So Bitcoin Forked and now we all wait to see what happens over the next few weeks.
As forecast in previous posts Bitcoin forked yesterday, August 1 creating Bitcoin Cash – an alternative version of bitcoin with its own rules and blockchain.
The split, called a “hard fork,” comes out of a bitcoin group’s desire to combat high transaction fees and a bitcoin size limit that made mining larger blocks invalid.
Just to recap – all bitcoin transactions are recorded by a ledger, generally known as the blockchain, which is run by groups of people who are nominated ‘miners’.
The fork is essentially a divergence in the bitcoin blockchain.
When Bitcoin forked it created two sets of tokens: bitcoin on the original chain and bitcoin cash on the new blockchain.
Depending on who you had your Bitcoins with would mean that you would keep your existing bitcoins, and also be able to have matched Bitcoin Cash as well at the point when the fork took place.
A good analogy I saw was by Dr Garrick Hileman, a research fellow at the Cambridge Centre for Alternative Finance.
He compared Bitcoin to a tree – and Bitcoin Cash to an offshoot…
On Tuesday, he said:
“That bitcoin tree is going to continue to grow like nothing happened today.
It’s like a shoot has dropped off and is growing into a new tree.”
A group of existing bitcoin users and companies launched bitcoin cash in a bid to increase transaction capacity.
What will happen now after the bitcoin fork?
If you own Bitcoin and control your private keys, the same private keys can be used to spend your newly minted Bitcoin Cash.
If Bitcoin Cash is embraced by more users than the small band of followers, it is possible it could become a serious contender in the cryptocurrency space.
If all that happens is that Bitcoin Cash is used to by traders looking to make a profit and then dumped – then lack of support of that blockchain could see it simply wither away.
Bitcoin Cash will only have value if traders use it.
The price of the Bitcoin Cash token will depend on which exchanges allow trading on it and whether users decide to sell, buy or hold it.
So why is the technology changing?
Bitcoin is now almost a decade old and is struggling to cope with a recent surge in popularity that has seen its price jump from about £750 at the start of the year 2017 to over £2,500 now.
This has led to a sharp rise in the number of bitcoin transactions that the existing technology is struggling to cope with.
Bitcoin transactions are completed when a “block” is added to the blockchain database that underpins the currency.
The trouble is blocks are limited at the moment to 1MB every 10 minutes – or seven transactions per second.
Compare this with 2,000 transactions per second for Visa..
It means that at peak times- Bitcoin transactions can take HOURS to be fulfilled, inhibiting the currency.
There are two main rival proposals – Segwit2x and Bitcoin Cash.
They are both seeking to solve this problem in different ways.
Proposes moving some of bitcoin’s transaction data outside of the block and on to a parallel track to allow more transactions to take place.
After that happens, blocks would double in size some time in November.
Before Bitcoin forked, Segwit2x had been adopted by enough of the bitcoin community to proceed.
In more recent days some have signaled their support for Bitcoin Cash because they believe the the other proposals do not go far enough.
Bitcoin Cash does not propose moving transaction data outside of each block, but wants to increase the size of each to 8MB.
Supporters believe that the Segwit2x plan will not be followed through with doubling the block size later on.
Now we have seen Bitcoin forked, it is hard to predict how long the alternative version of bitcoin will survive and if Bitcoin Cash will have future market value.
The next few weeks will be interesting as crypto currency politics bite..