Bitcoin, a digital currency valued at $ 43 billion, is in an unknown and potentially risky territory after a split on Tuesday created two versions: the original Bitcoin, which has existed since 2008, and the new Bitcoin Cash, the one to represent a more populist alternative.
The split on the network was triggered on Tuesday afternoon (all times EST) when an upstart group of Bitcoiners pushed the button on a “hard fork” – an unprecedented event in Bitcoin history that the majority of the community had tried to prevent for two years . A week ago, the possibility of a split seemed to have been completely avoided.
The fork was scheduled for Tuesday morning, and Bitcoiners eagerly awaited the split. Due to some quirks of Bitcoin, the event actually happened six hours later. The hard fork was marked at 2:20 pm by creating an initial “block” of transaction data for Bitcoin Cash: almost two megabytes in size. Bitcoin blocks are limited to one megabyte, and Bitcoin Cash can support up to eight. Larger block sizes are the main difference between the two virtual currencies and the impetus for splitting them. A second vanity block was quickly added to the chain and included the phrase “Hello World”.
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Now there are two nearly identical versions of Bitcoin, each with their own rules and die-hard followers. Everyone who owns Bitcoin has automatically received the same amount in Bitcoin Cash, and this brand new currency is struggling to survive.
Bitcoin’s price fell by $ 200 to around $ 2,700 per coin before the split, but at the time of our release, the currency is chugging along. Bitcoin Cash, on the other hand, is extremely volatile, but shows signs of life. Before Bitcoin Cash was created with the opening block, the popular Kraken cryptocurrency exchange credited customer accounts with the currency and allowed trading. Basically, IOUs are issued. In about 10 minutes of trading, the imaginary price of Bitcoin Cash plummeted from $ 400 to $ 140. It seemed bad, but immediately after the fork the price rebounded to $ 200.
Bitcoin Cash’s success is largely in the hands of “miners” who run server farms to create the blocks that support the Bitcoin network. It is currently unclear how many Bitcoin miners have switched to Bitcoin Cash, but it only appears to be a fraction. By the time it took Bitcoin Cash miners to create a single block of transaction data for their public ledger, Bitcoin had created dozens of its own, which could suggest that Bitcoin Cash lacks the power to take over Bitcoin.
The split is a last-minute twist in a two-year debate that turned the Bitcoin community into warring camps. The “civil war” as some called it revolved around the question of how best to change Bitcoin so that more people can handle it without slowing down.
By the end of 2016, the “blocks” of bundled transaction information chained to Bitcoin’s public ledger, called the blockchain, were full. This resulted in transactions being paused for hours or days before being processed in a block. Think how long it takes to approve a direct debit transaction at the corner store – it may feel like forever, but on bad days, Bitcoin can be much, much worse.
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However, there was one exception for those who could afford it: add a large “fee” to your Bitcoin transaction so that a miner can add it to the next block. This is presumably fine for one of the many powerful financial institutions looking to Bitcoin to streamline parts of their existing business. You can afford the fees. However, this is bad for people who want to use Bitcoin to pay for everyday things like deodorant or a sandwich.
After much debate, Bitcoin developer Pieter Wuille proposed “Segregated Witness” (or Segwit), a new rule that would free up space in Bitcoin’s 1 megabyte chunks – but not by much. Nevertheless, the community largely came up with the idea.
After a user-driven campaign to support Bitcoin miners in support of Segwit was successful in July, the network was “soft forked” on August 1 to implement the change. A soft fork is a way to change the rules of Bitcoin without dividing the network, but everyone has to agree. At the time, miners did not unanimously support Segwit, so the major Chinese bitcoin company Bitmain coded a hard fork as a contingency plan.
With this initially only hypothetical hard fork plan, it was actually possible to split Bitcoin into two versions on Tuesday afternoon.
The hard fork was unexpectedly adopted from “Emergency Plan” to “Plan A” by a group of users and developers who felt that Segregated Witness did not go far enough to increase the size of the Bitcoin chunks, and as ” Bitcoin Cash “. The “cash” bit in the name of Bitcoin’s new rival is meant to emphasize how this version can be used for anyone, not just financial institutions or large corporations. Currently, the main differences between Bitcoin Cash and the original Bitcoin are: no Segwit and a maximum of eight megabyte blocks instead of one.
It is tempting to think of Bitcoin Cash and the hard fork as aberrations, but in retrospect they are expressions of an impulse that has been in Bitcoin’s DNA all along.
What holds Bitcoin together is neither code nor money: it is a belief. The Bitcoin protocol was anti-establishment and irritable when it was published nearly a decade ago by an anonymous person or group called Satoshi Nakamoto. Bitcoin called the banks and regulators bullshitters and beat them in their own game with a currency that became just as “real” as the US greenback, despite being an abstraction created using math and computers. It’s a pretty good joke, and it channels libertarian politics that will attract true believers.
It is arguably Bitcoin’s anti-authoritarian impulse that motivated the hard fork of Bitcoin Cash. That and the instinct of a gamer that leads people to put billions of dollars into a made up currency. When everyone is yelling at you to join in, like they did during the year-long scaling debate, the most likely way of telling them “bitcoin” to push it.
It will likely take many weeks or even months for the real effects of Bitcoin Cash to be felt. Regardless, it’s a historic day.
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