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Digital coins 14 Sep 2017

The five keys to bitcoin cash, the new virtual currency

Since August 1, there has been more than one bitcoin in the crypto-currency markets. On that day, bitcoin cash debuted in the ever-expanding world of blockchain-based virtual currencies. These are the five keys to the new crypto-currency.

Why was Bitcoin Cash born?

Bitcoin Cash is the result of a longstanding debate between bitcoin ‘miners’ and developers, i.e., blockchain, IT and programming experts that not only formally perform bitcoin-based transactions, but also comprise a dynamic and committed community.

When Satoshi Nakamoto created the alternative currency in 2009, he decided that the size of the information blocks based on which transactions would be recorded would be one megabyte, presumably to prevent access from being restricted to powerful computers and to foster technology adoption. Transactions are stored in a block. Once the block is full, miners process it and earn rewards in bitcoins. But, eight years later, a one-megabyte block is too small to handle all the transactions that take place in bitcoin.

That is why, in the highly active and committed virtual currency community, many argued that there was a need to increase the size of the blocks to two megabytes, in order to increase transaction speed. And, in the midst of this debate, a group of miners finally decided to take matters into their own hands, creating a third way, where the size of blocks is set at eight megabytes, instead of one. Thus bitcoin cash was born.

How does bitcoin cash differ from the original bitcoin?

There is only one essential difference: block size. The bigger blocks are, the more transactions they can process. A bitcoin block can contain about 2,500 transactions. The first blocks of bitcoin cash processed about 7,000 transactions, without even exhausting the eight-MB per block capacity limit.

Both currencies share the same technology, but run on different environments. A full-blown ecosystem of clearing houses, electronic wallets and miners has already grown up around bitcoin… bitcoin cash has to build this environment from scratch. But this is relatively difficult: there are over 1,000 virtual currencies and the second most important one by market value, Ethereum, suffered a spin-off in 2016 without major consequences. Today, the combined value of the two versions of Ethereum is just shy of $30 billion.

How has bitcoin cash fared during its first days of existence?

Bitcoin cash was launched without much support from the bitcoin community. However, its value skyrocketed over the first two days since launch, breaking the $700 mark. After a few weeks of ups and downs, its market value seems to be stabilizing around this level, and three weeks after its debut it stands at about $670.

How has the launch affected the original bitcoin’s valuation?

Paradoxically, the arrival of a competitor based on the same blockchain has provided an unexpected boost to bitcoin’s valuation, which rallied strongly in August, setting new records daily and breaking the $4,300 dollar threshold.

Bitcoin’s recent solid performance contrasted with  the currency’s sharp devaluation in March –24% over a two-day period– after the main bitcoin exchange bureaus issued a joint statement explaining their plans in the event of the eventual rollout of a spin-off currency.

Could new spin-offs occur?

Not only they can appear, but are being planned. The birth of bitcoin cash has not cooled the spirits of the many developers and miners who believe that the original bitcoin needs certain improvements that bitcoin cash has failed to provide, and they intend to implement these with or without network consensus.  They plan to roll out their technical changes in November; if nothing changes, then three coins would come out of the original bitcoin created by Nakamoto.

In an environment as open as the virtual currency market, the users who issue transaction orders and the miners who formally process them have the last word.  And the situation can be very confusing, but this is by no means the first time that similar technologies have competed against one other to prevail in a booming new market.  Differences aside, this is what happened almost forty years ago with the VHS, Beta and Video 2000 formats. Today, by the way, all three have been rendered obsolete.

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