Wait, Bitcoin Just Did What?
The digital currency has split into two. What that means will depend on what the miners do.
After years of infighting over how Bitcoin’s software ought to change in response to the digital currency’s growing popularity, the community supporting the technology has suddenly split.
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It’s not yet clear what this means for Bitcoin and its users in the long run. To have any effect, though, the new currency, Bitcoin Cash, needs to attract miners.
Miners are what make the Bitcoin world run. Their computers process the digital transactions people make using Bitcoin and add them to its cryptographic ledger, known as the blockchain. In return for this effort, miners are rewarded in bitcoins (see “What Bitcoin Is, and Why It Matters”).
A group of investors and entrepreneurs, many based in Asia, are the ones behind the “hard fork”—not miners. Peeved by what they see as a harmful lack of progress toward increasing the number of transactions the Bitcoin system can handle (seven per second, compared with thousands handled by conventional systems like Visa’s), they have taken matters into their own hands, and launched Bitcoin Cash. It’s meant to run just like Bitcoin, but no one knows if the mining community will buy into the newly created currency.
For years, there has been agreement within the larger Bitcoin community that eventually the software would need an adjustment to handle the growing number of transactions. But it has struggled to find a way forward (see “Leaderless Bitcoin Struggles to Make Its Most Crucial Decision”). The programmers in charge of updating Bitcoin’s code have resisted campaigns to increase the “block size,” or the number of transactions that can be processed every 10 minutes. One argument against increasing the block size is that could shut out smaller players who can’t afford the hardware needed to mine bigger blocks, while making it easier for a few big players to gain control of the network.
Experts say Bitcoin Cash’s design does address the capacity problem. But that doesn’t mean it will fly. Bitcoin has gained users’ confidence not because it has the best design, but because it has the largest network and has been around for years. Its stable community of miners is crucial. To get traction, Bitcoin Cash (which at the time of writing is worth $220, compared with Bitcoin’s $2,771) will have to attract its own critical mass of miners. As Emin Gün Sirer, a professor at Cornell and cryptocurrency expert, told Wired, one way that might happen is if miners decide that getting in early on mining Bitcoin Cash is a good bet, in the same way that it was for Bitcoin itself.
If that’s how things play out, it really could bring about a solution to Bitcoin’s capacity problem—either by taking over for the original, or by pressuring the Bitcoin community to get its own act together. But for now, anyway, it remains a big “if.”
Hear more about Bitcoin from the experts at the Business of Blockchain on April 23, 2018 in Cambridge.Learn more and register