The Fundamentals Team at CryptoEQ recently reevaluated Bitcoin Cash (BCH), also known as BCHN (post-fork) and have determined that over the past several months, the risks involved with holding and transacting in BCH are no longer tenable or justifiable and thus has been downgraded to our lowest ranking of Deficient. A Deficient rating indicates significant risks and/or vulnerabilities associated with a project that outweigh any potential upside from owning the asset.
Read Report: Bitcoin Cash Investor Report >
Analysis Methods
CryptoEQ reviews hundreds of different factors/metrics/parameters across ten Core Categories for evaluating value, potential, and risk for crypto-assets by a human-led team. While simply using data scraping to aggregate on-chain/Github/node count/social media data is quick and helpful, it is but only a small fraction of the total picture. This algorithmic-approach (the popular approach by many of the leading crypto “research firms”) is inadequate, lacking the necessary depth, context, and nuance needed to appropriately evaluate a crypto project. Most things in life are rarely so black and white and the wild, new world of crypto assets is no exception.
For examples of why the data-scraping approach is insufficient, take a look at the examples below and answer for yourself.
- Project X has 25 developers and Project Y has 50. Which one has the “better” overall team?
- Project X has 200 Github commits in the last month while Project Y only has 20? Is Project Y stagnating? Is X gaming the system? Or does Project X having to do 10x the work because their original code was buggy?
- Project X has a staking reward of 10% and Project Y 5%. But what about inflation? Or pay-out times/lock ups? Our underlying currency risk? Is one losing value compared to the other? Which project offers the best risk-adjusted returns?
- Project X has 100 nodes and Project Y has 1000. But are there master nodes? A permissioned system? Same consensus mechanism? What’s the node geographic distribution? The concentration of mining pools?
These are just but a few examples of the problems one must solve to adequately evaluate a crypto asset project. Our goal from day one has been to provide unbiased, high-quality, comprehensive research in order to deliver high signal-to-noise, practical, and impactful information you can immediately use to your advantage. CryptoEQ is a research platform and suite of products that bring a multi-factor, comprehensive framework to the complicated world of crypto but presents it all in an intuitive, user-friendly platform making crypto accessible to all.
We are dedicated to providing accurate cryptocurrency ratings based on risk and quality in order to help investors and institutions to reduce liabilities and make more intelligent financial decisions.
This approach means having to constantly reevaluate blockchains over time as they build, grow, evolve, fork, fizzle out, etc. as new data becomes available. With this mindset and against the backdrop of our original CORE Categories, we are happy to announce a new CORE Rating for Ethereum Classic!
Some high-level bullet points that went into our decision include:
Death by a Million Forks
In November 2018, Bitcoin Cash fork itself - and Bitcoin SV (BSV) was created. Bitcoin SV’s primary reason for its creation was an opposition to a number of scaling upgrades that went into a BCH upgrade. BSV is/was championed by well-known community members Craig Wright and Calvin Ayre.
On November 15, 2020, the Bitcoin Cash blockchain forked again into two chains, BCHA and BCHN, following another controversial network upgrade. Disagreements occurred due to demands by the team behind BCHA to set aside a certain percentage of block rewards for development costs, essentially a “developer’s tax.”
The majority of miners appear to have chosen to allocate hash power and mining efforts towards BCHN . One report suggests that ~85% of hash power has been on the BCHN chain, ~15% have not been signaled, and 0% have been mined on the BCHA chain. Additionally, several major exchanges have chosen not to list the BCHA token. The opposing BCHN fork is still traded on most exchanges and is down ~11% from the pre-split BCH price.
Continual forks lead to a fractured and fragmented community that trends towards zero over time. At this point, the BCHN community is a small fraction of what it once was and there is no reason to believe it won’t fork again and again in the future as more disagreements arise.
The Market has Chosen a Winner
The Bitcoin Cash price peaked on December 20th 2017 at ~$3,785. Since then its value has dropped by ~94% in USD terms. What is even more damning is that BCH is currently trading at all-time lows in BTC terms at around 0.0156 BTC (picture below). This price action clearly indicates that the market values BTC and its store of value properties more than BCH and the trade-offs it made for lower fees.
BCH is an Insecure Chain, Used Very Little
Bitcoin’s hashrate has consistently grown since the second half of 2019 and touched an all-time-highs in 2021 (pictured below). Contrasting this, the Bitcoin Cash hashrate has maintained a slower rate of growth, and the network’s current hashrate is well below its all-time highs touched in September 2017.
In May 2018, the Bitcoin Cash (BCH) protocol quadrupled its block size from 8MB to 32MB. However, current block sizes on Bitcoin Cash are still only a small fraction of the 32MB limit. Even though BCH is built to handle huge numbers of transactions, it is only averaging around 17,000 per day —just 0.0007% of the daily volume it could support with its 32MB block, proving that users do not value the low fees/medium of exchange use case on which BCH is built.
In January 2020, BCH saw no new blocks for five hours and due to low usage, the transaction backlog was cleared without difficulty and normal activity resumed. For comparison, a BTC block on average carries about 2,000 transactions. Blockchair shows that Bitcoin Cash, on the other hand, usually sees up to 500 transactions in a single block. All of this just illustrates how incredibly little the chain is being used.
The cost to conduct a 51% attack on BCH (BitcoinCashABC) is ~$8.5k/hour whereas the same attack on the much more secure BTC chain is ~$715k.
Overall, it is clear that the market has chosen to value BTC over BCH (and any of its forks). BCH was created by a BTC hard fork and has since forked several more times, leading to a smaller and smaller community, security budget, and market price. BCH’s entire premise for existing is based on more transactions and lower fees but as the data shows, almost no one is transacting in BCH. This lack of activity is even more concerning as the crypto markets have seen stablecoin usage 10x over the last year which directly competes with BCH’s medium of exchange value proposition.
