Bitcoin hits fork in the road as major payment system
A battle is afoot over the future of Bitcoin.
The front line of that war is a new iteration of the cryptocurrency called Bitcoin Cash that launched today and that advocates say will make it easier to use Bitcoin to buy and sell things. Bitcoin "miners," who effectively control its supply, have been clamoring to upgrade the underlying technology used to execute transactions using Bitcoin so it can compete more effectively with other payment networks, such as PayPal and credit card systems.
The impetus for Bitcoin Cash stemmed from a dispute over the addition to Bitcoin's code of software called Segregated Witness that, in principle, is supposed to help process transactions. But critics of Segregated Witness argue that the software limits its utility. Hoping to take the currency in a different direction, they developed Bitcoin Cash.
"Bitcoin Cash was created by people who don't approve of Segregated Witness," said Tone Vays, who hosts a Bitcoin podcast and who favors the push to change the currency. "Many of them just don't like the people who wrote [it]. Whoever writes the code controls Bitcoin."
On a technical level, Segregated Witness blocks AsicBoost, a software program that helps miners more speedily solve the mathematical problems they're required to complete to earn Bitcoin. Miners receive most of their income through these rewards.
"Segregated Witness was forced onto the miners by the community," Vays said.
Many Bitcoin companies, including Coinbase, the largest cryptocurrency exchange, are taking a pass on Bitcoin Cash and are sticking with the original Bitcoin. They argue that Bitcoin Cash is too risky and may not last, a view echoed by Vays.
"Bitcoin Cash won't be a viable alternative to Bitcoin," he said. "It will basically die out in a few days."
Bitcoin Cash is currently worth a fraction of Bitcoin. According to CoinMarketCap, it was recently valued at $375.82, compared with nearly $2,700 for Bitcoin Classic. Experts say the market for the new currency is likely to be volatile. As a result, Coindesk and many other Bitcoin exchanges are temporarily preventing customers from making deposits and withdrawals.
"A lot of money is also involved – many people believe that Bitcoin is destined to revolutionize our current monetary system, so naturally companies and individuals will aim to have as much influence in the cryptocurrency space as possible," said Norbert Radoki, managing director of Bitcoinist.com, a news site that follows the currency, in an email.
The emergence of Bitcoin Cash comes at an eventful time for the cryptocurrency market. For one thing, Coinbase is raising $100 million from outside investors, resulting in a $1 billion valuation. That puts the company among the so-called "unicorns," emerging private businesses that are worth an estimated ten digits.
Some Wall Street analysts have raised concerns that Bitcoin and some other digital currencies, such as Ethereum, are in a bubble, noting the recent run-up in prices.The Bitcoin market has crashed three times since 2011, plunging more than 50 percent on each occasion. Bitcoin prices as of 2013 were around $110, so even with the recent pullback the currency has gained more than 2,300 percent.
"Two Bitcoins might be better than one in the sense that there will be less infighting and more focusing on ideas and development," Radoki wrote.
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Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.
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