Bitcoin Splits in Two Over Harsh Dispute
Bitcoin, the virtual currency based on peer-to-peer transactions, has split into two entities. Arguments regarding how to operate the cryptocurrency have led to a new branch called Bitcoin Cash (BTC), which launched Tuesday. It's being dubbed a "hard fork" from bitcoin. Bitcoin.org warned last month of a potential split if agreement could not be reached on efforts to help Bitcoin scale up better. Making the Bitcoin network faster and more efficient involves multiple trains of thoughts and their accompanying proposals on how to execute them.
The initiative was spearheaded by a group of mostly Chinese bitcoin miners - coders who essentially operate the bitcoin network - who were not happy with scheduled improvements to the currency's technology meant to increase its ability to process transactions. Bitcoin’s systems have been threatened by a recent spike in popularity, having its value jump to over $2,697, from around $997 at the start of the year. As transaction levels increase, the currency has run up against limitations in its ability to process payments in an efficient, fast manner.
Bitcoin only allows one megabyte of data to be added to its ledger of asset ownership, the blockchain, every 10 minutes - a restriction that has caused major delays and higher fees as transaction levels increase. While the efforts of supporters of the new cryptocurrency are strong, there are a much larger part of the market that are not supportive of the new forked currency.
Bitcoin's split has created a new competitor to the original digital currency, which remains the oldest and most valuable in circulation. Many players in the crypto-market are hesitant to get on board. A few have plainly said they will not participate while others leave it open stating that they will wait out the volatility and see where Bitcoin Cash stands before making concrete decisions.
As a prelude to the split, Bitcoin trading platforms like CEX.io suspended Bitcoin withdrawals beforehand. CEX.io will allow both cryptocurrencies and split the coins for its customers. CEX.io chief marketing officer Eugene Kovalyk says, “Whether we will list Bitcoin Cash as a new trading pair depends on the demand. If demand is big we should consider adding it definitely...No one should lose Bitcoin Cash on our platform.”
Meanwhile, the world’s most popular cryptocurrency exchange, Coinbase, has rejected the new Bitcoin Cash to some customers’ chagrin. It argues that their systems can’t support Bitcoin Cash without a major system rework that is currently not worth the unknown value of Bitcoin Cash.
But just because some of the big entities are not behind Bitcoin Cash, doesn't necessarily mean Bitcoin Cash will be a flop or that it couldn't eventually out-do the original bitcoin. Coin miners may rally behind bitcoin cash if it turns out to be the better digital currency. Once the miners are on board, the big exchanges will be forces to take notice and appease their 'demand' side of things. That's not to say that the larger exchanges would not have already been prepared to implement the new currency. Most likely, by the time the miners are confident enough to tackle Bitcoin Cash, so will the exchanges.
Forks of this kind pose “a risk for users of the cryptocurrency during the transition phase. In the event that only a minority of the network computing power supports one of the branches there is a potential for this weaker branch to become orphaned by the network or, in certain circumstances, for the forks to converge resulting in the ‘wipe out’ of the weaker branch,” said Christian Kourtis, senior associate at Gowling WLG, a law firm that specializes in financial technologies.
Looking back 30 days from now, I believe, this event and the price volatility will be looked upon as a non-event. So settle down and keep your finger on the pulse.
Having two separate Bitcoins shouldn’t really pose too much of a problem for regular investors, as the respective currencies may have different characteristics and their price will start moving independently fairly quickly.
Whether there will be an eventual currency that comes out on top will depend on how the changes play out in practice and for that, we will have to wait and see. Keep an eye on the rates of both currencies as they could become quite volatile in the coming weeks.