Last week, Bitcoin Cash (BCH), which forked from the original chain during 2017, underwent its milestone first block halving.
Notably, halvings are preceded or succeeded by a dramatic price movement. However, in the case of BCH, the event was a resounding disappointment. Since the halving, the price of the fifth largest cryptocurrency by market cap has collapsed by approximately 20% from $280 to $223 at the time of writing.
50% reduction in block reward
The halving, a scarcity mechanism which aims to make each BCH unit more valuable, slashed the amount of BCH rewarded to miners for verifying transactions from 12.5 coins per block to 6.25.
As noted by Marti Greenspan, founder of think tank Quantum Economics, the instant 50% drop in miner revenue forced operators running on tight margins to switch off their machines or mine more profitable coins which share the same algorithm.
Recent data shows that it’s almost 57% more profitable for miners to mine on the actual Bitcoin blockchain. Given that miners are profit driven, many of them have jumped ship.
BCH could face 51% attack due to faltering hashrate
The mass exodus of miners has radically reduced the hash power of the BCH blockchain network, rendering it more susceptible to a 51% attack.
The rule of thumb is that higher the hashrate, the harder it is to sabotage the network. Additionally, the mining hashrate is also a good measure of the general health of the network (the higher the hashrate, the more miners there are and ultimately, the more interest there is).
Post-halving, BCH has struggled with its mining hashrate which dropped from 3.5 EH/s to 1.4 EH/s in just 24 hours – lows not seen since December 2018. The hashrate has since recovered slightly and is now hovering at around 2100 Ph/S. However, it still remains a far cry from the peaks seen at the start of the year. To launch a 51% attack on BCH currently costs less than $10,000 per hour, raising serious concerns regarding the security of the network.
Unfortunately for Bitcoin Cash, its halving came at a time when markets were in the midst of a black swan event. Much like most cryptocurrencies and global financial markets, BCH has been in a state of decline since February 2020 and during the flash crash of March 12, its price saw a dramatic tumble from $350 to $145.
With Bitcoin Cash currently bogged down fighting for its survival, much of its price action will depend on whether the network can attract miners to return following the forthcoming Bitcoin halving next month – undoubtedly the most anticipated event in the crypto ecosystem.
Naturally, the wider crypto community is now speculating whether the decline in the BCH hashrate is a sign of things to come for Bitcoin’s halving. Recent media reports for the most part suggest that sentiment remains bullish for BTC.
Even with a health pandemic dominating headlines and capturing public attention globally, the Bitcoin halving continues to command interest. On 14 April, data from Google Trends depicted that interest in the forthcoming halving cracked a new all-time high – 16% higher than back in 2016, the last time the event occurred on the network. Many pundits have commented that the top cryptocurrency has reached a key point in its history where even governments and traditional financial institutions are now paying close attention.
However, as it stands, neither traditional markets nor cryptocurrencies are out of the woods just yet. JP Morgan recently forecast that the US GDP could shrink 40% in Q2 at an annualised rate, and unemployment to hit 20% by the end of the month.
Bitcoin investors would be wise to brace for further shocks in the run-up to the Bitcoin halving, as well as the months ahead.
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