After squabbling for years over how to fix the growing pains of the world's first decentralized cryptocurrency, one of the sides in the ongoing Bitcoin Geek War has finally made a bold move. This week, on August 1st, a small number of the "big blockers" performed a "hard fork" and broke away from the main Bitcoin blockchain, creating a new currency, "Bitcoin Cash". This had the added benefit of giving everyone who already held Bitcoin an equal amount of the new Bitcoin Cash! Ever heard the phrase, "there's no such thing as a free lunch"? Bitcoin's first fork into two has proven that statement wrong. Read on to learn more about this historic week in Bitcoin.
The blockchain is the distributed, decentralized ledger that contains every transaction that has ever occurred on the Bitcoin network. It's approximately 150 GB in size. Since the hard fork, there are now two "Bitcoin" blockchains competing for market dominance. Both of them have the exact same transactions from the beginning of Bitcoin nearly a decade ago, running until August 1st, 2017, when at just after 2pm Eastern time the first "Bitcoin Cash" block was mined into existence, at greater than 1 MB - in fact, its size was about 4 MB.
Since the original Bitcoin blockchain has a 1 MB limit per block, it was at this point that the one blockchain became two. The supermajority of miners are still mining the original Bitcoin chain, let's call it "Bitcoin Core" or BTC. However, a small portion of miners have joined the mining of the new "Bitcoin Cash" or BCH. If you thought Bitcoin Core's growing pains were challenging, take a look at how Bitcoin Cash had to start:
In Bitcoin, there's a thing called mining difficulty that is basically designed to increase as more people enter mining and compete to discover scarce Bitcoins. However, should people leave the mining game, the difficulty will decrease. In BCH's case, when they started their fork, their network was at the same difficulty level as BTC, but with a fraction of the total mining power. That's why it took six hours for the BCH miners to find their first block! Normally Bitcoin blocks are expected to be found every ten minutes. So, this means BCH transactions were, in the beginning, taking hours to confirm! They are as of this writing, still taking longer than BTC transactions.
Worse still, no one who wanted to sell their newfound BCH was easily able to do so for at least the first couple days of its existence. Due to concerns about certain technical attacks that are possible in the time after a fork, cryptocurrency exchanges were extra cautious before allowing BCH deposits to trading accounts. However, while they weren't allowing people to deposit BCH, they WERE allowing them to trade it. Huh? How can one trade something on an exchange to which one can't deposit? Remember, after the fork, the people with BTC in their exchange accounts were given a balance of the same amount of BCH. (Except at the Bitfinex exchange, who screwed over their customers.) So, since trading was happening but no one could deposit, the price of the new BCH trended upward, even reaching as high as $800-$1,000 on some exchanges.
Of course by Thursday and Friday, some exchanges began accepting deposits and the people who wanted to get rid of their BCH flooded the market and the price dropped precipitously, scraping new lows. Terrible news for BCH holders, right? Hang on a moment. Pull away from the moment-to-moment price fluctuations and look at what just happened:
- On August 1st at noon Eastern time, BTC was worth just over $2,700 USD per BTC. There were roughly 16.4 million BTC in the market at that time, meaning the total value or "market cap" of Bitcoin Core at that time was 44.2 billion US Dollars.
- About an hour later, because of the "hard fork", "Bitcoin Cash" (BCH) was created. There were instantly 16.4 million BCH created that out-the-gate had a market value of approximately $300 per BCH, or about 11% of the value of a BTC. Nearly $5 billion additional worth of cryptocurrency was literally created from thin air.
Amazingly, the price of BTC did not respond to this new competitor by losing $300 worth of value as some had expected it to. Instead, BTC's price held steady for a couple of days and last night shot up to a new record high of over $3,000 USD! Though the price of BCH has fallen to the $200-$250 range in the last couple days, the fact is, there are billions of dollars of extra value now where none existed before. As I'm editing this article, the price of a BTC is over $3,200 and BCH is just above $200. Less than one week from the fork, and BTC's market cap is up to $52.4 billion from it's pre-fork cap of $44.2 billion. PLUS BCH's market cap is around $2.9 billion. Combined, that's a total of $55.3 billion dollars of value. Meaning, since the fork, $11.1 billion of value was created in under a week's time! Put another way, rather than going down in price as some predicted (including me), the combined value of BTC and BCH went up 25% since Tuesday!
That means if you had one bitcoin before the fork, you're literally now 25% wealthier. Who knows what will happen tomorrow, but this week has been an unqualified success. All the people from the Bitcoin Core side who've been hating on Bitcoin Cash and its supporters like Roger Ver, should be saying they are sorry as they cash in their BCH on exchanges for BTC or some other cryptocurrency they prefer. They got that free money because of the very thing they hate! How ironic.
It's important to point out how incredible this is when compared to the fiat government/bank money we've had up until Bitcoin. In a system where a central "authority" prints money and forces people to use it (that's what "legal tender" laws do), inflating the money supply is an insidous tax. It takes wealth from those holding the fiat currency (in our case US Dollars) and transfers it to the political class, like the Military Industrial Complex. This is one of the key ways the state is able to make endless war. They can just print the money, meaning more dollars chasing the same amount of goods, which devalues the currency. If the government's Federal Reserve doubled the money supply tomorrow, prices would rise dramatically, as we're seeing happen in Venezuela.
Conversely, in Bitcoin's case, there now being about as many BCH in circulation as there are BTC has INCREASED the value in the BTC holders' hands. Bitcoin is not centrally controlled and as we've seen this week, when one group feels strongly enough about a direction they want the currency to go, and can't get everyone to agree, they can break off their own. Though BTC and BCH are both Bitcoin, they are using different blockchains and so are different currencies. Creating 16.4 million BCH from BTC didn't dilute the value of BTC at all!
That's not to say these forks should happen frequently. This week has been a confusing, fascinating, learning experience. I've been deep into it all week and haven't gotten much else done besides follow this historic, developing situation. The world's first and most successful decentralized cryptocurrency has split over an ideological divide, much in the same way as political and religious movements have done.
Indeed, this all-too-human aspect of the schism is the worst part of it. Plenty of actors on both sides, the "big blockers" and the "segwit supporters" both have behaved quite poorly throughout this Geek War. One might think that now that each side has its preferred version of Bitcoin that they could go their separate ways and focus on building the currency of their preference. But no! The petty war continues on now with BTC fanatics purposefully relabeling "Bitcoin Cash" as "Bcash", as it serves their narrative that Bitcoin Cash is not Bitcoin. They consider it an "Altcoin", lumping it in with the hundreds of competing cryptocurrencies that have arisen over the years. On the other side, the BCH fanatics are claiming that their Bitcoin Cash is the true bitcoin, as they say it is the one that stays true to Satoshi Nakamoto's vision. (Nakamoto is a pseudonym for Bitcoin's anonymous creator. No one knows who it is and "he" disappeared years ago from public view.)
My view is the sides in this conflict are ridiculous. Both currencies are Bitcoin. Unlike the hundreds of Altcoins, Bitcoin Cash has the original Bitcoin blockchain until it forked August 1st. It's Bitcoin. Bitcoin Core is also bitcoin and it's also still the king of the hill of cryptocurrencies. While the soon-to-activate "Segregated Witness" technology may not be Satoshi's vision, whether it improves or hurts bitcoin will be up to the market to decide. To add some extra confusion to this situation, besides the branding frustrations, both Bitcoins' wallet IDs are the same, which is going to cause some inevitable confusion and heartache as people accidentally send BTC to BCH addresses and vice-versa, meaning countless amounts of each currency will be lost. This has already started happening, so if you're getting into BTC or BCH, make sure you know which one is which and pay attention to which wallet you are using, and what kind of wallet you're sending to. If you're not sure, don't do it! If you're in the Monadnock region of New Hampshire, drop into the Monadnock Decentralized Currency Network meetup group in real life, or the facebook group, and also the NH Bitcoin forum. We discuss stuff like this every eight days at our meetups, and online daily.
Regardless of its haters' opinions, Bitcoin Cash appears to be here to stay. It's been a rocky start, but that was to be expected. Now the market will decide based on competition, which is the most useful Bitcoin. I hope my week-in-review has been helpful. Of course, there's a lot more that could have been said, like commenting on what's happening with the mining of BCH or the very public reversal by top exchange Coinbase who last week told their customers to pull their BTC out before August 1st because Coinbase would not be supporting BCH. This caussed major withdrawal delays at Coinbase as untold numbers of customers tried to get their BTC out before the fork. Then, a day or so after the launch of BCH, Coinbase emailed their customers again to say they were going to implement it after all and credit all their BTC customers with BCH in their accounts. Though, it may take them the rest of the year to do it! It's been a really interesting week in cryptocurrency.
P.S. If you have your Bitcoin in a non-custodial wallet as I recommended you do before the fork, here's one of the easiest ways to get access to your BCH via the Coinomi wallet. Keep in mind though, it's still very early and it may be best and more secure to just wait until more wallets implement BCH support.
This post originally appeared on my main blog, Free Keene: