Bitcoin Has Split - So What?

On August 1, a small project called Bitcoin Cash forked off the Bitcoin blockchain. While the Bitcoin network has a combined hashing power of about 6.5 Exahash (6.5 quintillion hash), the new network only has a hashing power of 235 Petahash (235 quadrillion hash), which means that the Bitcoin network is about 28 times more powerful than its new sibling (visualised in the picture aboved). So it would be a bit misleading to call this a "split", which implies that there are two more or less equal camps on each side.

The fierce debate about how to scale Bitcoin has been decided in the weeks before, when a staggering majority of more than 95% of Bitcoin's hashing power agreed on the so called New York Agreement. This is a compromise to solve the Bitcoin scaling problem, which has been discussed for some years now. 

Currently the Bitcoin Network can only process a handful of transactions per second, while payment networks like Visa or Mastercard can handle thousands of transactions per second. One factor is Bitcoin's current limit of 1 Megabyte of data per block. But even raising this limit to 2, 8 or more MB would only temporarily solve the problem. 

New York, New York, big city of dreams

The New York Agreement was made in late May 2017 during the Consensus conference between the most important miners and the most important service providers of the Bitcoin ecosystem. It is a combination of the Segregated Witness (shorthand: SegWit) method which reduces the amount of data per transaction, and an increase of the maximum block size from 1 MB to 2 MB. SegWit is also a requirement to enable a second layer on top of Bitcoin like the Lightning Network, which would be able to handle thousands of transactions per second.

As it is the nature of a compromise, nor the "Big Blockers" nor the "Small Blockers" are entirely happy with it. It increases the number of transactions per second by a factor of four, which is far from what is needed to compete with classical payment providers. But at least it buys some time and lays the ground for solutions which would increase the speed of the Bitcoin Network by some orders of magnitude.

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While the voting on the New York Agreement was underway, a team of developers presented Bitcoin Cash at the Future of Bitcoin Conference in Arnhem, Netherlands. It does not include SegWit, but increases the maximum block size to 8 MB. When I first heard about this, I did not take it too seriously, as I consider the New York Agreement a viable solution. My feeling was that most people in the Bitcoin community were happy that the endless scaling debate had finally come to an end.

But although the New York Agreement was widely accepted and SegWit got activated by the end of July, the Bitcoin Cash team decided to launch their alternative coin anyway. In contrast to the many hundreds of Bitcoin clones on the market, Bitcoin Cash did not start from scratch, but continues the existing Bitcoin blockchain. That means: if you own Bitcoins, you automatically own the same amount of Bitcoin Cash.

The Bitcoin Cash price in its first days

On its first day, the exchange rate of Bitcoin Cash went up to nearly 700 dollars and then down to around 400. Overnight it became the third biggest Cryptocoin after Bitcoin and Ethereum. Now its price is constantly falling, which is not a surprise, as I assume that many people are changing their windfall profits into Bitcoins or other cryptocurrencies.

I think it is very unlikely that Bitcoin Cash will prevail. But I like competition, the more the better. This "Bitcoin split" is certainly not a problem, as one can see from the Bitcoin price, which has been quite stable during the split. Once more, Bitcoin has proven to be the "honey badger of money" who doesn't give a shit, whether it is stung by bees or bitten by venomous snakes.

Bitcoin Honeybadger don't give a shit