio to Bitcoin Cash and this would be reflected in the subsequent price action. However, there are fundamental risks surrounding this upgrade; some hesitation has been expressed in the community regarding the sheer number of new opcodes being reinstated at once. Especially considering there have previously been opcode exploits in Bitcoin’s early days.

If you would like to discuss more, please get in touch.

We are paying close attention to the Bitcoin Cash ecosystem right now as it ventures into this major upgrade in just under a couple of weeks. A number of features will be deployed through this software upgrade. Below are the key proposed changes for BCH in this hard fork and beyond to be mindful of.


32MB Blocks

Likely the most well-known upcoming change is the increase of Bitcoin Cash's block size to 32MB, a quadruple increase from the existing 8MB block size. This block size increase will allow for an increased amount of transactions per block in instances of increased demand. However, the reality is that BCH is currently not utilised enough to see the differences of bigger blocks. Over April, the average block size for BCH was roughly 0.06652817MB. The average monthly BCH block would have to increase 120% in size to even fill an 8MB block; I.e, BCH would need far larger volumes of transactions on its chain before an 8MB block is even fully utilized.
 
An increase in block size will not suddenly give BCH more transaction activity. Instead, this block size increase will allow BCH to handle larger transaction volumes in the future, and shows how BCH can improve accessibility of those using BCH for use cases which demand smaller and more frequent, peer-to-peer transactions.


Opcodes Enabled

Alongside the block size increase, it has been mentioned that there are several original Bitcoin blockchain script operation codes (opcodes) that were removed. Expansions of the scripting front will grant BCH developers freedom to extend the functionality of the blockchain.
 
Notably, apart from the 10+ opcodes being greenlighted, the OP_RETURN data carrier size will increase from 80 bytes (the same size currently permitted in BTC) to 220 bytes. In layman terms, an OP_RETURN is essentially an output field in a transaction that allows a user to add extra data to a transaction. For example, a hash of a document could be encoded and added to the OP_RETURN field, allowing you to prove that the document existed in that exact state on the timestamp of that block. The implication of this time-stamping functionality is the possibility for proof-of-existence to be utilized on the BCH blockchain.


OP_GROUP Delayed

Given the controversy surrounding reaching consensus on this particular opcode, OP_GROUP will not be included in this upgrade, although it is planned for November 2018. We still believe it’s worth highlighting the implications of this future enhancement.
 
OP_GROUP seeks to find ways of establishing tokens on the Bitcoin Cash network, similar to the ERC-20 token standard that we are accustomed to on the Ethereum network. Basically, it allows for a satoshi to become a token so that, like ETH tokens, the satoshi can represent all sorts of real-world assets and bring smart contract functionality to the BCH network. Although these tokens would be relatively limited in use compared to Ethereum’s Turing-complete capabilities, it would lay the groundwork for BCH to establish a stronger footing, competing directly with ETH.


Conclusion

Implementing a fork of this magnitude is inherently difficult. You have to ensure that the majority, if not all, of the infrastructure providers such as miners, exchanges, nodes and wallet services, in addition to parties developing the software implementations of BCH including Bitcoin ABC, Bitcoin XT and Bitcoin Unlimited are aligned. We expect price volatility in the lead up and in the aftermath of the afternoon of the 15th - roughly 4pm UTC - as the uncertainty around the fork comes into play.
 
Nevertheless, there is a lot of long-term potential for BCH development as a result of this upgrade. If implemented successfully, investors may take this as a green light to rebalance their portfolio to Bitcoin Cash and this would be reflected in the subsequent price action. However, there are fundamental risks surrounding this upgrade; some hesitation has been expressed in the community regarding the sheer number of new opcodes being reinstated at once. Especially considering there have previously been opcode exploits in Bitcoin’s early days.

If you would like to discuss more, please get in touch.

This report does not constitute nor shall it be construed as an offer by B2C2 Ltd to buy or sell any particular security, financial instrument or financial service. The analysis provided in this report is of a general nature and is for informational purposes. This report shall not be construed as providing investment advice that is adapted to or appropriate for any particular investment strategy or portfolio. This report does not and shall not be construed as providing any recommendations as to whether it is appropriate for any person or entity to “buy”, “sell” or “hold” a particular investment.

This report does not constitute nor shall it be construed as an offer by B2C2 Ltd to buy or sell any particular security, financial instrument or financial service. The analysis provided in this report is of a general nature and is for informational purposes. This report shall not be construed as providing investment advice that is adapted to or appropriate for any particular investment strategy or portfolio. This report does not and shall not be construed as providing any recommendations as to whether it is appropriate for any person or entity to “buy”, “sell” or “hold” a particular investment.

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