The Bitcoin Cash (BCH) Hash Wars Led to Large Indirect Losses
A combination of competitive mining on a lower-profitability blockchain, as well as the effect of the split on trading, created heavy losses all around.
Bitcoin Cash (BCH) led to significant losses, either direct or indirect, after the chain branched on November 15. The mining wars themselves generated crypto assets which cost much less than the mining costs, according to rough estimates.
The direct mining losses are relatively small:
Added to this are the still-indefinite losses of the missed opportunities in mining Bitcoin (BTC).
But perhaps the biggest loss was for traders who suddenly saw assets and tickers enter a period of confusion. Before the fork, the most dramatic loss of value happened on OKEx, which decided to terminate futures contracts, and incurred deep losses.
OKEx announced ahead of the fork that the ABC version would be supported. Later, the exchange settled and immediately delivered, instead of continuing trading. On November 15, OKEx was also unresponsive to new orders, as the BCHABC and BCHSV futures fluctuated wildly.
Amber AI, a trading company, estimates the losses at the equivalent of $410 million.
“At around 1am on November 15th, OKEx order submission system then stops functioning. Sellers cannot sell when the market is falling, and buyers can not buy to recover their losses when the market is rallying due to a “Limit Order Bug”. This problem was consistent for both program traders interacting with OKEx via API, as well as for point-and-click manual traders,” explained Tiantian Kullander of Amber AI in an emailed statement to Cryptovest.
The other loss came from the decision of exchanges to award the BCH ticker to the BCHABC hard fork, which immediately corrected the effective BCH price by 40%.
Additionally, within the past week, the BCHSV futures dropped by more than 70%, wiping out the bets made that Dr. Craig Wright’s version would win the hash wars.
While hard forks, even speculative ones, tend to create more active trading and increase investment, a branched network turned out to be problematic. This time, Bitcoin Cash was the guinea pig for how consensus is achieved, but it has happened before. In November 2017, Bitcoin was also close to a situation in which two branched networks could exist in parallel, with the SegWit2X almost starting a similar dispute.