Bitcoin – Calm or Chaos as Bitcoin Cash hits the Bitcoin World

Following months of speculation and shifts in sentiment towards the various protocols proposed by members of the Bitcoin community with most to lose, judgement day has finally arrived as the Bitcoin world prepares for the launch of Bitcoin Cash.

If Bitcoin miners go through with their threat, Bitcoin will experience its first major fork since its creation today, which will deliver the increase in blockchain capacity demanded by miners, while also seeing miners turn their backs on Bitcoin’s core developers, who have been in search of a compromise to deliver improved transaction turnaround times, whilst looking to avoid greater centralization, with a mining few holding a large proportion of the hash power that has ultimately created the friction with core developers.

Two solutions that had been proposed were:

• To increase the size of each individual block of the blockchain, currently at 1MB, thereby increasing transaction speeds and the number of transactions within each block.
• Shift certain information contained within each transaction from the blockchain into a separate file, easing capacity issues, easing the congestion issues faced.

Miners have been widely in support of the first option, with the increased transaction speed leading to increased transaction fees within a given block of the blockchain.

Developers, looking for a solution that maintains the ethos of decentralization, have continued to support the second option.

The dust had settled with the proposal of SegWit2x, which was said to address the disagreements between miners and core developers, with the data splitting step taking place this month and the increase in blocksize to 2MB to follow in November.

Bitcoin Improvement Proposal 91, also referred to as BIP91, required 80% support from miners between 21^st and 31^st July for it to be locked, with initial support having hit as high as 95% during the time period.

Amidst the calm, the Bitcoin world assuming that chaos had been averted, announced plans to launch Bitcoin Cash on 1^st August, those proposing Bitcoin Cash claiming that the SegWit2x protocol did not guarantee a doubling of the Bitcoin block size upon the splitting of the information held within each transaction.

If there was ever a dangling carrot, it’s Bitcoin Cash’s promise of delivering a blocksize of 8MB, whilst also removing the need to split the information held within each transaction.

Even at the time of the report, there is plenty of uncertainty over whether Bitcoin exchanges will support the creation of Bitcoin Cash and allow transactions under Bitcoin Cash, with some exchanges looking to suspend Bitcoin transactions until the dust has settled.

If there was need for even more uncertainty, talk of the value of Bitcoin Cash being as low as sub-$300 levels, insignificant when compared to Bitcoin’s current value at the time of the report of $2,861.92, has certainly not helped the cause, though how much divergence there is between the two will depend on the level of support for Bitcoin Cash in the coming days

Until Bitcoin Cash actively traded across exchanges, the uncertainty will continue and price swings can be expected, particularly when considering the fact that certain exchanges have gone so far as to suspend transactions.

Looking at the value of Bitcoin at the time of the report and its moves in lead up to today, it would be hard to imagine that there is a major fork event about to take place, with Bitcoin recovering from sub-$2,000 levels seen in mid-July.

It could be hype not too dissimilar to the hype over the Millennium bug, or it could turn into chaos, the jury is out on which way things will go, but one this is certain, capacity issues do need to be address to ensure Bitcoin’s future as an alternative currency, transaction speeds of more than a day certainly not conducive of success for an alternative currency, let alone an alternative to gold, our trusted safe haven.