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.
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.