Within the last week, headlines stated that a market-shaking fork in Bitcoin had been avoided. But the people supporting a new Bitcoin cryptocurrency called Bitcoin Cash, have announced that the expected compromise between dividing factions is over. The massive Bitcoin fork will begin next week, and here is what it’s all about.
The discussion over a fork in Bitcoin has been going on for around two years. The world’s most valuable cryptocurrency is getting older and has reached highs of more than 2,600 USD in recent months. From the start, it had defined limits on how much data the Bitcoin network could process every 10 minutes.
This was, partly, to keep an eye on the speed of its growth and to serve as a security measure against cyber-attacks. However, some Bitcoin miners have become infuriated with the sluggish pace of the cryptocurrency. Blocks of transactions must be less than one megabyte and there are around five transactions processed each second. During recent months, traders have endured up to seven hours waiting for a single transaction according to activity tracker (blockchain.info data).
Followers of Bitcoin Cash, the new cryptocurrency, want larger data caps on blocks. Which would mean more coins being mined and more transactions be processed in a short amount of time. The Bitcoin Cash team is said to made up of mining investors and entrepreneurs who are largely based in Asia.
On the Bitcoin team, there is a group of people known as the core developers. This set of programmers maintain the software behind Bitcoin and they are opposed to increasing the data cap per block. The main argument against the increase is that it will put smaller miners at a disadvantage compared to the well-funded mega-miners.
Anyone can process and verify Bitcoin transactions on a server. These miners are rewarder with Bitcoin, based on how many transactions they process. It is an expensive and time-consuming game. People who do it as a hobby will be lucky to receive a single Bitcoin in a month. Major mining operations that run large server farms can exponentially outpace the small fries.
The compromise that was recently considered to be a done deal, included the core developers agreeing to implement a system called Segregated Witness or SegWit. This software update to standardise Bitcoin is set to be implemented in August and will gradually increase the maximum block size.
The New York Times claims that the core developers don’t intend to make any increases soon, the original compromise was to increase the data cap by two megabytes by November. SegWit peaks at 4-megabyte blocks and its implementation is still planned to move forward. SegWit’s deployment could be stalled by the fact that 95% of the network must signal its support first. This is to prevent a different divide that would naturally occur if some people switched to a new clients and left others behind.
Yes, the details are complicated, but the essentials aren’t. Bitcoin supporters want to keep the scaling modest and cautious. Where the Bitcoin Cash supporters want to keep advancing. What Bitcoin is supposed to mean for the everyman is surrounded by political and philosophical differences.
Bitcoin cash promises an immediate increase on the block size limit to 8-megabyte and it will leave room for increases in the future. This should take care of a couple of issues that have raised complaints in the community, as well as speeding up transaction times.
Bitcoin Cash (BCC) organisers have also assured people that they will be able to convert their Bitcoins into the equivalent BCC immediately, but there is a catch. If your Bitcoins are stored with a third-party exchange, you will have to talk to them about the implementation. They could decide to not deal with BCC at all. There is a short-term solution and it would mean Bitcoin holders would have to take control on their private keys before the August 1st launch.
Just to be clear, those who would like to make the exchange in the beginning, should be able to trade one Bitcoin for Bitcoin Cash. As time goes on, the exchange rate will change just like any other currency.
What does this mean for the future? No one knows. There is a chance there will be a large-scale fight from Bitcoin to BCC. Major investors have said that they intend to throw their full weight behind the new cryptocurrency.
Bitcoin Cash is already trading future contracts at a cost of around 400 USD. Which is significantly cheaper than Bitcoin and the original price will have to be re-evaluated.
Remember, physical currencies have weathered forks. Bitcoin’s closest competitor, Ether, forked last month. Both Ether and Ether Classic have gone higher than the pre-fork price. Some fan sites like Should I Sell My Bitcoin automatically return the answer “No” at all times. We will see if this fork changes their minds.