Bitcoin, a digital currency worth $43 billion USD, is in uncharted and potentially risky territory after a split created two versions on Tuesday: the original bitcoin that’s existed since 2008, and the new Bitcoin Cash, which aims to be a more populist alternative.
The split in 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’s history, and one that the majority of the community had tried to prevent for two years. In fact, just one week ago, it seemed like the possibility of a split had been safely avoided altogether.
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The fork was scheduled for Tuesday morning, and bitcoiners anxiously awaited the split. Due to some of bitcoin’s quirks, the event actually happened six hours later. The hard fork was marked at 2:20 PM by the creation of an inaugural “block” of transaction data for Bitcoin Cash: nearly two megabytes in size. Bitcoin’s blocks are capped at one megabyte, and Bitcoin Cash can support up to eight. Bigger block sizes is the major difference between the two virtual currencies and the impetus for the split. A second vanity block was quickly added to the chain and contained the phrase, “Hello world.”
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Now two near-identical versions of bitcoin exist, each with their own set of rules and diehard supporters. Everybody who owns bitcoin automatically received the same amount in Bitcoin Cash, and this brand-new currency will have to fight to survive.
Bitcoin’s price dipped $200 USD to roughly $2,700 per coin ahead of the split, but as of our time of publication, the currency is chugging along. Bitcoin Cash, on the other hand, is extremely volatile but showing signs of life. Before Bitcoin Cash was created with the inaugural block, popular cryptocurrency exchange Kraken credited customer accounts with the currency and allowed trading; basically, issuing IOUs. In about 10 minutes of trading, the imaginary price of Bitcoin Cash crashed to $140 from $400. It seemed bad, but immediately after the fork, the price rebounded to $200.
Bitcoin Cash’s success largely lies in the hands of “miners,” who run server farms to create the blocks that sustain the bitcoin network. At present it’s unclear how many bitcoin miners have moved over to Bitcoin Cash, but it seems to be only a fraction. In the time that it took Bitcoin Cash miners to create a single block of transaction data for their public ledger, bitcoin proper had created dozens, which could indicate that Bitcoin Cash doesn’t yet have the horsepower to take on 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, centred around the question of how best to change bitcoin so that it can handle more people using it without slowing down.
By late 2016, the “blocks” of bundled transaction information that are chained together to make up bitcoin’s public ledger, called the blockchain, were full. This resulted in transactions being marooned for hours or even days before being processed in a block. Think about how long it takes for a debit transaction to be approved at the corner store—it might feel like forever, but on bad days bitcoin can be much, much worse.
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There was an exemption for those who could afford it, however: attach a high “fee” to your bitcoin transaction for a miner to include it in the next block. This is presumably fine for any of the many powerful financial institutions looking into bitcoin as a way to streamline parts of their existing business. They can afford the fees. This is bad, however, for people who want to use bitcoin to pay for everyday things like deodorant or a sandwich.
After a long period of debate, bitcoin developer Pieter Wuille proposed “Segregated Witness” (or segwit), a new rule that would free up some space in bitcoin’s one megabyte blocks—but not much. Still, the community largely came around to the idea.
After a user-led campaign to strongarm holdout bitcoin miners into supporting segwit succeeded in July, the network was set to “soft fork” on August 1 to implement the change. A soft fork is a way to change bitcoin’s rules without splitting the network, but everyone has to be in agreement. At the time, miners didn’t unanimously support segwit, and so major Chinese bitcoin firm Bitmain coded a hard fork as a contingency plan.
That hard fork plan, initially just a hypothetical, actually succeeded in splitting bitcoin into two versions on Tuesday afternoon.
The hard fork was unexpectedly taken from “contingency plan” to “Plan A” and branded “Bitcoin Cash” by a group of users and developers that believe Segregated Witness didn’t go far enough to increase the size of bitcoin’s blocks. The “cash” bit in the name of bitcoin’s new rival is meant to emphasize how this version is for anybody to use, not just financial institutions or large companies. Right now, the main differences between Bitcoin Cash and the original bitcoin are: no segwit, and a maximum of eight megabyte blocks instead of one.
It’s tempting to see Bitcoin Cash and the hard fork as aberrations, but in hindsight they’re expressions of an impulse that’s been in bitcoin’s DNA the whole time.
What’s keeping bitcoin together isn’t code or even money: it’s a belief. The bitcoin protocol, when it was released by an anonymous person or group called Satoshi Nakamoto nearly a decade ago, was anti-establishment and petulant. Bitcoin called out the banks and regulators as bullshitters and beat them at their own game with a currency that went on to become just as “real” as the US greenback, even though it’s an abstraction created with math and computers. It’s a pretty good joke, and it channels a libertarian politics that’s bound to attract true believers.
It’s arguably bitcoin’s own anti-authoritarian impulse that motivated the Bitcoin Cash hard fork. That, and a gambler’s instinct that drives people to dump billions of dollars into a made-up currency in the first place. When everybody is yelling at you to fall in line, like during the years-long scaling debate, the most “bitcoin” thing you can do is tell them to shove it.
It will probably be many weeks, or even months, before the real impact of Bitcoin Cash is felt. Regardless, it’s an historic day.
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