What Does the Bitcoin Fork Mean for Cryptocurrency?

Rather than a day of infamy, August 1, 2017 will likely go down as the day of no consequence. For months, cryptocurrency chatter focused almost exclusively on the “civil war” among Bitcoin advocates. Years after its introduction, Bitcoin transaction volume spiked to unprecedented levels, bogging down transaction speeds. A proposed solution, called a hard fork, suggested “spinning off” a separate “Bitcoin cash” cryptocurrency using the original architecture.

What Does the Bitcoin Fork Mean for Cryptocurrency?

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Other advocates balked at the idea.

The obvious concern is that two similar currencies will compete in the same market space. In 2016, Ethereum, the No. 2 ranked cryptocurrency in terms of market capitalization, endured a split. Although the conflict ultimately didn’t negatively impact the original Ethereum (it’s up nearly 2,700% year to date), it’s confusing. A Bitcoin fork only adds to the perplexity and mysticism of digital markets.

Another unhelpful headwind was fear-mongering. Both the mainstream media and some cryptocurrency insiders ramped up the rhetoric over the Bitcoin fork.

In reality, the resultant Bitcoin cash is nothing more than another digital alternative among 836 alternative solutions.

The Heart of the Bitcoin Architecture

To understand Bitcoin, one must understand the blockchain, the underlying architecture that makes cryptocurrencies tick. A blockchain is simply a database where entries and transactions are verified without needing central administrators or third-party intermediaries. Instead, “miners” verify each transaction.

Mining is a process where decentralized agents compete with each other to verify blocks of transactional data. Specifically, this step involves the use of high-powered computers, often armed with GPUs produced by NVIDIA Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD), to solve complex mathematical problems.

Upon completion, the verified data block is entered into a sequentially-ordered ledger chain; hence the term, “blockchain.” Miners who successfully verified the blocks first receive a cryptocurrency unit, such as Bitcoin, as a reward.

The problem that sparked the Bitcoin fork debate was that transactions were getting larger than the system could adequately handle. Initially, advocates proposed increasing the size of each block. However, doing so would increase hacking vulnerability. Larger blocks would mean greater transactional value potentially compromised.

Bitcoin supporters argued that doing nothing is not a solution. Essentially, the blockchain was becoming a victim of its own success. To further the collective goal of crypto-normalization, quick, convenient and reliable transactions are non-negotiable elements.

Admittedly, no easy solutions exist. Slow transactions are anathema to the whole blockchain concept. At the same time, security is a major concern in light of the Mt. Gox debacle. Furthermore, Bitcoin cash lacks its predecessor’s cache.

The Bitcoin Fork Was a Major Distraction

For all the hysteria over the Bitcoin fork, it just didn’t do anything. Those hoping for the “crypto-king” to crash were sorely disappointed. At time of writing, the original currency was trading hands at just under $2,700.

On the flip side, Bitcoin cash had a solid introduction, which currently has a market capitalization of $10.6 billion. That puts it at No. 3 among the most highly-capitalized cryptocurrencies.

Nevertheless, the Bitcoin fork was more hype than substance. It simply adds another option for traders, investors and businesses. But, it did not solve Bitcoin’s scaling problem, merely offering the markets another cryptocurrency. More challenging is that trusted exchanges, such as Coinbase, refuse to support the offshoot currency.

As time goes on, I think the digital markets will simply accept the two versions, just like with Ethereum. The following quote from Bloomberg perfectly sums up my sentiment:

“There’s a role for both of these coins,” said Cathie Wood, the New York-based chief investment officer at ARK Investment Management, which oversees the first exchange-traded fund with indirect exposure to bitcoin. “One is much more natural for store of value and the other one for a means of exchange.”

Ultimately, the Bitcoin fork was nothing more than a selfish distraction. Those who want faster transaction speeds will get it with Bitcoin cash. I don’t think engaging in a civil war was necessary, nor was off-shooting from the original blockchain.

Despite my misgivings, the future of cryptocurrencies remains secure. Via the blockchain technology, they offer a platform to store and transact value outside of the traditional financial hegemony. No controversy, no hard fork, can ever take that away.

Josh Enomoto is long bitcoin and ethereum, and is a strong advocate for cryptocurrencies.

Article printed from InvestorPlace Media, https://investorplace.com/2017/08/what-does-bitcoin-fork-mean-cryptocurrency/.

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