Debunking a Deceitful BCH Claim

The Claim

Let’s break down the claim step-by-step.

Assuming a Static Global Hash Rate

First Order Effects

To illustrate the deceitfulness of this argument, let us use an extreme example. Say 90% of the reward is going to the BCH developers. If BTC/BCH hashing power is split 97%/3% before the reward goes into play, 90% of the miners on BCH immediately leave after the reward goes into play. The hashing power split becomes 99.7%/0.3%. The difficulty on BCH quickly adjusts to allow 0.3% of all SHA256 hashing power to mine a block in 10 minutes. The hashing power on BTC eventually adjusts to allow 99.7% of the total SHA256 hashing power to mine a block in 10 minutes.

Second and Third-order Effects

But there are further, second-order effects here. 3% more miners on the BTC network mean that the profitability has changed and the miners at the margin will now no longer make profit. If all costs and prices stay the same, the miners whose profit margin is less than 3% of the reward will simply stop running their miners. In other words, supply of hashing power will react to the reduced demand.

First-order Security Costs

Furthermore, BCH is paying out the same 6.25 BTC per block for 87.5% of the security as before the dev tax! The BCH network is essentially paying their miners the same amount for less work so they can pay their developers. And who pays for the BCH network? Well, it’s really the holders of BCH. They are the ones whose percentage of BCH is being reduced by the inflation. In a proof-of-work system, the inflation and fees pay for security. And since the fees on BCH are negligible, the cost of the security goes up proportionate to the amount of the tax. The holders of BCH are getting less security for the same dilution.

Conclusion

The cost to BCH is not just “BTC is going to pay for 97% of it”. As I’ve shown there’s a significant amount of costs in security and second order effects. Jiang’s argument is the equivalent of saying if Canada raises taxes, it’s actually the US that pays for most of it. With the logic being that anyone who leaves Canada will go to the US and cause more competition in the US labor markets and that will allow Canadians staying to make that money back. This is theoretically true if examining cherry-picked first-order effects, but those effects are only a small part of all the consequences.

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Jimmy Song

Jimmy Song

Bitcoin Educator, Developer and Entrepreneur. Book: https://amzn.to/2RSlnTb PGP Fingerprint: C1D7 97BE 7D10 5291 228C D70C FAA6 17E3 2679 E455