Bitcoin forks occur almost regularly when any two miners find a block nearly at the same time. This ambiguity is often resolved by adding a subsequent block to one, making the former the longest chain. The remaining block gets abandoned or “orphaned” by the network. Forks can also be deliberately introduced to the network when developers intend to change transaction validation rules used by software.
The U.K. Managing Director at eToro-Iqbal Gandham rightly put it that:
“Demand for Bitcoin has been so high in recent months that those creating the cryptocurrency can’t keep up, [they are] slowing transactions. For Bitcoin to continue to scale and have the potential to become a globally used currency, this slowdown in transactions has to be addressed,”
The most common types of forks are the hard fork, soft fork and user-activated soft fork. By performing a hard fork transactions processed on the new software becomes incompatible with the preceding versions. However, the new version remains backward compatible in a soft fork. In early August, Bitcoin experienced a high-profile hard fork when a part its community split off the software and formed an entirely new version called Bitcoin Cash.
The split of the blockchain was necessitated by some disgruntled members of the Bitcoin community. After the split, all investors with Bitcoins received an equivalent number of Bitcoin Cash tokens. However, not all exchanges were to accept Bitcoin Cash. The split period was exceptionally pivotal for Bitcoin as investors received a completely new asset, the Bitcoin Cash.
Instant Impact on Bitcoin
On the 1st of August, just before the split of the blockchain, Bitcoin traded at $2,759, according to CoinDesk’s Bitcoin Price Index. Weeks later, Bitcoin was hovering at an all-time high of around $4,100. At press time, the price had exceeded $4,230. Though this might seem odd, a number of analysts believed that the long-drawn-out scaling debate of Bitcoin posed a major headwind, and its termination led to a relief rally. According to reliable data sources, Bitcoin’s Cash price shot up to about $700 just 24 hours after the split of the blockchain. Two weeks later, the value of the fresh cryptocurrency was ranging between $250 and $300.
Bitcoin Cash was formed following Bitcoin’s hard-fork split. Similar to its predecessor Bitcoin, Bitcoin Cash (BCC) is a peer-to-peer electronic payment system supported by the blockchain technology and decentralized computer networks. The system operations based on cryptography handles the verification and recording of electronic payment transactions free of a trusted third party such as a bank. Bitcoin Cash eliminates third parties who reconcile disputes between buyers and merchants, therefore lowering the cost of transactions. By requiring security protocols like digital signatures and the proof-of-work that are verified on a publicly-distributed ledger, Bitcoin Cash substantially reduces the chances of fraud. It features an 8 megabytes (MB) block size limit compared to1 MB block size limit of the original Bitcoin. The 8 MB block size limit makes it possible for BCC miners to process extra transactions on the payment network. According to proponent’s arguments, BCC’s larger block size allows more rapid transactions, lesser fees and enhanced scalability. Bitcoin Cash is also not backed by a central bank or government.
Why increase block sizes?
The 8 MB block size limit enables Bitcoin Cash to work more as a currency and/or payment system that facilitate efficient transactions.
Advantages of having a bigger block size:
- Enhances the speed of transactions.
- Increases transaction throughput.
- Reduces fees
- Allow the system to scale and hold more users. This enables more payments to be made by retail buyers and sellers who expect fast confirmations, a strategy that seeks mainstream approval of BCC.
Bitcoin Cash is currently trading at around $461, hence worth almost 18% of the current Bitcoin price of $2,568, in an already-open futures market. At mid-September 2017, one unit of Bitcoin Cash traded at around $490 with a market capitalization of almost $8.1 billion. On the other hand, Bitcoin traded at $4,000 with a market cap of $66.3 billion. Upon exceeding one billion in market cap, many investors treat a financial instrument as a valid asset class. This is undoubtedly what has happened with Bitcoin Cash and its predecessor.
What is Bitcoin Gold?
In a nutshell, Bitcoin Gold aims to achieve two objectives. First, Bitcoin Gold would revolutionize the way mining works and render the current most potent mining machines (called ASICs) useless. Second, it hopes to attract more people to its system, so as to free the Bitcoin network from the undue influence of big companies which offer these products on the network. Unlike the Bitcoin Cash, Bitcoin Gold has practically no community and institutional support. This has largely reflected in its price decline. Bitcoin Gold plunged to $131 after debuting $500. As at 27th October, Bitcoin Gold had a market capitalization of $11 million.
This is what differentiates Bitcoin Cash from Bitcoin Gold although both were created using similar mechanisms;
- The team behind Bitcoin Gold launched the cryptocurrency so that users can redeem their coins once the distribution is done.
- Unlike the case of Bitcoin Cash, 1 percent of the entire cryptocurrency tokens mined before the blockchain went public was channeled to compensate the development team behind Bitcoin Gold.
- The Bitcoin Gold cryptocurrency was formed in advance before the code was open-sourced to the public
The Bitcoin price is still quite bullish. A renowned stock analyst and founder of Standpoint Research, Ronnie Moas, predicts that a unit price of Bitcoin will hit $50,000 and catch up with Apple’s $800 Billion market capitalization by 2022. Although the early Bitcoin booms were US-centric, the boom expected over the next few years will be driven by a surging demand throughout the world, particularly in the Asia region. There is certainly a big talk about the Bitcoin Gold being the “digital Gold.” However, it is largely believed that the Dinarcoin developed by Dinardirham on the Ethereum platform is the actual digital Gold since it is backed by a Gold standard and connected to the actual Gold spot price worldwide.