This column is authored by Rishabh Kukreja , BlockChain Analyst at BuyUCoin
What is Bitcoin Cash?
As alluded to at the very start, Bitcoin has had to persevere in the face of relentless attacks ever since its inception. From law enforcement authorities who’ve described it as a security threat, to disgruntled miners who’ve tried to fork it from time to time, Bitcoin has seen it all in its small lifetime. This time, however, the attempt to create an alternative version of Bitcoin has proved successful, with ViaBTC miners and their supporters creating a permanent divergence in the original Bitcoin blockchain by successfully generating a block on a new blockchain called Bitcoin Cash, that, its supporters claim, will go a long way towards solving the growing problem of transaction congestion on the Bitcoin platform.
Just like its parent, Bitcoin Cash is also a “decentralized, peer-to-peer digital currency” that can be used for financial transactions on the internet, provided, your merchant accepts it as a means of payment. Whether or not Bitcoin Cash is successful in its stated endeavour remains to be seen, but most digital wallet platforms and cryptocurrency exchanges have declared that they won’t support the new digital currency, so it is already off to a bit of a rough start.
The Backstory Behind the Bitcoin Split!
So, why did things come to such a pass that so many miners felt that they had to break away from the parent currency to get their voices heard? To understand what led to the acrimonious fallout between the miners leading to this fork, we’ll need to know how Bitcoin functioned up until now. The Bitcoin infrastructure can only process up to 1MB of data every minute, which equates to about 6 total transactions per second. Compare that to leading global payments gateway, VISA, which can process upwards of 1,600 transactions every second, and you’ll realize why many Bitcoin miners had been demanding that Bitcoin raise its arbitrarily-imposed 1MB limit that slows down transactions, create artificial bottlenecks and, increased average fee costs.
They even cited Bitcoin creator Satoshi Nakamoto’s 2009 assertion that the currency should aim to scale larger than VISA, which, at that stage, was apparently processing around 15 million transactions on the internet daily. That being the case, “Restoring Bitcoin’s original vision and values” is one of the key motivations behind the renegade miners’ decision to split ways with Bitcoin. The vast majority of core developers behind the Bitcoin platform, however, wanted to keep the restriction in place, arguing that it is a way to safeguard against hackers. This led to the emergence of the two power-centers within the Bitcoin world, neither of which were convinced with the other side’s argument. While the differences between the two rival factions seemed irreconcilable in recent times, efforts were, nonetheless, made by various quarters to keep the flock together.
The most notable attempt to work out a compromise between the two warring factions is a scaling proposal named SegWit2x that has since been implemented by Bitcoin, although, only partially, but more on that later. Backed by large sections of the Bitcoin network’s enterprises and miners, SegWit2x promises to increase the speed of Bitcoin transactions “by bringing code optimization Segrated Witness (SegWit) to change the way data is stored on the Bitcoin network”. The proposal also includes the provision to increase each block size to 2MB, which is where the ‘2x’ bit comes from. While the new provisions came into effect on August 1st, the increase in block size is only expected to happen three months from now.
Is Bitcoin Cash different from “Bitcoin”?
Yes, Bitcoin cash is the continuation of Bitcoin project as peer to peer digital cash. It’s a fork of the Bitcoin blockchain ledger.
How does the fork work?
The way a fork works is instead of creating a totally new cryptocurrency (and blockchain) starting at block 0, a fork just creates a duplicate version that shares the same history. So all past transactions on Bitcoin Cash’s new blockchain are identical to Bitcoin core’s blockchain, with future transactions and balances being totally independent of each other.
For practical matters, all this really means is that everyone who owned Bitcoin before the fork now has an identical amount of Bitcoin cash that is recorded in Bitcoin cash’s forked blockchain.
If I own Bitcoin, do I own Bitcoin Cash too?
So how does the split affect you as a Bitcoin owner? First off, yes, your Bitcoins are safe and just as usable as they were before the split. In fact, with the fork going through, you actually own both versions of the currency without so much as moving a finger. Now, what you can do with all that money depends almost entirely on whether you actually control your private keys or not.
Actually, it’s not exactly this easy. There may be 2 cases :
1. You control your private keys.
If you control your own private keys, or hold your Bitcoin in an exchange that said it would credit users’ balances with Bitcoin cash, you’re fine and can access your newfound cryptocurrency right now.
2. You held your Bitcoin with a Provider
If you held your Bitcoin with a provider like Coinbase, which said before the fork they aren’t planning on distributing Bitcoin cash to users or even interacting with the new blockchain at all, then you may be out of luck.
To be clear — this doesn’t mean companies like Coinbase and Gemini are taking your Bitcoin cash for themselves. It’s just that they think it’s a distraction and not really going to be worth anything in the long run. If this proves to be false and the coins hold value, these companies will most likely end up distributing them to users.
Why was a fork necessary to create Bitcoin Cash?
In comparison to banks that deal with credit card transactions. Visa processes 150 million transactions per day, averaging out to roughly 1,700 transactions per second. And their capability far surpasses that, at 24,000 transactions per second.
How many transactions can the Bitcoin network process per second? Seven. Transactions take about 10 minutes to process. And as the network of Bitcoin users grows, waiting times will get longer, because there are more transactions to process without a change in the underlying technology that processes them.
How Does Bitcoin Cash Help to fix these problems?
Bitcoin cash immediately increases the block size limit 8MB as a part of massive on chain scaling approach. Bitcoin Cash intends to activate new rules that are at odds with the Bitcoin network, aiming to boost transaction capacity by increasing the block size to 8MB and removing Segregated Witness (SegWit), a long-debated code optimization that’s likely to activate on Bitcoin later in August.
What to Expect Next from Bitcoin?
Some experts believe that the split will adversely affect Bitcoin’s efforts to widen its adoption. In the short to medium term, industry-watchers say that the situation may create confusion among a section of users and scare away would-be adopters, while price volatility may also become relatively more common going forward. The overall market-cap of Bitcoin, however, may not necessarily be impacted too much by these events, if a statement issued by Dominic Williams, the President of blockchain computing firm DFINITY, is anything to go by.
Bitcoin was trading at just over the $2,700 mark on Wednesday, while Bitcoin Cash initially saw a 48% increase in its net value to $422 on Tuesday, before dropping down 26% to stabilize around the $214 mark by the end of the day.