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Technology

A new digital currency is about to be created as the bitcoin blockchain is forced to split in two

Bitcoin faces a pivotal moment as investors are about to receive an entirely new asset called Bitcoin Cash after the blockchain supporting the cryptocurrency is forced to split in two.

“The creation of Bitcoin Cash is certainly a pivotal moment for Bitcoin and its community,” Charles Hayter, founder of digital currency comparison website CryptoCompare, told CNBC on Monday.

“The inception of Bitcoin Cash may prove to be exactly what Bitcoin needs.”

On August 1st, a ‘user activated hard fork’ will take place. Members of the bitcoin community unhappy with the direction of the digital asset have set up an alternative ‘node’ called Bitcoin ABC.

Nodes are required to send messages across the bitcoin network, but Bitcoin ABC will use a different set of rules, causing the blockchain (the digital ledger which records every bitcoin transaction) to fork and create two separate digital assets: the original bitcoin and Bitcoin Cash.

And because Bitcoin Cash will have all the history from the old blockchain, any investors with bitcoin tokens will receive the same number of tokens on the new blockchain.

However, Bitcoin Cash will likely only be worth a fraction of bitcoin. The original digital currency is trading around $2778.39 today, but future values for Bitcoin Cash on the website Coin Market Cap are just $288.35, or 0.103 of a bitcoin.

The bitcoin community has been divided on how to solve its scaling issue. Currently, only 1 megabyte of transactions can be processed at any one time, leading to delays.

“Demand for Bitcoin has been so high in recent months, that those creating the cryptocurrency can’t keep up, slowing transactions,” Iqbal Gandham, U.K. Managing Director at eToro, said in a press statement on Monday.

“For bitcoin to continue to scale and have the potential to become a globally used currency, this slowdown in transactions has to be addressed.”

Bitcoin miners attempted to solve the scaling debate earlier this month by signalling support for SegWit2X. This would introduce “segregated witness” to the block chains, which would move some of the data outside the main bitcoin network to increase its capacity, and later increased the number of transaction to 2 megabytes.

However, some investors, miners and exchanges are unhappy with the proposal and think that it doesn’t go far enough. Bitcoin Cash will increase the transaction limit to 8 megabytes.

“This means that the two sides that were once debating within Bitcoin, can instead apply their different views of what the cryptocurrency should be in two different blockchains,” said Hayter.

“So while this is a development that sparked from previous disagreements, it may come to end the scaling debate once and for all.”

Bitcoin exchanges are divided on whether or not to support Bitcoin Cash. Several exchanges, such as BitMEX, Bitstamp and Coinbase, have said they will not support or allow trading of Bitcoin Cash on their exchanges, which means investors holding bitcoins on these sites will not receive any new tokens.

Some exchanges are also suspending bitcoin trading, withdrawal and deposits around the time of the fork. Hayter advises bitcoin investors to check for any statements issued by their exchange to find out whether or not they will receive the new token.

Bitcoin Cash may gain more support once it launches, according to Garrick Hileman, research fellow at the Cambridge Centre for Alternative Finance.

“Because millions of bitcoin users will automatically own Bitcoin Cash, and because a sizable number of wallets and exchanges (including some of the largest) have announced support for Bitcoin Cash, it is likely to live on for the foreseeable future,” he told CNBC via email.

“Bitcoin Cash could be significant but we won’t know more until after it launches. If it fails to sustain support then it could fade away.”

Aurélien Menant, founder and CEO of Gatecoin, a regulated bitcoin and ethereum token exchange based in Hong Kong, says parts of the community are referring to the new token as Bcash. She says the new coin will pose no threat to the future of bitcoin.

“Investors holding both bitcoin and Bcash may benefit from the speculative price gains in both cryptocurrencies following the hard fork, but adoption of Bcash as a network will be limited in the short term.”

Fran Strajnar, co-founder & CEO of data and research company Brave New Coin, says most cryto currency funds and investors are looking forward to receiving their free tokens.

“Most will likely hold as it’s free, just to see what happens or for hedging,” he told CNBC via email on Monday.

“However a majority of everyday users, traders and investors are vocal about market dumping their free tokens as soon as they can.”

Strajnar predicts the price for Bitcoin Cash could be hit heavily once it is open to trading.

“If there’s any legs at all to Bitcoin Cash or if the miners backing it deploy large scale and sustained attacks on bitcoin, then Bitcoin Cash may survive its initial violent birth.”

Whatever happens, bitcoin will not disappoint in terms of creating drama, says Matthew Roszak, co-founder & chairman of blockchain enterprise software company Bloq.

“This entire process will be a key test for bitcoin in its evolution beyond a store of value and show its potential to grow into something much greater,” he told CNBC via email.

Source: Tech CNBC
A new digital currency is about to be created as the bitcoin blockchain is forced to split in two

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