When a particular group of miners agreed to go through with the Bitcoin’s fork on August 1st, you got a brand new coin: Bitcoin Cash!
How is it different from Bitcoin?
- Larger block size (8MB)
- Different transaction signature
- Replay and wipeout protection
- PoW (Proof of Work) difficulty adjustment happens quickly
“REQ-7 Difficulty adjustment in case of hashrate drop
In case the MTP of the tip of the chain is 12h or more after the MTP 6 block before the tip, the proof of work target is increased by a quarter, or 25%, which corresponds to a difficulty reduction of 20% .
RATIONALE: The hashrate supporting the chain is dependent on market price and hard to predict. In order to make sure the chain remains viable no matter what difficulty needs to adjust down in case of abrupt hashrate drop.” (from https://bitcointalk.org/index.php?topic=2040221)
And here’s the explanation
- MTP is Median Time Past and represents the timestamp of the middle block in a series of 11 blocks (the 6th one)
- MTP of the tip, take the middle block of the LAST 11 blocks (chronologically ordered)
- After each mined block, you’re having a new calculated MTP to compare with the current block timestamp. IF the difference between the two is greater than 12 hours the difficulty is reduced by 20%.
Every time this happens, miners will be able to find blocks 20% easier.
This is a Games of Miners. They WANT to create this gaps to get the difficulty down, while they’re getting profits too.
Sounds exciting, right?
But, why Bitcoin should care?
After forking, technologically speaking, both coins could be mined with the same hardware at the same difficulty, while Bitcoin’s price was 8 times higher. Who would switch over? If there isn’t somebody who has any affinity for Bitcoin Cash or want to burn his cash, nobody.
12 hours gaps kept creating while the Bitcoin Cash price went up (for some, it felt like a good investment) until, currently, Bitcoin Cash is 80% more profitable for miners than Bitcoin (https://cash.coin.dance/blocks)
More than 20% of miners followed the money and switched their mining power to Bitcoin Cash.
When miners leave, Bitcoin transactions get slower and more expensive. Fortunately, Bitcoin has more miners than it needs. So, the 20% didn’t have a major impact. But what happens if more and more people move over?
That could be bad news for Bitcoin.
But that’s less likely to happen because the difficulty adjustment rule is a double edged sword. Finding blocks at a FASTER rate will bring the difficulty back up.
This happens right while we’re speaking. Because so many miners moved so quickly to grab the extra profits provided by Bitcoin Cash, in approximately 100 blocks Bitcoin will regain its place as the most profitable between the two.
While these ping-pong movements seem like miners problem, it directly affects the price of both coins which ultimately affects your investments too. The dust will settle only when one of them will get a significant difference in price and mining difficulty, and you can guess which is most likely to go up and which down. Place your bets accordingly!