On July 20, the Bitcoin mining community voted in favor of Segregated Witness (or SegWit): a technological solution designed to increase the transaction capacity of the Bitcoin network. The vote was almost unanimous which would have resulted in a single currency emerging from the upgrade, but a vocal minority of the community that opposed SegWit decided to go ahead with a hard fork instead.
This group of miners announced that the implementation of Bitcoin Cash, with a block size of 8MB, would take place via a hard fork on August 1. Now, one month later, Bitcoin Cash is still struggling to catch up to its big brother.
Both SegWit and the hard fork were designed to solve Bitcoin’s scaling problem. The cryptocurrency has become so popular that the original blockchain, with a block size of 1MB, was unable to process the sheer volume of Bitcoin transactions. SegWit solves this problem by recording transaction signatures onto a separate ledger, freeing up more space on the blockchain for the input data. Alternatively, the hard fork would solve the issue by simply increasing the size of the individual blocks in the chain, allowing for more transactions to be confirmed within a single block.
Why opt for a hard fork?
Proponents of the hard fork take issue with SegWit for several reasons: they argue that SegWit does not increase capacity significantly enough to maintain Bitcoin’s cryptocurrency market leadership, that segregating the transaction signatures would effectively “centralize” control of the currency, and that the solution favored people who viewed Bitcoin as a digital investment rather than a transactional currency.
On the other hand, a hard fork would maintain the fundamental design of the Bitcoin blockchain while multiplying the transaction capacity. The downside is that increasing the block size makes the new chain incompatible with the old – it’s called a hard fork because it effectively splits (or forks) Bitcoin into two separate currencies.
A new coin emerges
This is what happened on August 1. Bitcoin as we know it went in one direction while Bitcoin Cash, a new cryptocurrency created by the fork, went off in another. Despite the attention and scrutiny, it was an inauspicious start for Bitcoin Cash, at 8:20 am (EST), miners began working on what would be the network’s first block. Some thought it would happen quickly, others thought it would take several hours, but as the day went on many began to doubt the effort, worrying that miners would give up on Bitcoin Cash and return to Bitcoin even before the first block was mined. But then at 2:14 pm, after nearly 6 hours of mining, the first block was found, officially launching the new blockchain.
The rough first day may have set a bad tone for Bitcoin Cash, or perhaps the fact that Coinbase (one of the biggest cryptocurrency exchanges) publicly announced that it would not support the new coin on its platform (at least not initially) had something to do with this negativity. Both of these things cast a shadow on Bitcoin Cash, conveying a lack of trust and implying low acceptance and reliability of the new coin. One week after the hard fork, mining on the original blockchain remained 30% more profitable than the new chain, and despite much larger block capacities, the original chain had grown 920MB more than the new chain.
Bitcoin Cash, one month later
Now, one month after the split, the price of Bitcoin Cash is experiencing a steady decline after an impressive surge. The value had an early peak of $677 USD on August 2nd before dropping down to around $200 soon after, and excitement dropped off as people turned their eyes back onto Bitcoin and the imminent implementation of SegWit. In the days leading up to SegWit’s launch on August 23rd, Bitcoin Cash again climbed sharply from $300 to over $900 per coin in a 72-hour period as investors hedged their bets amidst uncertainty about Bitcoin’s future. However, with SegWit successfully implemented as of last Wednesday, Bitcoin Cash has begun another seemingly steady decline.
While it’s easy to be dismissive of Bitcoin Cash, the arguments put forward by the developers who support the new cryptocurrency remain valid. Going forward, the original coin and the new one will continue to compete and draw comparisons to each other, with the two ideologies being put to the test. In the first week after SegWit, the expected boost in Bitcoin’s capacity has not yet been seen; if SegWit fails to make the hoped-for impact, many may yet turn to Bitcoin Cash after all. Whether one or the other proves to have the superior technology, or whether both can have a valuable role in the crypto economy, is still yet to be determined.
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