What does the September 1 stress test tell us about Bitcoin Cash?

Bitcoin Cash community conducted a stress test on BCH network on September 1, 2018. The goal was ‘to create millions of minimum fee transactions within a 24-hour period’ according to the official announcement on stresstestbitcoin.cash. High volume of minimum fee transactions would ‘prove to merchants and businesses worldwide and also to [the community] that the BCH main network is capable of scaling on chain and […] handling such volume of transactions’. 

As a result, 2.1 million transactions hit the network on September 1. Though, the number of transactions remained short of the 5 million aimed by the community, the Bitcoin Cash network managed to process two thirds of total cryptocurrency transactions on the stress test day.

Meanwhile, the average transaction fee eased to $0.0017 from $0.002 a day earlier.

According to fork.lol, the number of transactions per block reached 31’800, compared with an average of approximately 200 transactions per block during the month of August.

The price of Bitcoin Cash surged by $100 to $638 on the back of the satisfactory network performance. Though, the reversal in overall risk sentiment brought the BCH/USDT back towards the $500 mark in the following week.

The next Bitcoin Cash hard fork is planned to happen in November 2018, aiming to further increase security and reduce the transaction costs.

Currently, the BCH network support 32MB blocks with the perspective of significant increases in the future.

Bitcoin Cash versus Bitcoin

Bitcoin Cash emerged as a result of a hard fork on Bitcoin’s network on August 1, 2017, as a number of developers, investors and users wanted to increase the maximum block size to improve the speed and the scalability of the network, and to reduce the transaction costs which have become too high due to Bitcoin’s limited network capacity. Doing so would clearly favour the use of Bitcoin as digital cash for peer-to-peer transactions in line with Satoshi Nakamoto’s original plan, rather than a digital investment.

But despite offering a cheaper and a faster alternative than its predecessor Bitcoin, the cash inflows into Bitcoin Cash remained timid compared to Bitcoin.

Bitcoin Cash traded up to 0.20+ against Bitcoin between November 2017 and January 2018, as the rush into the cryptocurrency markets spread from Bitcoin to altcoins, pushing the price of many major cryptocurrencies to historical high levels. Bitcoin Cash’s price then eased gradually during the first half of 2018. Today, the BCH/BTC trades below the 0.10 mark.

One possible explanation for the stagnant BCH/BTC value is the general sentiment/behaviour across the cryptocurrency market. Bitcoin, the first and the most famous cryptocurrency, still benefits from the majority of capital inflows into the cryptocurrency market, despite its obsolete technology compared to many altcoins, including Bitcoin Cash.

Meanwhile, the cryptocurrency market is significantly less bullish compared to a year ago. Hence, the initial inflows into Bitcoin do not spread across the altcoins, leaving the altcoin prices stagnant despite their improved technology and features.

This proves us that the cryptocurrency prices are still very much influenced by speculation rather than a fair value assessment based on the features and the capacity of the underlying assets.

Another big problem is that the lack of information often brings investors, especially the finance experts who have the possibility to move the markets, to treat Bitcoin as ‘gold’, which is set to defend its value despite the emergence of alternative assets.

The comparison with gold could be interesting from a historical perspective. However, could this reasoning hold solid when it comes to technology? Bitcoin is due its popularity to the underlying blockchain technology, which offered a world-shattering possibility of creating peer-to-peer transaction networks and bridging economic actors to each other by removing the third-party players and intermediaries. But as any technology, the blockchain requires innovation and regular updates. And the reality is that Bitcoin is left well behind its competitors when it comes to innovation.

It is safe to say that in the absence of improvement, it could be difficult for Bitcoin to defend its leading market position in the future. Hence, Bitcoin Cash, which has derived from the first ever cryptocurrency Bitcoin, could be an interesting alternative for investors willing to migrate towards newer and more performant technologies.

In this respect, we believe that Bitcoin Cash is certainly undervalued against its predecessor and the price correction should happen sooner rather than later. Though, the time and the amplitude of the correction remains very much uncertain given that Bitcoin is still more appealing to cryptocurrency amateurs and first-time crypto-traders.