Cryptocurrency in Focus: Bitcoin Cash Gets Bit by Tax Controversy

Offshoot of the famed Bitcoin, BCH sees backlash from proposal to fund development.
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Bitcoin Cash -- a leading cryptocurrency and offshoot of the famed Bitcoin  (BTSC)  -- is under big controversy. 

The Bitcoin Cash protocol -- and its currency BCH -- saw its largest mining pool propose a high tax on block rewards to fund development. Now an anonymous group is trying to shoot down the plan. 

First, the Backstory, Bit by Bit

Created by a so-called hard fork -- or split -- of the Bitcoin protocol during the summer of 2017, Bitcoin Cash is now the fourth-largest cryptocurrency by market capitalization.

The project itself implemented several more hard fork upgrades, some of which led to even more splits in the network and new cryptocurrencies. Most notably, in November 2018 Bitcoin Cash split into Bitcoin ABC (the original Bitcoin Cash) and Bitcoin SV (Satoshi Vision). A hard fork involves an upgrade of a blockchain network that can incorporate major changes to the protocol, such as the branching off of a sister blockchain. 

But just days ago a group known as -- a private Chinese network of miners, and the largest BCH mining pool to date -- said it plans to impose a six-month mining tax to support BCH infrastructure development. At BCH’s current price of $300, this tax would represent a $6 million investment.

Until this proposal, BCH block rewards were owned by the miner who discovered them, but this plan would send 12.5% of the rewards to a Hong Kong corporation that would disperse the funds. A failure to pay will lead to block orphaning -- which would mean they're off the main chain.

In a new twist, however, an anonymous group of BCH miners released a statement in which they threatened to create their own chain if did not reconsider its tax proposal by May 15. stepped in to assert that it would not support any new plans until broader consensus was reached, which helped calm the situation. The anonymous group agreed to refrain from starting its own competing pool for now. 

BCH Scores

BCH FCAS has climbed 14-points since the beginning of the year. Price is up 79.56% over the same time period.

FCAS is up 15-points (1.72%)

User Activity is up 11-points (1.25%)

Developer Behavior is up 10-points (1.31%)

Market Maturity is up 46-points (5.65%) 


Our Hot Take

Developer funding is a difficult challenge for many Layer 1 protocols. Just this week, Charlie Lee, the founder of Litecoin, proposed a voluntary 1% tax on block rewards to fund infrastructure development. LTC’s announcement was well-timed, sliding in just after Bitcoin Cash’s higher mandatory tax hit the crypto newswire thus minimizing some of the negative backlash with its comparatively modest tax proposal.

There is an inevitable trade off that arises in open-sourced protocols, between miners’ profits and developer funding. Forking has become a common threat used in the Bitcoin community when disagreements arise, and yet as highlights, every time there is a split the network takes a hit and the chain loses influence. It will be interesting to see how Bitcoin Cash’s community finds consensus on the issue, considering its few rivaling centers of influence. 

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