Bitcoin is now split into two separate cryptocurrencies, Bitcoin and Bitcoin Cash, after the main developers of the cryptocurrency’s blockchain software failed to find common ground with “miners” on how to increase transaction speeds for Bitcoin. The split was confirmed in a tweet by Erik Voorhees, chief executive of digital trading company ShapeShift.
Cryptocurrencies like Bitcoin operate on blockchains, or networks containing distributed “blocks” that process encrypted information without a central processor. For Bitcoin, this allows direct transactions between miners without intermediate processing by an external network. Transactions are recorded—usually anonymously—in an open-source ledger monitored by miners and other spectators so that the currency is not duplicated or destroyed.
Rumors of a split within Bitcoin have been speculated to have caused its volatility over the past few months. Miners called for a blockchain solution that would increase the speed of Bitcoin transactions, and others wanted an alternative that would reduce the cost of using Bitcoins. Bitcoin Cash set August 1 as the deadline for Bitcoin to produce a solution it approved of before launching its new blockchain cryptocurrency that builds off the existing Bitcoin ledger.
To address transaction speeds, Bitcoin proposes Segregated Witness (SegWit2x) that moves some bitcoin activity to an external network. It aims to move to this system later this month. The solution arouses concerns that transactions might fall through the cracks and fail to be recorded in the open-source ledger.
Bitcoin’s SegWit proposal also differs from BCH’s blockchain proposal in that it will not increase the size of its blocks to improve transaction speeds. Its current block size addresses security by not surpassing 1 MB. Meanwhile BCH proposed block capacities of 8 MB to increase speed, which go against security warnings from Bitcoin developers.
Bitcoin Cash’s growth will ultimately depend on how businesses, miners, and other users engage with it, but its launch could also help developers determine which blockchain architectures are more likely to be adopted by the masses. For instance, blockchain could influence transparency across supply chains and improve communications between devices in the Internet of Things, but to be competitive, it must provide fast processing speeds, security, and fail-proof recording in a public ledger.