Understanding Bitcoin And how Bitcoin Cash was Formed
Since its inception, there have been questions surrounding Bitcoin’s ability to scale effectively. Bitcoin is a cryptocurrency that exists within a network of computers, within the blockchain. This is revolutionary ledger-recording technology. It makes ledgers far more difficult to manipulate for a couple of reasons: The reality of what has transpired is verified by majority rule, not by an individual actor. And this network is decentralized; it exists on computers all over the world.
The problem with this technology is that it’s slow. Like, really slow, especially 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.
The latest debates around Bitcoin’s technology have been concerned with this central problem of scaling and increasing the speed of the transaction verification process. There are two major solutions to this problem, either to make the amount of data that need to be verified in each block smaller, making transactions faster and cheaper, or to make the blocks of data bigger so that more information can be processed at one time.
The Difference Between Bitcoin and Bitcoin Cash
In mid-July 2017, mining pools and companies representing roughly 80% to 90% of Bitcoin computing power voted to incorporate a technology known as a segregated witness, called SegWit2x. SegWit2x makes the amount of data that needs to be verified in each block smaller, by removing signature data from the block of data that needs to be processed in each transaction and having it attached in an extended block. Signature data has been estimated to account for up to 65% of data processed in each block, so this is not an insignificant technological shift. Talk of doubling the size of blocks from 1mb to 2mb in November has ramped up, and is expected. This would also go some ways in improving Bitcoin’s scalability. In mid-October, Bitcoin scientists from Bitcoin Unlimited revealed they had mined the world's first 1GB block, 1,000 times bigger than the normal size.
Bitcoin Cash is a different story. Bitcoin Cash was started by Bitcoin miners and developers equally concerned with the future of the cryptocurrency, and its ability to scale effectively. These individuals had their reservations about the adoption of a segregated witness technology, though. They felt as though SegWit2x did not address the fundamental problem of scalability in a meaningful way, nor did it follow the roadmap initially outlined by Satoshi Nakamoto, the anonymous party that first proposed the blockchain technology behind cryptocurrency. Furthermore, the process of introducing SegWit2x as the road forward was anything but transparent, and there were concerns that its introduction undermined the decentralization and democratization of the currency.
On August 1st, some miners and developers initiated what is known as a hard fork, effectively creating a new currency: Bitcoin Cash. Bitcoin Cash has implemented an increased block size of 8mb, to accelerate the verification process, with an adjustable level of difficulty to ensure the chain’s survival and transaction verification speed, regardless of the number of miners supporting it. This has raised concerns about the security of Bitcoin Cash.
What’s Bitcoin Cash and where did it come from?
On August 1st, 2017, Bitcoin Cash (BCC) was born as a result of a fork in the ledger of the digital currency, ending (for now) the long debate over the scaling of Bitcoin’s block size. ViaBTC pool produced a 1.9 MB BCC block, which was not valid on the legacy Bitcoin network. This marked a clean break and the birth of Bitcoin Cash.
Bitcoin Cash defines itself as "a peer-to-peer electronic cash for the Internet" and "the continuation of the Bitcoin project as peer-to-peer digital cash". It is a fork of the Bitcoin blockchain ledger, with upgraded consensus rules that allow it to grow and scale.
Bitcoin Cash is on the list of altcoins, and can be considered an offshoot of Bitcoin since it supported by a smaller community. "All Bitcoin holders as of block 478,558 are now owners of Bitcoin Cash". All Bitcoiners are welcome to join the Bitcoin Cash community as we move forward in creating sound money accessible to the whole world, says Bitcoin.
Since Bitcoin Cash emerges from the split in the blockchain, each Bitcoiner gets Bitcoin Cash equal to the amount of Bitcoin held at the time of the forking block. In cases where Bitcoins were held with an exchange, you need to check with your exchange about your Bitcoin Cash holdings. The digital currency Bitcoin Cash will use the ticker BCC and is currently supported by exchanges listed below.
In the background was the issue concerning Bitcoin’s legacy code and its capacity of 1MB of data per block, or about 3 transactions per second. The Bitcoin community has debated for more than a year about a ‘consensus’ solution to the issue. A few days back, an upgrade called SegWit was locked-in to be fully implemented by this fall. Bitcoin Cash disagreed with Segwit philosophy and has announced its intent to activate the User Activated Hard Fork (UAHF) on August 1, 2017. Bitcoin Cash raises the block size limit to 8MB.
The split has brought some interesting changes to the cryptocurrency market. While Bitcoin (BTC) maintained its price steadiness at around 2,700 levels, its overall market capitalization was down to 44.7%. Ethereum (ETH) witnessed interest pushing it neatly beyond $220 levels. Bitcoin Cash (BCC) overtook Ripple to become the third largest cryptocurrency, trading at $400 levels. The price movement in Bitcoin Cash became more dynamic over the next couple of hours. Bitcoin Cash was trading at around $700 levels with a surge in its market capitalization to beyond $11 billion, making almost 11% of the overall market capitalization. Bitcoin’s price is still hovering around $2,700-$2,750 levels with its dominance on market cap down to 43.3%.
The Future of Cryptocurrency
This development could mean any number of things for the future of cryptocurrency. The situation is very fluid, and market valuations are both constantly calibrating and volatile. It’s going to be difficult to get a clear picture until Bitcoin Cash has been running for a while (or fails), the impact of Bitcoin's segregated witness technology is assessed, and the size of Bitcoin's blocks are doubled.
In a blog post, dean of valuation” and NYU Stern Professor Aswath Damordan said that the future of cryptocurrency as a currency, as opposed to a speculative asset as it is so often treated, depends on cryptocurrency developers thinking of their technology as a "transaction medium and acting accordingly". Both of these moves seem to be aimed at improving cryptocurrency technology as a medium of exchange.
Improving cryptocurrency as a transaction medium will depend on maintaining the high level of security that Bitcoin has always ensured, while also improving transaction speeds. Bitcoin will continue to be highly secure, but how much its transaction speeds will improve is unclear. Bitcoin Cash, once its difficulty has adjusted, could have transactions processing in two minutes and 30 seconds. The security of the Bitcoin Cash blockchain, though, is unclear.
It will also depend on miners’ and users’ vision for the currency. If Bitcoin really does undermine the decentralized nature of the network, and the democratic possibilities of the blockchain technology, people may look elsewhere for a cryptocurrency with more exciting potential.