Why bitcoin cash doesn’t make sense

Giotto De Filippi
Aug 27, 2017 · 3 min read

There is a lot of noise around bitcoin cash, some people think it is the original bitcoin or something like that. I want to dig into the issue and try to understand better the implications of this fork.

First of all SegWit is simply a bug fix for an issue called transaction malleability which has been around for a long time. Saying that someone is “against” SegWit doesn’t make much sense as it’s basically saying that someone is against fixing a bug.

Some people however are against what SegWit enables, which is what is called the lightning network, a way to perform transactions off chain. The argument is that bitcoin was supposed to have all transactions performed on chain so that the history can always be visible to everyone.

I don’t want to enter into the merit of this, as it is more like a political issue at this point. My view is simply that lightning network allows exponential scaling whereas on chain scaling by increasing block size can only allows for linear scaling. So I find it hard to understand why someone would want to limit a technology in its infancy to linear growth if they can get exponential growth.

But what matters is that blockchain technology is always about being permissionless. The implications of permissionless are that the creators of the product cannot decide how it should be used. They create the product, release it to the market, and the market decides for itself how to use the product. So if a technology like lightning network is possible and it is possible to make transactions off chain then why would anyone try to prevent that?

If we really want to philosophically look into what the original vision of Satoshi was, the original vision was certainly that it should be permission less before anything else.

But let’s now look at the economical factors of bitcoin cash. The average bitcoin user doesn’t really support bitcoin cash, bitcoin cash is mostly supported by speculators (I’m not talking opinions here, one simply has to look at the number of transactions on both chains). Also most economic players (payment processors, exchangers, etc.) recognize bitcoin as the original and bitcoin cash as the fork.

The result of this is twofold:
– Bitcoin cash is getting more and more concentrated, users are selling to speculators which decreases its network effect. On the other hand bitcoin is getting more and more distributed which increases its network effect.
– Bitcoin cash is getting more and more “stale”. What do I mean by that? On the day of the fork everyone inherited both coins. However the bitcoin ecosystem only continued operating with the normal bitcoin. That means that when you buy a pair of socks or you pay a developer you’re not going to use bitcoin cash, you’re going to use the normal bitcoin. So over time anyone that has received bitcoin after the fork will only have the main bitcoin and not the bitcoin cash. Wait a few months and it’s very unlikely that anyone is going to support a coin which has been “frozen in time” (outside of pure speculation). Most likely users will always support the coin they have been using to transact, both for sending and receiving.

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Giotto De Filippi

Written by

ICO Advisor

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