Bitcoin Cash Hard Fork

Back in August, when Bitcoin Cash (BCH) forked from the Bitcoin chain, the developers of BCH implemented various protocol changes including an 8 MB blocksize to facilitate on-chain scaling, a unique transaction signature(SigHash) and an Emergency Difficulty Adjustment(EDA).

The latter, EDA, allowed BCH to frequently adjust the mining difficulty on their chain to make it profitable for miners from the original Bitcoin chain to switch their hashrate and mine BCH given that both chains could be mined with the same ASIC mining hardware. While this did induce miners to switch their hashrate to BCH at times when it was the more profitable to mine and even destabilize Bitcoin to a some extent, inconsistent hashrate caused wildly erratic transaction times as miners switched back and forth between the two chains. This greatly hindered BCH from fulfilling its value proposition as big blockers with faster processing.

To address the situation, BCH carried out a hard fork on Monday to implement a new Difficulty Adjustment Algorithm(DAA) based on a proposal from Bitcoin ABC lead developer Amaury Sechet. Following months of deliberation, the proposal was ultimately chosen as the developers deemed it to be the path of least resistance. BCH team describes the new Difficulty Adjustment Algorithm(DAA) as, “A Responsive Proof-of-Work difficulty adjustment allows miners to migrate from the legacy Bitcoin chain as desired, while providing protection against hashrate fluctuations.”

Further, it was added that the DAA seeks to accomplish the following objectives :

  • Adjust difficulty to hash rate to target a mean block interval of 600 seconds
  • Avoid sudden changes in difficulty when hash rate is fairly stable
  • Adjust difficulty rapidly when hash rate changes rapidly
  • Avoid oscillations from feedback between hash rate and difficulty
  • Be resilient to attacks such as timestamp manipulation

Majority of the nodes on the BCH network have upgraded to the new software making a split highly unlikely. It remains to be seen how effective the changes turn out to be. The downside of BCH network, however, is the expense of running full nodes given an 8 MB blocksize. While bigger blocks may lend to faster processing of transactions in the short-term for a small network, on-chain scaling is unwieldy for a larger network and the expense of running full nodes is highly prohibitive leading to centralized mining, thereby defeating the original value proposition of Bitcoin – decentralization.

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