Bitcoin has undergone its first major hard fork leading to the creation of a new cryptocurrency, Bitcoin Cash. As per reports, miners started working on the fork at approximately 12:37 pm (UTC). The split marks the conclusion of the two-week-long Bitcoin civil war that saw the world’s Bitcoin community breaking up into two camps:
- One favouring a solution called Bitcoin Improvement Proposal (BIP) 148
- And the other supporting the implementation of BIP 91
While both solutions are aimed at improving the scalability of Bitcoin, the underlying technologies are different from one another. The BIP 91 proposal focusses on the integration of SegWit2X, which could potentially double the size of blocks on the blockchain. On the other hand, BIP 148, is a bit more radical and entails the formation of an entirely new chain with larger block sizes of around 8 MB.
Both technologies will help make transactions faster and more efficient. The newly-created Bitcoin Cash will operate as an independent digital currency, along with Ripple, Litecoin, Zcash, and others.
In India, Bitcoin currently services more than 1 Mn users, according to a 2016 BitConnect report. With the Indian government finally moving towards legalising Bitcoin cryptocurrency, the introduction of Bitcoin Cash will possibly complicate things a bit. The many advantages of Bitcoin Cash are sure to attract more users looking for easier, faster, and more efficient transactions.
How the Bitcoin civil war affects the Indian market is something only time will tell. However, most wallets and exchanges in the country will keep using the original system. In fact, two major Indian startups, Zebpay and Unocoin, will not be supporting the new Bitcoin Cash. This will, in turn, make it difficult for the new cryptocurrency to gain traction in India.
Bitcoin, for the uninitiated, is a cryptocurrency and digital payments system that was created by Satoshi Nakamoto in 2008. Released as an open-source software a year later, it is maintained by developers, programmers, and “currency miners” from around the world. It is believed to be the first decentralised digital currency that functions without the need for a central administrator or governing body.
All transactions are peer-to-peer, meaning that they occur directly between users without any intermediaries. To ensure safety, each transaction is verified by network nodes. A record of every transaction is automatically added to a public-access ledger called blockchain. Technological advancements in recent times have made Bitcoin the most popular cryptocurrency, serving more than 10 Mn people worldwide. According to a report by IBTimes, over 100,000 online merchants and vendors accept Bitcoin as payment from customers.
Bitcoin Civil War: Why The Bitcoin Hard Fork
The increase in user volume has, in turn, created a host of problems, one of which is slow transaction speed. Since the collective blockchain history is part of every transaction, it has caused existing technology to get bogged down considerably. At present, Bitcoin can handle only around seven transactions per second. Compared to that, Visa allows nearly 2,000 transactions every second.
To solve the issue of speed, currency miners and developers recently released a new technology, known as SegWit2X, as part of the Bitcoin Improvement Proposal (BIP) 91. Although the proposal was accepted by around 93.8% of the Bitcoin community at the time, another group of miners, programmers, and holders soon came up with an improved system, which they are calling Bitcoin Cash (BCC). While SegWit2X is a soft fork that would be compatible with the existent Bitcoin chain, implementing BCC would result in a hard fork (split).
The Bitcoin civil war culminated when a section of the miners announced the decision to upgrade the Bitcoin code with a User Activated Hard Fork (UAHF).
What Is Bitcoin Cash
Bitcoin Cash (BCC) is the first hard fork from the Bitcoin system. Think of it as a spin-off. With the split, Bitcoin Cash will start operating as an alternative digital currency similar to Zcash (ZEC), Ripple (XRP), Monero (XMR), Ethereum (ETH), and Litecoin (LTC).
Like Bitcoin, BCC will be a decentralised cryptocurrency that allows peer-to-peer transactions between users. It was originally proposed as part of the Bitcoin Improvement Proposal (BIP) 148.
To set up BCC, the miners and developers behind it have introduced an alternative node, Bitcoin Adjustable Blocksize Cap (ABC), in the existing network. Because Bitcoin ABC contains a different structure and an entirely different set of rules, its introduction has caused the chain to cleave into two competing digital assets i.e. the original Bitcoin and Bitcoin Cash.
Nevertheless, Bitcoin Cash will carry the entire history of the older blockchain, including records of all transactions that have taken place. Therefore, Bitcoin users will be issued the same number of Bitcoin Cash tokens, provided both the exchange and the wallet support the new technology. While the majority of established exchanges will be integrating SegWit2X, a few Bitcoin exchanges have come forward to support Bitcoin Cash. Among these are Canada-based Kraken and Hong Kong-based Bitfinex.
Bitcoin Versus Bitcoin Cash
Bitcoin Cash differs from the original Bitcoin on several counts, most important of which is the integration of SegWit2X. Supporters of SegWit (or Segregated Witness) claim that the technology would enhance the scalability of Bitcoin code. So, how will it achieve that? Segregated Witness basically refers to a process that aims to make blocks lighter and less resource-intensive, by moving a part of the transaction database outside the blockchain.
The data, according to the developers, will be shifted to a parallel track. As a result, the blocks will double in size from the current 1 MB. This will increase the number of transactions completed every second. Instead of confining the technology to Bitcoin’s limited scope, proponents of Bitcoin Cash have called for a complete shakedown. Within the new framework, each block size would undergo an eight-fold increase to around 8 MB.
The new network will also boast an array of additional features, including “input value signing.” Developers are also working to improve wallet security and solve the long-standing quadratic hashing problem. In the Bitcoin system, quadratic hashing refers to a design flaw, because of which each signature signs a slightly different version of the same digital transaction.
Image Credit: CoinDesk
What Will Be The Worth Of Bitcoin Cash
In the third week of July, Bitcoin prices soared to $2,900 from the $2,200 reported in the week prior to that. Ahead of the Bitcoin Cash announcement, its price stood at $2807. In fact, Sheba Jafari the widely acknowledged market predictor for Goldman Sachs, has predicted that the price of Bitcoin may surge to more than $3,600 in the near future.
Whether BCC will rival the price of the original Bitcoin is something that only time will tell. For Bitcion Cash to compete against Bitcoin, it will have to be adopted by enough miners and exchanges. Given Bitcoin’s popularity and the recent surge in prices, it is highly unlikely that Bitcoin Cash will pose any threat to Bitcoin’s future.
Hong Kong-based Gatecoin founder and CEO Aurélien Menant believes that the impact of the Bitcoin civil war will likely be limited in scope. He told CNBC, “Investors holding both Bitcoin and Bcash may benefit from the speculative price gains in both cryptocurrencies following the hard fork, but adoption of Bitcoin Cash as a network will be limited in the short term.”
Co-founder and CEO of India-based Bitxoxo, Hesham Rehman, said, “Further to the creation of ‘genesis block’ the split of blockchain has become official and Bitcoin cash (BCC) has come into being now. To us, this is more like a creation of new altcoin and does not have any impact on current Bitcoin buyers or currently operation Bitcoin exchange. As far as Bitcoin cash is concerned, users can buy it on foreign exchange where it might be available but it is advised to them to keep their private key safe.”
Chances are both would co-exist and thrive, as was the case with the Ethereum split. According to a report by Coin Market Cap, future trading values of Bitcoin Cash stood at $378 at the time of publication. This amounts to only 13.5% of Bitcoin’s current price.
What The Hard Fork Means For Bitcoin Users
For Bitcoin users, the split is no reason to panic because BCC will carry the entire transaction history of Bitcoin. Holders with private keys will automatically get an equal amount of Bitcoin Cash tokens. However, users often prefer to store their Bitcoins in digital wallets and online exchanges. If the third-party platform does not support BCC, the holder will not receive the new currency.
Bitcoin Civil War And The Indian User
With the emergence of advanced digital payment technologies, the Indian Bitcoin market has witnessed rapid growth in recent times. According to a 2016 BitConnect report, India currently has a Bitcoin population of more than 1 Mn Users. As per a 2016 Trak.in report, India boasts more than 50,000 wallets. Of these, 700-800 Bitcoins are operated daily.
In June 2017, the country’s Finance Ministry announced the creation of a special committee that would be suggesting measures for minimising security breaches and vulnerabilities related to cryptocurrency usage. The initiative was deemed as the government’s first step towards legalising Bitcoin cryptocurrency in India.
Over the past few years, despite the lack of regulations in the Indian digital currency industry, a few exchanges have sprung up. The exchanges have teamed up with a number of self-regulated trading platforms, equipped with strict Know Your Customer (KYC) and anti-money laundering systems. Among these are startups like BuyUcoin, Zebpay, Coinsecure, and Unocoin.
These startups have also attracted investor interest. In September 2016, for instance, Bengaluru-based Unocoin raised $1.5 Mn in a Pre-Series A round from Blume Ventures, Mumbai Angels, and ah! Ventures. Bitcoin trading platform Coinsecure secured $1.2 Mn as part of its Series A investment round from an undisclosed investor in April 2016. Earlier in January, Ahmedabad-based mobile Bitcoin wallet startup Zebpay raised $1 Mn Series A funding from angel investors.
While the market is only just starting to gain traction in India, the Bitcoin civil war and the hard fork will likely complicate things even further. So far, most exchanges and miners in the country have decided to continue using Bitcoin.
In a recent blog post, homegrown Bitcoin startup Zebpay stated, “Zebpay will NOT support Bitcoin Cash or its trading. If you want access to Bitcoin Cash, please remove your bitcoins from your Zebpay wallet to a wallet in which you control the private keys on or before 31st July. If you leave your bitcoins in Zebpay, Bitcoin Cash will not be available to you.”
In a recent interaction with Inc42, Unocoin Co-founder and CEO, Sathvik Vishwanath said, “It was not so amazing to see the split and this only increases the confusion of the common man. At Unocoin, we are only supporting the traditional Bitcoin core and we are waiting for it to become stable to latch on to it. We only hope now that not too many such splits will arise in the future.”
To protect user funds in case of network disruption, Coinsecure has disabled Bitcoin deposits and withdrawals on its platform for two days, starting July 31, 2017. Warangal-based Bitxoxo will be supporting the newly-created Bitcoin Cash. In a recent blog post, the company revealed, “We are ready and prepared to adopt any kind of change in technology. With all our support to both the version of Bitcoin if happens in future. If chain Split, Bitxoxo will freeze all the buy and sell Bitcoin request and will not allow the users to deposit and withdrawal funds. This state could remain for 2-3 days or more until the situation comes back to normal.”
Bitxoxo co-founder and CEO Hesham Rehman told Inc42, “The major difference between BCC and BTC is that BCC does not support Segwit proposal and it increases blocksize to 8mb. It is like an alternate crypto currency which will have different pricing, different returns and coding. We will be monitoring the same to understand it better.”
This isn’t the first time that a blockchain-based cryptocurrency has been forked. In June 2016, a similar hard fork occurred with Ethereum, following the collapse of its Decentralised Autonomous Organisation (DAO). The blockchains created in the process were called Ethereum and Ethereum Classic. In the fourth quarter of 2016, Ethereum underwent two other forks.
Given the popularity of the original network, the Bitcoin civil war will likely impact the cryptocurrency’s price. Since the announcement of the BIP 148 proposal, key miners, holders, developers, and investors in the Bitcoin community have deliberated over the effects of the Bitcoin civil war.
According to Luis Cuende, co-founder of DAO network Aragon, Bitcoin Cash may very well be short-lived. He said, “Probably a fatal bug will crash the whole network (it already happened with Bitcoin Unlimited, Cash’s predecessor) or people will just lose interest in a currency engineered to look decentralised while being totally centralised.”
ZenCash co-founder Rob Viglione’s take on the entire thing is slightly less apocalyptic. He recently told Futurism, “There are pros and cons to everything. The downside of a split is that Bitcoin loses part of its ecosystem, and network effects are so important to this industry. That said, this isn’t a zero-sum game, and it’s more than possible to see both chains flourish in parallel.”
Because the use of cryptocurrencies in India has still not been legalised, it is too early to predict the financial impact of the Bitcoin civil war and the hard fork. That said, it would be interesting to see if Bitcoin startups in the country will adopt the new technology, which guarantees transaction rates that are eight times the current speed.