Bitcoin Splits in Two

By August 18, 2017Bitcoin, Currency

Bitcoin Splits in TwoA feud has forced a “hard fork” for the original altcoin.

There are now two kinds of bitcoin. A governance dispute over how to manage bitcoin transactions has prompted a spinoff of the cyber-currency: bitcoin cash. It went live on August 1, the byproduct of a bitcoin civil war.1

Bitcoin’s underlying technology begged for an upgrade this year. All bitcoin transactions have been conducted on its peer-to-peer blockchain network, which verifies and approves bitcoin payments without the need of any bank or government authority. Lately, that network has had issues, proving too slow for some bitcoin “miners” (users).2

Prior to August 1, each block on the blockchain could hold 1MB of data. That was fine, years ago, but this year, the speed of bitcoin transactions had declined to as slow as three per second, with occasional delays as transactions waited for space on an open block.3

In response, a cadre of bitcoin developers ventured a solution: SegWit2x. This upgrade boosted block capacity to 2MB – but at the same time, it effectively moved bitcoin payment transactions out of the blockchain by integrating second-layer software solutions. That proved a deal breaker for some bitcoin miners, who rapidly developed an alternative software based on the old blockchain platform, with each block getting 8MB capacity.2,3

Because of this feud over SegWit2x, the world now has both bitcoin and bitcoin cash – and a rivalry between two bitcoin networks.

What does this mean for bitcoin investors? Thanks to this split, the bitcoin assets of some investors doubled as August began – yet the value of those assets did not.2

Investors with bitcoin on wallets or exchanges that have approved bitcoin cash have had one unit in bitcoin cash added for every bitcoin they possess. Since the value of bitcoin cash was initially derived from bitcoin’s market cap, however, their bitcoin was poised to lose value roughly equivalent to their gain in bitcoin cash.2

Some major cyber-currency exchanges, such as Coinbase, are so far refusing to support bitcoin cash. Many bitcoin miners are following their lead.2

On August 1, the value of bitcoin fell less than 6% after the introduction of bitcoin cash. That still left the price of a single bitcoin above the $2,700 level. So, the damage was not that bad. Sheffield Clark, CEO of bitcoin ATM network Coinsource, commented that “when we look back thirty days from now, this is essentially going to be a non-event.”4

Arthur Hayes, CEO of bitcoin derivative exchange BitMex, feels bitcoin’s sudden “hard fork” will be a net positive for the digital currency over time. “There are people with billions of dollars of skin in the game and they will ultimately go with the superior bitcoin network and the market will follow,” he told Business Insider on August 1.2


Mr. Carlson may be reached toll free at 866-283-9598 or email john@carlsonwm.com

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Citations

1 – cnet.com/news/bitcoin-cash-splits-in-two-in-blockchain-feud/ [8/1/17]
2 – businessinsider.com/bitcoin-price-fork-happens-2017-8 [8/1/17]
3 – mashable.com/2017/07/31/bitcoin-hard-fork [7/31/17]
4 – marketwatch.com/story/bitcoin-tumbles-as-split-takes-effect-ether-rebounds-2017-08-01 [8/1/17]

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