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As if the world of cryptocurrencies isn’t complicated enough, Bitcoin – the most prominent of these new digital currencies – is about to split into two. This schism between two warring factions of techies could set the currency up to really take off – or it could kill it stone dead.
If you have any Bitcoins stashed away in a wallet, if you trade Bitcoins against other cryptocurrencies or against real-life fiat currencies, or if you are mining for Bitcoins, this split is a very big deal. Here’s what you need to know.
Why Is the Split Happening?
Bitcoin is the victim of its own success. There is a limit on the amount of data that can be processed at one time when validating Bitcoin transactions. The transactions get bundled into blocks, and each block cannot exceed 1MB of data. When the currency was created, this was considered to be more than enough to make sure every transaction could be processed fast.
But the trading volume of Bitcoin has grown out of all expectation. Given the data limit on a block, transactions can get validated at a rate of around 3 per second. A single transaction can be delayed for an extended period of time as it waits for space on the next available block.
Competing Solutions
It sounds like just doubling the block size, from 1MB to 2MB, would take care of the problem without causing too many technical issues. But remember that there is no central authority that controls Bitcoin; it’s distributed, which means everyone who uses the code has to come to a consensus about any changes made to it.
That hasn’t happened. Instead of everyone getting behind one solution to the problem, we’ve ended up with two competing solutions. Since neither side wants to back down, this civil war is going to create a split in the currency. Bitcoin is going to fork into two competing currencies.
The two currencies are called Bitcoin Cash (the new currency) and Bitcoin Core (the old currency). The new coin will process transactions a lot faster, but it will (the old guard say) be a bit less secure. If you want to know the technical differences behind the two solutions, well, you can read about it elsewhere. Here, we’re concerned about the practical effect of this hard fork.
What the Split Means to You
If everything goes as planned then Bitcoin Cash will launch today (1 August) at 8.20am ET, 1.20pm BST. Anybody who owns a Bitcoin will then own one Bitcoin and one Bitcoin Cash.
That sounds like a nice windfall – you are going to get some extra money. But it might all go wrong. Bitcoin prices are volatile as it is, and the fork could cause the price to plummet. Exchanges could struggle as traders panic. Some exchanges have said they won’t support the new Bitcoin Cash; others are suspending trading in the currency until things settle down.
Or, the fork might not happen at all. The people behind Bitcoin Cash might decide to abandon the launch at the last minute.
So hold onto your hats, it’s going to be an interesting day in the world of cryptocurrencies!
