Bitcoin gets forked up and now we have a new currency
The fortunes of cryptocurrencies have been tumultuous throughout much of their existence, with frequent news stories about the currencies suddenly surging or sliding in value. Now it is Bitcoin's turn to sail into turbulent waters again, as the blockchain in which it resides was hard forked to create a new 'Bitcoin Cash' which will live along side the original Bitcoin.
For many months now, there have been two factions who disagree over the future of Bitcoin. The blockchain that holds Bitcoin is limited to block sizes of no larger than 1 MB, and with one block able to be processed every 10 minutes this restricts the currency to seven transactions per second — a hugely smaller number than what electronic card systems can handle with conventional currencies. This limitation has also meant that miners — the people who dedicate hardware to processing the transactions — have been finding it increasingly difficult to make a profit.
The developers of Bitcoin came up with a solution that had the support of most users of the currency, called Segwit2x. This solution would be a two stage process where in the first stage they would move some of the data out of each block on to a parallel chain which would result in more transaction data being processed each second. Then in November, they would double the block size to 2 MB, which would have an even greater effect on transaction process speed and therefore increase miner profit. Segwit2x is intended as a trade off that would keep miners profitable and keep Bitcoin as a single currency.
However, a minority group wasn't happy with the proposed changes, specifically around whether the developers would actually increase the block size in November. Since Bitcoin is open source, it can be forked, and that is what this group did. They created a new currency, known as Bitcoin Cash, which allows block sizes up to 8 MB and should have a much faster transaction speed. Due to the fork, users who stored their own Bitcoins or who used an online wallet which now supports Bitcoin Cash will have access to an amount of Bitcoin Cash equal in number to their Bitcoin balance at the time of forking.
Initially, the split has seen some relatively large movement with Bitcoin initially dropping to US$2680 spiking up as high as US$2925 and finally settling around US$2750. Bitcoin Cash has been as low as US$214 but is currently trading around US$606. The full impacts are likely to come over the next few months, where we will get more of an idea of what level of support Bitcoin Cash receives from miners and users, and whether it becomes a major currency to rival Bitcoin.
Note: Exchange rates accurate at the time of writing