Chain Split Tokens explained

21 Mar 2017

Bitfinex and the hard fork

Following the growing interest in the scaling proposal, Bitcoin Unlimited and the prospect of an eventual hard-fork, exchanges are getting ready for such an event. Most exchanges have already issued their statements regarding the possibility of an hard-fork. Bitfinex, however, has gone a step further and has decided to lighten up the mood by making a “game” out of the possible hard-fork.

Much like a prediction market, Bitfinex has introduced Chain Split Tokens (CSTs), which, according to Bitinex is “the first such product of its kind”. These CSTs allow Bitfinex customers to speculate on the future fork (or lack of it), so if you’re a gambler or you just have a really strong feeling/theory regarding the upcoming event surrounding a Bitcoin hard fork, then these tokens may be just the thing for you.

Chain Split Tokens

There are two Chain Split Tokens and each one represents a certain outcome. There is BCU and BCC. BCU represents Bitcoin Unlimted and BCC represents Bitcoin Core, the predominant Bitcoin client.

Bitfinex users are able to recieve these tokens by either purchasing them on the USD or BTC market or by splitting their Bitcoins into two through the Token Manager (located in the Order Type drop down menu of the sidebar order ticket). Through the same Token Manager, you will be able to reverse this process at anytime, trading in equal numbers of BCC and BCU to extract BTC.

These CSTs will exist until December 31, 2017 or until there is an hard fork, whichever happens first. In the event of the Bitcoin Unlimited hard fork, the exchange will add Bitcoin Unlimited and credit the tokens from that blockchain on a 1-1 scale for each BCU held by users. BCC tokens will also be replaced with tokens from the original (unforked) Bitcoin Core chain.

This means that if an hard fork occurs and you have Bitcoin Unlimited tokens only, you will receive tokens from one chain only. If you’re betting on the hard fork to happen, you can buy BCU tokens only. Currently, the market considers the hard-fork outcome to be less likely and as such BCU tokens currently have a market price of 0.2199. This means that, if an hard fork does take place, you can get up to 4.5 Bitcoin Unlimited tokens for the price of 1 BTC, while keeping BTC in your wallet (outside of the exchange) would only allow you to receive 1 Bitcoin Unlimited token and 1 Bitcoin Core token.

If you have split your Bitcoin equally and kept both BCU and BCC tokens, this would mean that both tokens would be credited, just like they would if you had a wallet with Bitcoin at the time of the fork (the same thing happened with ETH and ETC)

In the event of an hard-fork not taking place until December 31, 2017, BCC tokens will be replaced by normal Bitcoin and the BU tokens will be destroyed.

Possible Outcomes

So, let’s run through a few scenarios. The prices will vary throughout the day, but the scenarios would remain the same. The changing prices can be viewed as the odds of the event happening/not happening just like they would on a prediction market.

The scenarios below are in comparison to leaving your Bitcoin on your wallet. If you do so, you will be credited with one token on each chain for each Bitcoin you own. This is because a fork is basically a seperation between two chains that were once one. This means that both blockchains have the same history up until the fork (same address, transactions, balances) and any wallet with BTC before the fork will have BTC in both blockchains after the fork.

I have one Bitcoin and I split it for 1 BCU  and 1 BCC token.

If the hard fork takes place, I will receive 1 Bitcoin Unlimited token and 1 Bitcoin Core token.

Nothing has been gained or lost.

 

I have one Bitcoin and I split it for 1 BCU  and 1 BCC token.

If no hard fork takes place, I will receive a normal Bitcoin.

Nothing has been gained or lost.

 

I have one Bitcoin and I buy 4.547 BCU tokens for 0.2199.

If the hard fork takes place, I will recieve 4.57 Bitcoin Unlimited tokens only.

I will gain 3.57 Bitcoin Unlimited tokens but I’ll miss out on 1 Bitcoin Core token.

 

I have one Bitcoin and I buy 4.547 BCU tokens for 0.2199.

If no hard fork takes place, I will recieve nothing.

I lost my whole Bitcoin and got nothing in return.

 

I have one Bitcoin and I buy 1.313 BCC tokens for 0.7614.

If the hard fork takes place, I will recieve 1.313 Bitcoin Core tokens only.

I will gain 0.313 Bitcoin Core tokens but I’ll miss out on 1 Bitcoin Unlimited token.

 

I have one Bitcoin and I buy 1.313 BCC tokens for 0.7614.

If no hard fork takes place, I will receive 1.313 Bitcoin.

I will gain 0.313 Bitcoins.

 

We can see that the situation where there is a bigger risk is holding Bitcoin Unlimited tokens only. It is unclear which scenario would be the most rewarding, as it is not certain which prices these tokens would have (BTC and Bitcoin Unlimited) after an hard fork takes place. But with the data we have, the most profitable position would be to buy BCC tokens and being rewarded with extra Bitcoin if the fork does not happen.

So, if you have a strong opinion regarding the upcoming split, you can try to profit from it! Good luck.

Comments
CryptoCompare needs a newer browser in order to work.
Please use one of the browsers below: