Researchers Claim Bitcoin Cash (BCH) Investors May Suffer “Largest Losses in Crypto History” Due to Low Hashrate and 1 Year Tax Benefits

  • Research report: “There is declining economic incentive for miners to secure the minority [Bitcoin Cash] BCH network.”
  • Crypto enthusiasts predict BCH investors will soon “face largest losses in crypto history.”

Tuur Demeester, an economist and Bitcoin (BTC) investor, recently stated that Bitcoin Cash (BCH) holders may soon have to pay taxes on their capital gains from crypto investments. Demeester also noted that Bitcoin Cash’s one year anniversary was coming up, but was not sure whether “a massive $BCH selloff is a given.”

In response to Demeester’s tweet, Bitcoin advocate Vijay Boyapati referred to Bitcoin Cash as the “devil’s spawn” and said that many people would be looking to dump their BCH by August 1st, 2018. Notably, Bitcoin Cash was created on August 1st, 2017 via a hard fork of the Bitcoin blockchain because some members of the crypto community were looking to increase Bitcoin’s block size limit, in an attempt to process more transaction per block.

BCH “On The Verge Of Collapsing”

It appears Boyapati is among many other Bitcoin supporters who've been criticizing Bitcoin Cash ever since it has existed. In March, 2018, he stated that Bitcoin Cash is “on the verge of collapsing” and that those who had traded their BTC for BCH would be “facing one of the largest losses in crypto history.” Boyapati also specifically mentioned that Bitcoin Cash advocates Roger Ver and Jihan Wu would face huge losses.

 Meanwhile, Bitcoin enthusiast AwyeeBitcoin commented that the cryptocurrency’s proof-of-work (PoW) based hash rate was now 14x that of Bitcoin Cash (see chart below). AwyeeBitcoin then questioned “how long until exchanges delist BCH due to security risks?” Several other crypto watchers joined the discussion and one user argued that there could be “short term gains” for mining BCH and then trading it for BTC.

BCH BTC Hashrate ComparisonSource: BitInfoCharts

AwyeeBitcoin responded by saying that “a minor fork by 14x carrying $14,000,000,000 of market cap is extremely dangerous for exchanges. If the spread continues to grow the exchanges will be forced to take some precautionary actions.”

“Something’s Going To Have To Give”

Twitter user Wassim || Parallel, a research consultant focusing on decentralized networks, argued that “something’s going to have to give.” That being either “thermodynamic security” (energy-intensive PoW-based network security) or “monetary policy”, according to Wassim.

He also shared an excerpt from a research paper stating that “emission curves of BTC and BCH have already diverged by over seven thousand blocks.” Emission curves are a measure of the rate at which new cryptocurrency is created and circulated.

Due to this significant divergence, the research paper notes that “the BCH blockchain [is expected to] reach its next block subsidy halving much sooner than BTC.” Moreover, the Bitcoin and Bitcoin Cash blockchains both use the same SHA-256 mining algorithm. This is not a favorable scenario for Bitcoin Cash, the research paper argues, because BCH has a much lower hashrate than the Bitcoin network. Due to the low hash rate, “there is declining economic incentive for miners to secure the minority BCH network”, the paper asserts.

“No Fix” For Transaction Malleability On BCH Network

There is presently “no fix” for transaction malleability on the Bitcoin Cash network because it did not adopt SegWit, the research states. Transaction malleability refers to an attack through which malicious entities modify a cryptocurrency transaction just prior to confirmation.

Additionally, in cases where competing cryptocurrency platforms have shared the same PoW mining algorithm, such as Dogecoin and Litecoin, the minority network “is believed to be compromised”, the research paper notes. In order to “preserve decentralization and network sovereignty”, the research suggests that the BCH network could adopt a different and “unique” PoW algorithm, but this would probably not be feasible for an “ASIC-oriented” platform such as Bitcoin Cash.