Huge new waves have been made in the cryptocurrency market over the past week, with the community reaching an apparent “solution” to Bitcoin’s publicized “scaling dilemma.” One of the biggest problems with Bitcoin is how the technology behind it, called the Blockchain, limits the number of transactions that the network can process at any given time.
Blockchain technology is a digitally distributed ledger system in which transaction data is written to digital “blocks,” which represent settled transactions, on a network. Miners independently verify who use powerful computing hardware to solve intensely rigorous mathematical problems the blocks and are then rewarded with whatever digital tokens (like Bitcoin and Ether) are on their respective blockchain. Keep in mind that blockchain technology, while originating from Bitcoin, is not exclusive to it. Most cryptocurrencies, like Ethereum, have their own blockchains which are notably absent of the problems that plague Bitcoin.
Unlike other, newer chains, Bitcoin’s blocks can only be about 1 megabyte (MB) in size, and the network can only handle about seven transactions a second. Additionally, Bitcoin blocks are published on the network once every ten minutes, leading to the possibility of significant delays if the system experiences a substantial amount of traffic. Given the continuing popularity and growing adoption of the digital asset, this is likely to be a larger problem going forward.
While a somewhat intuitive solution to this scaling dilemma would be to increase the block size to ease the continued congestion, there has been a remarkable amount of pushback against this idea. Opponents of a block-size increase see Bitcoin more as a store of value rather than a highly liquid medium of exchange, as proponents of an increase do.
For a time, there was a proposal called Segregated Witness (SegWit2x) which would optimize much the code on the network and double the size of future blocks on the Bitcoin blockchain, thus keeping pace with new demand and stemming congestion-based worries. Initially endorsed by a significant portion of the community, worry about fragmentation and ideological differences have delayed SegWit’s implementation. However, recent developments have made the scaling change very likely, with Bitcoin’s blockchain network locked into implementing SegWit on August 21.
Then Bitcoin Cash came along.
Many users who had either lost faith in the SegWit proposal or felt that the block size increase would have been inadequate have rallied around this sudden, new competitor to Bitcoin that had only become conceptualized a couple of weeks ago. On August 1st, these users split, or forked the Bitcoin blockchain, by creating an entirely separate cryptocurrency called Bitcoin Cash. Abbreviated BCH, Bitcoin Cash supports an impressive 8mb block size and rejects the SegWit code optimization. Coindesk’s Alyssa Hertig explains that some big players, like CEO Haipo Yang of mining firm ViaBTC, don’t believe that SegWit will follow through.
This skepticism helped fuel the desire to take the extreme measure and create Bitcoin Cash, which also duplicated Bitcoin’s transaction and blockchain history up until August 1st. This meant that those that had Bitcoins in their digital wallets also found themselves with an equivalent amount of Bitcoin Cash. Paul Vigna of the Wall Street Journal writes that “Bitcoin’s new offspring promises users a currency optimized for fast and cheap transactions, as opposed to Bitcoin, which has grown in popularity despite limits on how rapidly it can trade.” However, as Vigna points out, many of the popular cryptocurrency exchanges are hesitant to accept the new currency. The risks associated with an exchange accepting a new cryptocurrency are many, not the least of which being security-related.
These most easily viewed concerns about Bitcoin Cash have to do with the average time to write a block on the Bitcoin Cash network. While, in general, Bitcoin is writing a block once every ten minutes, Bitcoin Cash blocks often take an hour or more (sometimes up to 13) to write.
If the currency stabilizes, more exchanges may end up adopting it, but right now many back-end improvements needed to facilitate a new cryptocurrency properly. Everything from new deposit, withdrawal, and server systems must be incorporated. Much of Bitcoin Cash’s success will rely on its ability to pull users and miners away from its counterpart, and if the SegWit integration falls apart, however unlikely, creating Bitcoin Cash have been a bold pre-emptive strike.
Read More about Bitcoin Cash:
“Bitcoin Rival Launches in Volatile First Day” (Paul Vigna, Wall Street Journal)
“The Bitcoin Cash Fork Was a Dangerous Trick” (Samson Mow, Fortune)