Bitcoin Splits into Bitcoin and Bitcoin Cash
Popular cryptocurrency Bitcoin has split in two different, competing currencies. A software update on August 1, shortly after 8:00 AM EST, caused a fork in the proverbial “road” made up by the digital currency’s transaction record. The new currency is called Bitcoin Cash. Here’s what you need to know about the split.
What Does it Mean for a Cryptocurrency to “Split”
Cryptocurrencies use a public ledger of the entire history of transactions called a blockchain. When a currency splits, also known as a hard fork, the transaction history goes in two different directions from one divergent point.
So up to July 31, 2017, Bitcoin and the newly minted Bitcoin Cash both have the same record of transactions, and from August 1 moving forward they will maintain two separate records of transactions or blockchains.
The split isn’t without precedent. In July 2016 users of fellow cryptocurrency network, Ethereum voted with an overwhelming 97% to split the currency with a hard fork that would revise a $10 million plus heist of ether, the Ethereum network’s currency. It was successful but similar to what just days ago happened with Bitcoin when there was a minority who voted against it and implemented their own software update.
Why the Split Occurred
Cryptocurrencies are administered by software run democratically by community effort. Occasionally, a software update becomes necessary and the community, democratically and transparently, implements a software update to improve the underlying protocol.
The latest software update has been contentious, to say the least: two main factions within the Bitcoin community have been at odds to agree on what direction to take the digital currency in for more than two years.
One group believes that the maximum block size (the discrete groups of transactions known as blocks are what make up the blockchain), currently limited to a single megabyte, needs to be increased to accommodate faster and more numerous transactions. The other faction asserts that the small block size is an intentional hedge against the Bitcoin economy being dominated by a select few large-scale players.
Although a deal was brokered that united most of the two factions, a small portion of the big block group decided the deal did not go far enough. They decided to go ahead with their own software update in order to increase the block size by eight times. This resulted in the new Bitcoin Cash currency that shares the same transaction history with Bitcoin up to July 31, but will be incompatible with it going forward.
What the Split Means for You
The biggest impact the split will have will be on current holders of Bitcoin. Anyone owning any amount of Bitcoin will now own the same amount of Bitcoin Cash as well. The value of the two won’t necessarily go up, as Bitcoin Cash siphoned off its initial value from Bitcoin’s market value.
Not all digital currency exchanges are supporting Bitcoin Cash, yet. The incentive hasn’t been made plain yet, by market forces and valuation, but as the future of Bitcoin Cash becomes clearer, most exchanges will likely implement support for the currency.
One of the largest digital currency exchanges, Coinbase, announced ahead of the split they would not support Bitcoin Cash and lost many users for it, but they remain steadfast in their support of Bitcoin and stand by their decision.
Despite Coinbase’s reluctance to embrace the new currency, there are numerous exchanges that are fully supporting the new currency and stand to gain substantially in users.
Which One Should You Use?
I believe Bitcoin and Bitcoin Cash are going to both be strong forces in the cryptocurrency world in the future. Bitcoin, with its impenetrable security and idealistic democratic governance, will be a long-term investment, akin to gold or timber, something to buy and hold onto for its appreciation.
Bitcoin Cash, on the other hand, will likely become the digital currency used for quick, everyday transactions. Extremely fast transaction times and a greatly increased capacity for transactions make Bitcoin Cash ideal for, say, buying your morning coffee, paying for a subway, or bus ride.
The bottom line is that the market will ultimately determine what’s to become of the two currencies. If they can work together to be the dominant digital currencies, they could be a force to be reckoned with. If not, Bitcoin may go the way of the dinosaurs with its slow transaction speeds. Only time can tell.
But one thing is for certain. Digital currency isn’t going anywhere and has already changed the world. And according to certain personalities in the investment world, it may be poised to explode into one of the most valuable securities in the world.
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