It's been an intense month for Bitcoin. It's gone through several big changes — an upgrade and a currency split — all of which potentially threaten the integrity of the network as it plods into uncharted territory.
The results, so far, have been stellar. Nothing has gone wrong, and sure, bad things can still happen, but for now we're in the clear. Bitcoin miners are happily mining, exchanges are exchanging, and users can trade or use their bitcoins as they please.
And not only is Bitcoin trading at an all-time high ($3,379 at the time this article was published), but the other Bitcoin — Bitcoin Cash, the one that split from the original on August 1 — is trading at $270 and is currently the fourth largest cryptocurrency with a $4.4 billion market cap.
SEE ALSO:How to buy Bitcoin and EthereumWith that said, let's take a look at the details and expectations for the cryptocurrency's future.
First, the vast majority of Bitcoin miners — the people who employ computing power to generate new bitcoins, powering the Bitcoin infrastructure — put their money where their mouths are. They started mining a new version of Bitcoin that didn't bring any huge changes yet but prepares the groundwork for a much more important upgrade called SegWit2x, which will fully go through in a couple of months.
You can read about this in more detail here; suffice to say adopting SegWit2x will make Bitcoin faster and cheaper to use. What's important is that this mini-upgrade, deployed at the end of July, went well; the Bitcoin wheels are spinning as usual and everything went as planned.
Secondly, Bitcoin was split into two versions, Bitcoin (BTC), and Bitcoin Cash (BCH). The two cryptocoins share history -- they're essentially the same coin up until they split (this is technically called a fork) into two on August 1. From that moment onward they became two separate coins. The good side of this is that anyone who owned Bitcoin would get the same amount of Bitcoin Cash as well.
That everything would go well was far from a given. Bitcoin Cash was somewhat hastily created and there was concern over whether the fork would cause problems on the original Bitcoin network. Furthermore, in the beginning it was unclear in what situations the owners of Bitcoin would get their Bitcoin Cash as well — some exchanges, like Coinbase, said they would not support BCH (the company later reversed stance and said anyone who held BTC on the exchange on July 31 would get their BCH as well).
You can find more details about the BTC/BCH fork here.
So now that both the upgrade and the fork went through, what does it all mean for Bitcoin and Bitcoin Cash's future? The answer is twofold.
Short-term, everything is looking hunky dory. Both Bitcoin and Bitcoin Cash are functioning well, with miners happily mining on both networks. After the initial uncertainty, many exchanges started offering the ability of trading with Bitcoin Cash, so Bitcoin owners who suddenly came into ownership of Bitcoin Cash are free to sell or buy BCH as they please.
Longterm, however, things are less clear, both for Bitcoin, and especially for its newly created cousin.
Let's start with Bitcoin Cash. Some miners and some exchanges have adopted the new cryptocurrency — and poof!
More than $4 billion in new "value" was created (though some of that money will never be used due to some bitcoins being lost). Owners who got a few hundred dollars per Bitcoin are undoubtedly happy, but that doesn't mean the new cryptocurrency will actually get used the same way as Bitcoin, and it definitely doesn't mean that businesses will embrace it.
Bitcoin Cash currently has one distinct advantage over Bitcoin: bigger blocks in its blockchain, allowing for faster and cheaper transactions. But that's the very thing Bitcoin's next upgrade is aiming to achieve, and since the first part of the SegWit2X upgrade is now complete, it looks like Bitcoin Cash will soon lose that advantage.
The value proposition here is unclear. Right now Bitcoin Cash looks to mostly be an alternative that can take over Bitcoin's place in case it falters in some way (though you could argue that several other cryptocurrencies, such as Litecoin, are equally good or better alternatives). This does not mean it holds no value at all, but there's currently no good reason why its price should go up or even stay where it is.
Bitcoin, on the other hand, is doing well because it experienced no noticeable problems despite the soft upgrade of its own protocol and the split with BCH. With every day that Bitcoin keeps ticking without issues, the insecurity that drove BTC's price down in July goes away. The market sentiment is bullish; as proof, the price of one Bitcoin rose around $152 (from $3227 to $3379) during the time this article was written.
After a dip in July, Bitcoin's price is rising to new highs.Credit: CoinmarketcapBut Bitcoin is not fully out of the woods yet. Because miners now have a near-identical alternative to switch to, any problems in fully implementing the SegWit2X upgrade (which should happen around November) could result in miners massively switching to Bitcoin Cash. Also, Bitcoin Cash was designed in such a way that mining it will become more, not less, lucrative as time goes on (at least in the beginning). Miners might (and likely will) switch to the more profitable option, and since Bitcoin lives and dies with miners, these fluctuations could compromise the stability of the Bitcoin network.
In the simplest of terms, Bitcoin now has a clone that is waiting for it to stumble. It's unlikely that all users would just switch from Bitcoin to Bitcoin Cash in a short time, but even if the clone only begins to appear a viable option for replacing the original, Bitcoin's price might suffer.
Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC and ETH.
TopicsBitcoinInnovations
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