I want to know the effect of Bitcoin Cash's Emergency Difficulty Adjustment (EDA) on Bitcoin (BTC) and Bitcoin Cash (BCH). The discussions between BCH fans and BTC fans are quite polarised and there's a lot of insults going around. It is hard to get a handle of what is really going on.
So what are at we to do if we just need to get real clarity? Let's look at the data. Specifically how is the EDA affecting the mempools of BTC and the hashrates. Why are these two important? They are important because the Mempool is a measure of congestion in the BTC network and hashrates measure the processing power of a network generated by its miners.
What we can see here is that as BCH's EDA increases, miners mine BTC but when it decreases, they mine BCH. Seemingly, in its short history, BCHs EDA seems to favour BCH longer than BTC.
When miners go to BTC, BCH's transactions get delayed but are pretty much processed quickly the next time the EDA reduces.
On the BTC network, this is not the case. Let's look at BTC's mempool.
As we can see, there are moments when BCHs EDA setting favours BTC. Miners are able to reduce the backlog of transactions but never far enough before the miners go back to mining BCH again. If this continues, we can expect the backlog of transactions in the BTC network to keep increasing as well as its transaction fees.
The implication of the two pieces of data above are:
- Because of BCH's EDA, miners flip flop from mining BCHs and BTCs.
- The BCH's network slows down when there's not enough miners on the network but when the miners come back, any transactions are processed straight away.
- We can see that BTC's network is struggling to process a majority of its transactions even during those moments when miners return from having mined BCH. This can result in an increasing backlog of transactions. This increases fees.
It is not clear when this pattern is going to break. Bitcoin's difficulty adjustments takes a long time to adjust and they cannot change it unless they do a hard fork. Segwit and Lightning Network are still not speeding up transactions. We still do not know when they will. Lighting Network is still being tested at the moment. So long as these conditions exists, it can trigger a sell off of Bitcoins in exchange for Bitcoin Cash, or other cryptocurrencies. This can then be the catalyst for the Bitcoin Death Spiral discussed in my earlier article.
These sets of conditions therefore favours BCH. There is a lot of reasons why users and merchants would want to start using BCH namely cheaper fees and faster transactions. There is also a lot of reasons why, given the current conditions, traders and investors may see Bitcoin Cash as an undervalued project. It is essentially similar to BTC in most respects and yet, why is it now around $600 only when it's struggling clone is valued at around $4000?