Since its inception, there have been questions surrounding Bitcoin’s ability to scale effectively. Bitcoin is a cryptocurrency that exists within network of computers, within the blockchain.
This is revolutionary ledger-recording technology.
It makes ledgers far
more difficult to manipulate for a couple reasons: The reality of what
has transpired is verified by majority rule, not by an individual actor.
And this network is decentralized; it exists on computers all over the
world.
The problem with this technology is that it’s slow. Like,
really slow, especially in comparison to banks that deal with credit
card transactions. Visa
processes 150 million transactions per day, averaging out to roughly
1,700 transactions per second. And their capability far surpasses that,
at 24,000 transactions per second.
How many transactions can the Bitcoin network process per
second? Seven. Transactions take about 10 minutes to process. And as the
network of Bitcoin users grows, waiting times will get longer, because
there are more transactions to process without a change in the
underlying technology that processes them.
The latest debates around Bitcoin’s technology have been
concerned with this central problem of scaling and increasing the speed
of the transaction verification process. There are two major solutions
to this problem, either to make the amount of data that need to be
verified in each block smaller, making transactions faster and cheaper
or to make the blocks of data bigger, so that more information can be
processed at one time.
The Difference Between Bitcoin and Bitcoin Cash
In mid July 2017, mining pools and companies representing
roughly 80-90% of Bitcoin computing power voted to incorporate a
technology known as a segregated witness,
called SegWit2x. SegWit2x makes the amount of data that needs to be
verified in each block smaller, by removing signature data from the
block of data that needs to be processed in each transaction, and having
it attached in an extended block. Signature data has been estimated to
account for up to 65% of data processed in each block, so this is not an
insignificant technological shift. Talk of doubling the size of
blocks from 1mb to 2mb in November has ramped up, and is
expected.fThis would also go some ways in improving Bitcoin’s
scalability. In mid-October, Bitcoin scientists from Bitcoin Unlimited
revealed they had mined the world's first 1GB block, 1,000 times bigger
than the normal size.
Bitcoin Cash is a different story. Bitcoin Cash was started
by Bitcoin miners and developers equally concerned with the future of
the cryptocurrency, and its ability to scale effectively. These
individuals had their reservations about the adoption of a segregated
witness technology, though. They felt as though SegWit2x did not address
the fundamental problem of scalability in a meaningful way, nor did it
follow the roadmap initially outlined by Satoshi Nakamoto, the anonymous
party that first proposed the blockchain technology behind
cryptocurrency. Furthermore, the process of introducing SegWit2x as the
road forward was anything but transparent, and there were concerns that
its introduction undermined the decentralization and democratization of
the currency.
On August 1st, some miners and developers initiated what is known as a hard fork,
effectively creating a new currency: Bitcoin Cash. Bitcoin Cash has
implemented an increased block size of 8mb, to accelerate the
verification process, with an adjustable level of difficulty to ensure
the chain’s survival and transaction verification speed, regardless of
the number of miners supporting it. This has raised concerns about the
security of Bitcoin Cash.
(For more on cryptocurrency, read: Does Crypto Have Intrinsic Value? It Depends)
The Future of Cryptocurrency
This development could mean any number of things for the
future of cryptocurrency. The situation is very fluid, and market
valuations are both constantly calibrating and volatile. It’s going to
be difficult to get a clear picture until Bitcoin Cash has been running
for a little while (or fails), and until Bitcoin implements its
segregated witness technology later this month, and then doubles the
size of its blocks three months later.
In a blog post earlier this week titled “The Crypto Currency Debate: Future of Money or Speculative Hype?”,
“dean of valuation” and NYU Stern Professor Aswath Damordan said that
the future of cryptocurrency as a currency, as opposed to a speculative
asset as it is so often treated, depends on cryptocurrency developers
thinking of their technology as a “transaction medium and acting
accordingly”. Both of these moves seem to be aimed at improving
cryptocurrency technology as a medium of exchange.
Improving cryptocurrency as a transaction medium will
depend on maintaining the high level of security that Bitcoin has always
ensured, while also improving transaction speeds. Bitcoin will continue
to be highly secure, but how much its transaction speeds will improve
is unclear. Bitcoin Cash, once its difficulty has adjusted, could have
transactions processing in two minutes and 30 seconds. The security of
the Bitcoin Cash blockchain, though, is unclear.
It will also depend on miners’ and users’ vision for the
currency. If Bitcoin really does undermine the decentralized nature of
the network, and the democratic possibilities of the blockchain
technology, people may look elsewhere for a cryptocurrency with more
exciting potential. (For more insights on how the market has changed
since the fork, read: What's Bitcoin Cash and Where the Heck Did it Come From?)
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