As of August 1, 2017, Bitcoin as we know it is no more. Not that we completely grokked it anyway. No, Bitcoin isn’t yet dead, fortunately or unfortunately. Instead, there are now two. Bitcoin has experienced what is called a “hard fork”, essentially a very big split. So now there are two: Bitcoin and something that is now known as Bitcoin Cash. And while both operate in exactly the same manner, the two are almost completely independent, which is going to make things a lot more confusing moving forward.
There are two problems with the cryptocurrency known as Bitcoin. First is that it’s an utter mess. The second stems from the first: it has become a convoluted chain of oversaturated blocks that almost crawled the still young currency to a halt. So like any good software that has reached a standstill, the “programmers’” solution was to fork it.
Despite being something that only a select few understood, Bitcoin has become both a lucrative, as well as a controversial, form of exchange. Whichever way you look at it, its popularity has more than once almost led to its demise. In this latest instance, Bitcoin blockchains have become so full that a transaction could only get approved hours after the fact. It’s not the type of deferred payment that either party would want.
The technical problem lies in the way Bitcoin transactions work. These involve a sort of public ledger that contains transactions from each and every bitcoin transaction. These are written as code in blocks that are linked together, hence the term blockchain. But like a highway during rush hour, the sheer number of transactions meant that there was no more room to write on in these blocks until code moved or got removed.
The main Bitcoin camp thought of a compromise: building highways on top of highways. They called it “Segregated Witness” and it changed the rules just a bit. Bitcoin users would be able to write transactions on top of other transactions in the same block. The fork now known as Bitcoin Cash, however, wanted to just build a new and wider highway.
A Bitcoin Cash block can supposedly hold eight times more transaction than a Bitcoin block. A Bitcoin block can hold roughly 1,700 transactions, processed at 3 transactions per second. In theory, a Bitcoin Cash block wold hold 13,600 transactions. It will definitely take a lot of time before those get filled up, especially considering how much work Bitcoin Cash has to catch up.
A Bitcoin Cash unit is currently worth only $240 while a Bitcoin unit averages $2,700. While the two use nearly similar software, not all Bitcoin exchanges and establishments will accept Bitcoin Cash. It’s a Catch-22 situation where Bitcoin Cash’s value is determined by how much it is used, but its adoption is determined by its value. And to make matters extra interesting, the main Bitcoin thread will still push through with its Segregated Witness strategy this month.