There’s murder on the dancefloor
You’d better not kill the grove
Bitcoin, gonna burn this god damn house right down
If you’re new to Bitcoin et al, I wrote a 5-part series a few months back re why I think the technology behind it is freaking amazing, whilst holding Bitcoin itself in serious contempt. If you’re time poor, like Alfred in marketing, just read this. It will help in understanding what follows…
The weekend that was, saw a pretty epic battle playout in the ridiculous world of cryptocurrencies. Bitcoin vs Bitcoin Cash. Wait what? Are they not the same thing? No. No they’re not. They are similar, and have a shared history, but since the fork, are two completely different things.
The Back Story
Remember: Blockchain is just the term for the history of all transactions. These transactions are kept and maintained by heaps of computers all over the world (the distributed ledger). When new transactions occur, rather than being added one-by-one, they get added to the system in blocks every 10 minutes. With the “original” Bitcoin coin, the size of these blocks is set at 1 megabyte. And this is where the problem started….
By setting the size of a block to 1 megabyte, it limits the total number of transactions that can be added in each one. And as only one new block is added every 10 minutes, it means there is a limit on the number of transactions which can be processed at any given time. That number is 4,200 per block or 7 transactions per second. Sounds quick right? Well Visa handles on average 4,000 transactions per second and has the ability to process up to 56,000 a second if needed. So as trading in Bitcoin has increased, the system has been clogged with more transactions than it can handle which has resulted in delays in processing.
Step in Bitcoin Cash…
One of the truly awesome things about the technology behind Bitcoin is that control is decentralised across the masses rather than residing with one autocrat. This means that when there’s an issue, like slow processing times for transactions, the group gets together to find, agree and then implement a solution which is best for all. Love it. Let’s hold hands. #Kisses.
In the instance of slow processing times though, the “community” was split on the right way to solve it. One group (the Bitcoin originals) thought it was best to change the way blocks of transactions are added to the blockchain to make the process more efficient. The other (the Bitcoin-Cash folks) wanted to change the actual size of the blocks in the first place, from 1 megabyte to 8 megabytes. In the end, they agreed to disagree. Or, more accurately, part ways with one another.
Remember how we said transactions are added in blocks to the blockchain and that the blockchain is the history of all transactions which has ever occurred? Well, by agreement from block number 478,588 followers of Bitcoin and Bitcoin Cash agreed to fork the blockchain, implementing their own preferred solution to the slow transaction problem from each subsequent block onwards. They would both have the same history of transactions prior to block number 478,588, but any new transactions occurring from that point onwards would only be on one or the other of the blockchains, not both. The thing is, because they have the same shared blockchain prior to the fork, essentially what happened was that for every Bitcoin you owned, you received a free Bitcoin Cash too. Literally coins created from nothing. If you owned 100 Bitcoins as at block number 478,588 you would therefore own 100 Bitcoin Cash on the new blockchain too. HAVE FREAKING RIDICULOUS.
So yeah, that happened. And up until late last week a single Bitcoin was worth ~7,800 USD and a single Bitcoin Cash was worth ~500 USD.
Turns out Bitcoins (original) solution to the slow processing times for transactions wasn’t working as well as had been hoped. So they planned to implement a new upgrade to their blockchain. One which would have resulted in yet another fork and the creation of another new blockchain. It was to be called Segwit2x.
Speculators, knowing last time there was a fork that new, free money was created and given to them, piled into Bitcoin hoping the same thing would happen again. But then, something went horribly wrong…. The community cancelled the upgrade to Segwit2x. And then just like that, Bitcoin came crashing down.
First because a bunch of people had bought into Bitcoin in the hope of receiving free money from the fork. Once they realised it wasn’t going to happen, many of them promptly sold, pushing the price down.
A second thing happened too. Speculators started to think that that Bitcoin Cash, with its much larger block sizes, may actually be the better solution, particularly now that Bitcoin original wouldn’t be implementing their latest upgrade. So they began to sell Bitcoin and buy Bitcoin cash. At one point over the weekend, Bitcoin fell to as low as 5,500 USD (down from 7,800) and Bitcoin Cash rose to as high as 2,600 USD (up from 500).
Prices have since stablised and as of right now, a single Bitcoin will cost you 6,200. One Bitcoin cash, 1,450. Ultimately I still think they’ll both go to zero. But for now, it’s going to be one hell of a ride.
Anyway, that’s 5 minutes. Hope it helped