Bitcoin Cash (BCH), a split-off from Bitcoin (BTC), was created on August 1, 2017 after a minority of developers decided to implement an upgrade to Bitcoin’s block-size of one megabyte to eight megabytes.
The split was done by way of a hard fork (or a software change), giving all those who held Bitcoins, an equivalent number of Bitcoin Cash on the date of the fork.
This upgrade was aimed at countering the original Bitcoin’s declining speed in transaction turn-around times and rising fees. However, starting as an experimentation of bigger block sizes, the new currency recently gathered momentum on the back of the Segwit2x cancellation.
Over the last few days, it has undertaken what has been perceived to be an aggressive challenge – including claims in some quarters of possible price manipulation – to assume the title of “the real Bitcoin”.
WHAT IS THE FEUD ABOUT?
The fundamental question is: how do you upgrade the network to accommodate more transactions at a given time?
To understand this, one needs to know that Bitcoin transactions are grouped into blocks that get processed every 10 minutes. As the amount of data that can be included in a given block is limited to one megabyte in Bitcoin, the fees and time involved in transaction turn-around trends up with the rise in transaction volume.
As the transaction volumes kept rising, so does the mempool along with the subsequent fees to ensure a reasonable transaction turnaround time. Developers, then, began to consider two ways to counter this problem:
- SegWit wherein key data related to a transaction stay inside the block and others are stored elsewhere
- Make the block size bigger, thereby increasing the number of items that can fit in the block
Bitcoin Cash was the movement which went with option 2.
MINERS PLAY A KEY ROLE IN THE WAR
As Bitcoin grew in popularity, the power to mine these blocks increasingly fell into the hands of a small number of large players, leading to accusations of centralization.
As Bitcoin Cash gained in value, the attention of several Chinese mining leaders were drawn to the profitability of mining BCH which lead to a significant amount of hash power, i.e. the computing power necessary to mine blocks, switching over to BCH so much so that BCH, for a day or two, saw its hash power outgunning that of Bitcoin.
THE PUMP AND DUMP OF BITCOIN CASH
When Segwit2x, another hard fork of Bitcoin that was planned around mid-November got cancelled due to a lack of consensus, some major Segwit2x backers jumped ship from BTC to BCH and took their holdings with them.
BCH that was trading at US$630 on 6th of November, was lifted to as high as US$2,600 in a dramatic pump on the 12th of November. Since then, however, the currency has retracted by more than 50 percent to US$1,250.
CAN BITCOIN CASH REPLACE BITCOIN?
It was feared that the shift of hash power from Bitcoin to Bitcoin Cash could result in an increasing mempool for Bitcoin as miners began to abandon it for BCH.
Bitcoin is only able to readjust its difficulty rate every 2016 blocks and this lag brought with it the potential for a significant – albeit temporary – increase in the mempool, the pool of unconfirmed transactions sitting on the network.
However, as Bitcoin Cash has since crashed, the mining momentum has now clearly fallen back into the Bitcoin camp.
There are several reasons why Bitcoin Cash is unlikely to replace Bitcoin in the long term. Bitcoin Cash’s solution to the problem by increasing block size can only be seen as a non-permanent solution, as the higher block size of 8 megabytes will also see eventual saturation, and thus, does not ensure a sustainability solution.
A sustainable long term solution is yet to be worked upon and some suggestions such as Lightning Network, that enables instant transactions, and Side Chains, blockchains that run in parallel to real blockchain, are being discussed by the community.
EXCHANGES ARE KEY
The exchanges would have to unanimously agree on Bitcoin Cash being the ‘real Bitcoin’. For any one single exchange to adopt BCH as the “official Bitcoin” runs the risk of setting off a run on their BTC holdings to other exchanges, reducing their customer base and trade volume almost instantly.
There are several businesses around the Globe that accept Bitcoin as a means of payment. This development has not been overnight and has involved a number of years. Therefore, for Bitcoin Cash to achieve that level of acceptability would require time of its own.
The community unanimously agrees that Bitcoin itself has several major problems to solve, including finding solution to the problem of scaling the blockchain, but worrying that Bitcoin Cash may take over as the ‘real Bitcoin’ may not be one of them.