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On September 26, 2018, Bitmain Technologies Ltd. filed for its initial public offering (IPO) in Hong Kong with a goal of raising US$3billion from conventional investors. In the days following the publishing of the prospectus for the IPO, the price of Bitcoin Cash (BCH) short up by about 20%.
It turns out Bitmain going public is good news for the cryptocurrency that forked off Bitcoin in August 1 2017.
But why?
What relationship exists between Bitmain and Bitcoin Cash?
Bitmain is the world’s largest manufacturer ASIC chips for mining cryptocurrencies. The company also manages some of the biggest Bitcoin mining operations in China, where it is incorporated, Europe, Canada and the United States.
The price shoot up after the release of the IPO prospectus could be an indication that how investors receive the IPO will influence the value of Bitcoin Cash. If investors give Bitmain a great reception by giving it money to the tune of its target then the price of BCH might push a little higher up.
The link between Bitmain and Bitcoin Cash is hugely nostalgic at this point. The beginning of Bitcoin Cash cannot be explained without the mention of Bitmain. The relationship between the two is a by-product of the difficult process scaling Bitcoin has been over the years.
The Bitcoin scaling civil war
In 2017, as the Bitcoin scaling debate raged, two opposing groups formed.
One comprised of those in the Bitcoin community who believed increasing the capacity of Bitcoin was to be found in increasing the block size—the batch of transaction confirmed after every ten minutes.
The Bitcoin block size is capped at 1MB, and that translates to about seven transactions confirmed per second. Those who support increasing the block size have been described as ‘big blockers.’
The other group comprised those who believed the path to scaling Bitcoin was to reduce the amount of data from each transaction that goes into a block. That translates to the block accommodating more transactions. The technical solution to implement this is refer to as Segregated Witness (SegWit).
The big blockers and SegWit supporters took strong stands and held ground against each other. It soon proved difficult to find a middle ground. An attempt to find a middle ground was made though.
At a meeting in New York in May 2017, industry players, in particular Bitcoin companies, miners and developers agreed to implement both solutions and signed what came to be known as the New York Agreement (NYA).
According to the signed declaration, SegWit would be adopted by August that year and the block size increase would be implemented a few months later. It seemed like a win-win arrangement.
But was it?
The agreement did not see the light of day. Hardliners in the SegWit group rejected it on the basis that it was an attempt by private companies to take over the Bitcoin project. To push for the implementation of SegWit without the increase of the block size, they launched what came to be known as the user activates soft fork (UASF).
In essence, they implemented an upgrade to the Bitcoin core software that would count invalid blocks by miners that did not signal support for SegWit. They chose August 1 as the deadline for miners to show support.
The birth of Bitcoin Cash
This is the point at which Bitmain took a frontline stand against UASF and started a chain of events that led to the birth of Bitcoin Cash. The company led a counter movement dubbed user activated hard fork (UAHF). The goal was to increase the Bitcoin block size on August 1st as the UASF activated.
Bitmain helped and supported the development of the necessary code. More importantly, it offered to mine on the chain with bigger blocks even if the other miners capitulated to the demands of the UASF movement.
And, indeed, come August 1st, UASF actualized their threat but at that time most miners had complied and signalled support for SegWit. But Bitmain too, with the support of a few other miners and developers, implemented it plans and Bitcoin Cash was born as a fork of Bitcoin.
Much of Bitmain’s support for Bitcoin Cash has come through ViaBTC, a mining pool platform and a wallet service it helped set up.
Despite a lot of disapproval from many in the Bitcoin community, Bitcoin Cash has grown to be one of the biggest cryptocurrencies. Its market capitalization is close to US$10 billion and often ranks in the top five on the CoinMarketCap.com.
Because of the leading role Bitmain played in the forking of Bitcoin Cash from Bitcoin, many see the company as the force behind the altcoin. And this has translated to news about the company affecting the price of Bitcoin Cash.
It is important to note however that at this point Bitcoin Cash can be considered to have outgrown the Bitmain shadow. It is an independent open source project whose development is in the hands of a growing community.
For example, a look at pools involved with mining Bitcoin Cash shows that Bitmain through ViaBTC controls not more than 13% of the mining operations. There are now other major mining pools behind Bitcoin Cash including BTC.top with 17.1% of the hashrate, Antpool with 9.9% and BTC.com with 9.7%.
There are also major personalities who support the project including, of course, Bitmain’s co-founder and CEO Jihan Wu. Others are Roger Ver, a Bitcoin evangelist who has turned against it, and Craig Wright, an Australian mathematician and computer scientist who has claimed to be Satoshi Nakamoto, the founder of Bitcoin.
Back to the surge of the price of Bitcoin Cash at the announcement of Bitmain putting plans in place to launch an IPO.
While the connection between Bitmain and Bitcoin Cash might be hugely sentimental at this point, we cannot dismiss the influence the former might have on the price of the latter.
If Bitmain’s IPO turns out well, the price of Bitcoin Cash is likely to shoot up as investors will get a dose of confidence in the project.
