BCH owners around the world are thinking about the best approach how to deal with the non-negligible risks of the upcoming contentious hard fork. The two camps seem willed to risk owns funds and the funds of all network participants to push their own ideas on the network. A last minute compromise seems highly unlikely at the moment and it’s time to think about your own strategy to reduce your own risk of losing wealth.

 

Both chains have the ability to survive due to BCH’s highly adaptive difficulty adjustment algorithm (DAA). The downside of the DAA is, that it allows the side with most hash power to easily dominate the other chain by constantly reorganizing it and by constantly mining empty blocks, while still being able to mine valid blocks for their own chain.

The lack of native replay protection for transactions makes both chains, their users and services vulnerable to different types of attacks. It’s easy to lose coins while transacting or even if you store you coins on a exchange, which only supports one side of the fork.

 

For example if you just want to send some Bitcoin ABC (ABC) to someone, your transaction will also be valid on Bitcoin Satoshis Vision (BSV) and therefore your BSV coins are also send. So in essence you pay the receiver twice. And the receiver can’t send you only the BSV coins back — even if he wants to cooperate — for the same reason you can’t send him only the ABC coins. Even trying to split Bitcoin ABC coins by using the newly introduced Opcodes OP_CHECKDATASIG and OP_CHECKDATASIGVERIFY was countered by Bitcoin Satoshis Vision by implementing them too, but with a different semantic. The same Opcodes will transfer the coins to the miner of the block in the BSV network. In essence you lose the BSV side of your coin and can’t sell it. Splitting using Opcodes is effectively impossible, if you don’t mine yourself and are required to broadcast your transactions on the network. Another approach to split your coins, would be to mix them with newly created coins (miner reward), but if you don’t mine yourself, you depend on third parties to provide the coins and tools to mix them.

For this reason it’s possible, that BCH will be unusable for commerce and trading for a unforeseeable time frame.

 

As the price of a coin directly influences its hash rate, it’s highly likely, that both camps start to dump coins on the open market and it’s not unlikely, that the price will decline massively. Both camps hold millions of coins and I suspect, that liquidity will be very low during the hash war as most investors are scared to bet on the wrong side.

Let’s examine your options, but you need to decide it yourself, which approach or a mix of them suits you best.

You store your coins in your own wallet

The upside of this approach is the absence of risk of losing coins as you can simply wait until the dust settles. You are able to make your own decision and don’t depend on third party decisions like exchanges or online wallet provider.

 

But your coins are basically trapped until the dust is settled. There is no way to move your funds fast to an exchange or use it to buy something. It’s highly likely, that exchanges will disable deposits and withdrawals for a unforeseeable time frame. The exit will be closed for you.

Also technical skills are required to split your coins on your own and if you don’t know how to do it, you need to wait until someone provides the necessary howto or software to split your coins. During previous forks scammers tried to steal your private keys with the split software. Beware of those scams. If you store your coins on a hardware wallet like Ledger, Trezor you might also need to wait for a software update to split the coins. Trezor announced, that they will not support BSV natively.

In my opinion, this option incurs way too many risks and the dependence on others is high, which could result in financial losses as you could end up as the last one running to the exit, even if it is only for one side of the fork.

You move your coins to exchange(s) before the HF

You should look for a exchange that supports both sides of the split instantly after the fork. This allows you to trade both sides after the split and increases your ability to react according to the development of the situation. It’s also highly advisable to only use a exchange, that clearly states that deposits and withdrawals of BCH will be disabled during hash war, as the lack of proper replay protection might lead to losses of coins and those losses might get socialized between all BCH holders.

This option allows you to sell the one side of the fork, that you don’t support, which may lead to a decent gain, but you also risk to be on the losing side later on. Or you just store them there and you can act, when you deem it necessary.

Selling your coins before the HF

A straight forward way for risk-averse holders is to sell BCH before the hard fork and buy your favorite side back later on, when you deem it safe to buy one side or even both sides back.

The price of both coins will probably fluctuate massively, as selling large amounts of coins as a attack is likely, you might even be able to end up with more coins of both sides afterwards, but you risk to incur some opportunity costs, if your timing is bad and you end up buying coins back at a higher price.

If you want to play it safe, sell your BCH for fiat, withdraw the fiat from the exchange and wait for a good moment to buy it back.

Hedge the (tail) risk

There are a few worst case scenarios to consider.

In case that one side or just a large player with several 100k coins surrenders or rage quits, the winning side pays the cost of their success to the losers by either incurring a huge paper loss as the price drops or by having to buy the coins and risking more money.

If you decided to support just one side of the fork and they lose the war, you lose all your former BCH wealth.

A total wipeout of both chains due to an unforeseen technical f..kup is possible, while highly unlikely.

It’s reasonable to take some chips of the table before the hard fork to hedge your bets. You might just go into USD or into BTC, as the value of BTC will likely surge, if there are unforeseen problems or the chain is unusable for a long time period. Other competing payment coins like Litecoin or even Doge might also gain value, if BCH is severely hit by the consequences of the fork.

Experienced traders might even use the ABC/BSV future rate as a metric to hedge their positions with appropriate leverage.

Do nothing and hope for a smooth split

Nothing to add here.