A group of Bitcoin infrastructure providers are set to split the cryptocurrency into two incompatible versions on Tuesday
Users and supporters of the Bitcoin cryptocurrency are awaiting a change set to take place on Tuesday that marks a first in its history, as a group of insiders plan to put their resources behind an incompatible ‘fork’ called Bitcoin Cash.
Bitcoin has had plenty of competitors in the past, but Bitcoin Cash is different in that its transaction history – if the split indeed takes place as planned – would be the same as that of Bitcoin up until the time of the fork.
Industry observers have likened it to a stock split, in which users who own Bitcoins will suddenly also own an equal amount of Bitcoin Cash – that is, if they’re using an exchange that supports the fork.
But many say there’s no way of knowing exactly how the move will play out.
The creation of Bitcoin Cash, announced only about a week ago, results from controversial plans aimed at speeding up Bitcoin transaction times.
One of Bitcoin’s constraints is that the blockchain, the ledger used to record all transactions, can only record one new megabyte every 10 minutes. The restriction was intended to protect Bitcoin from attacks, but has meant transactions can take days to complete in busy periods.
A compromise plan to resolve the issue, called Segwit2x, appeared to have been put into place after 95 percent of miners – those who contribute processing power to validate the blockchain in exchange for newly minted coins – said they would back it.
The plan calls for initially making blockchain blocks smaller by relocating some data into a separate file, a process called Segregated Witness, or SegWit. That step, set to occur in August, is backed by Bitcoin developers.
After that the compromise calls for the size permitted for each block to be increased from one to two megabytes in November, a step backed by miners.
Bitcoin Cash is being backed by a small group of mostly China-based Bitcoin mining companies, who argue there’s no guarantee the proposed block size increase will actually happen once the SegWit step goes through.
Bitcoin Cash won’t include SegWit, either, a step some disagree with and want to avoid.
The new currency’s backers have said they’re betting that if the block size increase doesn’t happen in November, as they expect, miners could flock to Bitcoin Cash, which has an 8MB block size.
In the meantime, Bitcoin holders could find themselves with a windfall, although Bitcoin Cash is currently trading at a fraction of Bitcoin’s price on futures markets.
But a number of popular Bitcoin exchanges have said they won’t support Bitcoin Cash, including Coinbase, BitMEX, and Bitstamp.
“We do not want to support any behaviour whereby anyone can potentially split the bitcoin blockchain and effectively create free money out of nothing,” BitMEX head of business development Greg Dwyer told Reuters.
People holding Bitcoin on those exchanges won’t be given Bitcoin Cash unless they move to another exchange, a process that can be risky.
The fork is set to take place at 12:20 GMT.
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