Bitcoin’s Civil War: What You Need To Know
Digital currency is set to get a new competitor - itself.
By Paul Vigna
The Wall Street Journal
August 1, 2017
This week, after years of industry infighting, the digital currency bitcoin is set to get a new competitor: itself.
A splinter group of bitcoin developers is launching a new version of the currency with a different configuration, the latest twist in a political quarrel for control over the network that controls bitcoin’s trading.
But the new experiment, known as Bitcoin Cash, is causing confusion as exchanges and brokerages scramble to deal with the new currency.
The new bitcoin is slated to be launched Tuesday, a retaliation against a somewhat controversial July agreement in the industry that concerned expanding the bitcoin trading network. As a result, there will now be two competing versions of bitcoin, both vying for the support of investors, developers, and miners. Miners are companies and individuals that process bitcoin transactions
While bitcoin is known as a currency, its core is software, an open-source project initially supported by volunteers and technology enthusiasts. Because the software is open-source, anybody can copy it and release their own version.
The prospects for the new bitcoin are uncertain, and it isn’t clear who exactly is behind it. A website for Bitcoin Cash says it is backed by a “group of miners, developers, investors, and bitcoin users” who previously were pushing for a split before the July compromise.
One large mining-equipment company, Bitmain, based in Beijing, was spearheading the split effort. The firm is still supporting the July compromise, but said it did “not rule out” supporting Bitcoin Cash, assuming it survives. Additionally, Roger Ver, a prominent bitcoin investor, has been publicly supporting Bitcoin Cash.
Mr. Ver said he didn’t know about Bitcoin Cash until it was announced July 22, but is enthusiastic about its prospects. “I think it fits the original vision of bitcoin,” he said.
One exchange, China-based ViaBTC, which is partially owned by Bitmain, is already allowing users to trade Bitcoin Cash in accounts that would be redeemable once the currency goes live.
In very illiquid trading)—fewer than 1,900 bitcoins over 24 hours—the price of Bitcoin Cash was at 0.0951 bitcoin, or about $266 on Monday morning. Bitcoin was trading at $2,801.
It is unclear what volume and prices will look like once live trading begins, scheduled for 8:20 a.m. Eastern time on Tuesday.
In the meantime, bitcoin exchanges are scrambling to figure how they will either support Bitcoin Cash or won’t, and protect their customer accounts at the same time.
On Thursday, the U.S. exchange Coinbase said in a statement that it wouldn’t support Bitcoin Cash, on the reasoning that it wasn’t clear how long the rebel currency would last and what market value it would have. It advised customers who wanted to access Bitcoin Cash to withdraw their bitcoin before July 31.
Another exchange, San Francisco-based Kraken, conditionally said it would support Bitcoin Cash trading, assuming it was successfully launched, and would credit its customer accounts with an equal amount of Bitcoin Cash.
The group behind Bitcoin Cash is copying bitcoin’s software, adding a couple of new features, and releasing it to the public. It will be an almost identical copy, and anybody who has a bitcoin balance can automatically hold the exact same amount of Bitcoin Cash. The balances from the original to the new version will be copied on a 1:1 basis, and it will exist as of Aug. 1.
Whether or not users get access to the new coin depends. If a user has control over their “wallet,” or online account, they can spend their existing balance anywhere either currency is accepted.
Some wallet services, like Coinbase, act as a custodian for users, meaning the decision on whether an existing balance could be spent on Bitcoin Cash is up to the company.
Whether this new money retains any value or collapses though will depend upon whether exchanges support it, and users adopt it. If they don’t, it could die quickly.
The main difference between bitcoin and Bitcoin Cash is how fast it trades and how many trades can happen in a short amount of time.
On bitcoin, transactions are bundled into blocks that are limited to one megabyte in size, which means the network can process about seven transactions per second.
Bitcoin Cash will have an eight megabyte maximum. It’s an arcane coding issue, but it is the source of a major rift in the industry. On one side: developers who want to expand the system to compete against major payment companies. On the other: miners who prefer the status quo and fear big technology companies could be too dominant if speed and large trades take over.
“I think the idea is ill-advised,” said Eric Lombrozo, a bitcoin developer and co-CEO of startup Ciphrex, “but do not wish them ill.”
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