The Bit­coin fork

Banking Frontiers - - Editor's Blog -

On 1 Au­gust cryp­tocur­rency Bit­coin split into two. One of the re­sul­tant en­ti­ties re­tained the Bit­coin name, while the other went by the moniker Bit­coin Cash. The im­me­di­ate rea­son for the split is the de­bate over the cryp­tocur­rency’s fu­ture - one group stat­ing the un­der­ly­ing tech­nol­ogy is not ca­pa­ble of scal­ing.

Bit­coin has been im­prov­ing over a pe­riod, its value climb­ing up from $500 per unit in 2016 to around $3500 now. This led to sub­stan­tial in­crease in the vol­ume of trans­ac­tions but ap­par­ently the tech­nol­ogy could not han­dle this vol­ume. This led to groups emerg­ing among the de­vel­op­ers and sup­port­ers of the cryp­tocur­rency. One group, es­sen­tially those who were core de­vel­op­ers, opted for a grad­ual ap­proach that would first make more space in the ledger by shuf­fling how things were stored. And then as a sec­ond step, in­crease the size of the ‘blocks’ or groups of trans­ac­tions that were added to the blockchain (the ledger that records all of Bit­coin’s trans­ac­tions). The ex­ist­ing tech­nol­ogy sup­ported only 7 trans­ac­tions per sec­ond but what was re­quired was thou­sands of trans­ac­tions per sec­ond. The other group did not agree to this route and there­fore de­vel­oped a dif­fer­ent de­sign which was a ma­jor di­ver­gence from the ex­ist­ing Bit­coin blockchain. Since the two groups did not agree on a mid­dle course, the so­lu­tion was a split. The lat­ter group, there­fore, cre­ated its own ver­sion of Bit­coin, Bit­coin Cash. The split did not cre­ate any up­heavals for the orig­i­nal Bit­coin as its value re­mained al­most same but Bit­coin Cash was way be­hind - at around $600.

Cryp­tocur­rency experts de­fine Bit­coin Cash as a clone of the orig­i­nal but they are not sure about its fu­ture as they feel it will de­pend on in­crease in the num­ber of users and in­vestors sup­port­ing it. They also point out that noth­ing has gone wrong af­ter the split. Bit­coin min­ers are con­tin­u­ing, ex­changes are ex­chang­ing and users are trad­ing as well as us­ing their bit­coins as they want.

They, how­ever, point out to a pos­si­ble ini­tial ad­van­tage Bit­coin Cash may have over Bit­coin. The big­ger trans­ac­tion blocks that the former has would fa­cil­i­tate faster and cheaper trans­ac­tions. But Bit­coin de­vel­op­ers too are not rest­ing on their lau­rels. They are plan­ning an­other upgrade af­ter the first part of the so-called SegWit2X pro­to­col upgrade, which is now steady. To that ex­tent Bit­coin Cash may lose that ad­van­tage.

These de­vel­op­ments are not likely to hin­der the process of Bit­coin emerg­ing into the fi­nan­cial main­stream. Al­ready, there are ef­forts made to cre­ate anti-money laun­der­ing, con­sumer pro­tec­tion and tech­nol­ogy stan­dard­iza­tion pro­cesses in the dig­i­tal cur­rency space. Time is not far off when such ef­forts would cover the cryp­tocur­rency space as well.

N. Mo­han Mo­bile : 9322895820 Email : mo­han@bank­ingfron­tiers.com

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