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Bitcoin Divergence Creates Two Currencies

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Despite its meteoric success as the foremost digital cryptocurrency, investors and users of Bitcoin have as of late expressed serious misgivings regarding the direction, performance, and future of the currency. Because of this, August 1st will see a significant change to to the digital asset; more specifically, Bitcoin will be splitting in two, spawning a new currency called Bitcoin Cash.

A so-called “hard fork” will be activated by users on the first of August, which in practical terms will diverge the once unified currency. Bitcoin users dissatisfied with the currency began by establishing new nodes. These nodes are what facilitates messages to be sent across the Bitcoin network, maintaining continuity in the blockchain. However, this new network of nodes, dubbed Bitcoin ABC, follows a different set of rules and parameters than the original Bitcoin, and once active will effectively split the currency in two.

User dissatisfaction primarily stems from limitations to how Bitcoin currently works. Specifically, Bitcoin’s ability to process transactions is inherently limited, able to handle only one megabyte worth of transaction data at any given time. This naturally leads to delays, a problem which has only gotten worse as demand for Bitcoin increased dramatically over the past few months. Left unaddressed, the problem will severely hamper scaling and prevent Bitcoin from becoming a truly global currency.

Bitcoin Cash addresses this problem head-on by increasing the capacity for transaction data to a much more generous eight megabytes. This is a significant improvement over other proposed plans, such as the SegWit2X fix, which would have only increased capacity to a modest two megabytes. That said, the currency split is not without setbacks. Experts are currently estimating that Bitcoin Cash will be worth significantly less that its predecessor. Current valuation places Bitcoin at $2778.39, while Bitcoin Cash has a projected trading value of just $288.35, a significant gap.

Traders and exchanges are split on how to react to the new currency. Coinbase, BitMEX, and Bitstamp, prominent cryptocurrency exchanges, have announced they will not condone or market trading of Bitcoin Cash, a severe blow to the fledgling currency’s credibility and valuation. Other exchanges are temporarily arresting trading of Bitcoin until the actual split plays out. This hands off, wait-and-see attitude is exactly what Bitcoin Cash needs, as it is ultimately user demand and not blind speculation, either in favor of or against, that will ultimately determine whether or not the split succeeds.

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