Bitcoin Splits into Two Dividing the Virtual Currency’s Community Parker Waichman
People tend to see value in money free from government control and the fees banks charge, as well as the blockchain, to verify transactions. Bitcoin is a digital currency, used to make payments of any value without fees. It runs on the blockchains, a decentralized ledger kept running by “miners” whose computers crunch transactions and are rewarded in bitcoins. Bitcoin has been viewed as a viable tool for private, anonymous transactions.
What is a Blockchain?
The blockchain is actually a way to structure data, and the foundation of cryptocurrencies like Bitcoin. This allows competitors to share a digital ledger across a network of computers without need for a central authority. No single party has the power to tamper with the records: the math keeps everyone honest. Forty of the world’s top financial firms are experimenting with the technology, according to Fortune.com.
Bitcoin has split into two in an action known as “hard fork” that has divided the virtual currency’s online community. Two competing factions of Bitcoin emerged after some of its leading backers disagreed on the best way to move forward. The new technology, called Segwit2x, has gradually been adopted by key players in recent days and seemed to avert a “civil war” over the next move. The rival system is called Bitcoin Cash.
What is Bitcoin Cash?
In August 2017, the blockchain will support another cryptocurrency, Bitcoin Cash, which is optimized slightly differently. People who currently hold Bitcoin will hold an equal value of Bitcoin Cash following this ‘hard fork.’ Cryptocurrency is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. “Decentralized cryptocurrencies such as Bitcoin now provide an outlet for personal wealth that is beyond restriction and confiscation.”
As of July 2017, there were about 16.5m bitcoins in circulation. In March 2017, the value of a Bitcoin, at $1,268, exceeded that of an ounce of gold ($1,233) for the first time.
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On the online wallet Coinbase website, it said that it “is hard to predict how long the alternative version of Bitcoin will survive and if Bitcoin Cash will have future market value.” Blockchain, another online wallet, said it has no plans to support Bitcoin Cash, but that if it ends up becoming the more popular version, it will. Those who hold their coins by downloading them onto hard drives end up with both bitcoins and Bitcoin Cash, according to Coinbase.
Bitcoin Controversy Background
Bitcoin has been involved in a years-long ‘civil war’ because the base of the network has slowed as the number of people using the currency has increased.
On one side, there are the so-called core developers who hope to keep the blocks that make up the network limited in their size to protect against hacks. On the other side, are the miners who want to increase the size of blocks to increase the network speed.
Investment Officer’s Insights
According to Charlie Morris, the chief investment officer of NextBlock Global, an investment firm with digital assets, “Bitcoin cash came out of left field.” Morris told Business Insider, “A group of miners who didn’t like SegWit2x are opting for this new software that will increase the size of blocks from the current one megabyte to eight.”
As soon as the split takes place, most people will see their bitcoin holdings double, according to Morris. However, that doesn’t mean the value of investors’ holdings will double. Morris told Business Insider that bitcoin cash (BCC) has been trading in the futures market for about $200 to $400. Therefore, if a split were to occur, BCC would trade somewhere in that range while the value of bitcoin would see a decline equal to the value of the new bitcoin.
The fork, according to Morris, will most likely resemble the Etherium split. Bitcoin’s rival, Ethereum, experienced its own fork in 2016, eventually leading to the creation of the version of the cryptocurrency we know today.
“It will be similar to what happened with Ethereum when Ethereum classic came on the scene,” Morris said. “The two currencies marketcap equaled out to the marketcap of the original Ethereum.” Since Coinbase will not back the new bitcoin cash, people who hold their bitcoin on Coinbases’s system will not see their bitcoin supply double. Therefore, if the price of bitcoin were to decline as a result of bitcoin cash entering the market place, then Coinbase users would see the value of their total bitcoin holdings decrease.
That is the reason Morris believes people could benefit from putting their bitcoin into a private wallet. “If you’re holding it in an exchange, then they might not give you the bitcoin cash,” Morris said.
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