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article imageWhy Bitcoin just split in half and created 'Bitcoin Cash'

By James Walker     Aug 2, 2017 in Technology
Bitcoin has split in half as a group of miners and investors have forked the cryptocurrency to create a rival called "Bitcoin Cash." The move is a response to years of debate inside the Bitcoin community over how to develop the underlying technology.
Bitcoin Cash has been born out of long running issues with Bitcoin's blockchain technology. The decision to create the new cryptocurrency means there are now two distinct and incompatible versions of Bitcoin coexisting side-by-side. Bitcoin Cash has joined the cryptocurrency markets as a rival to Ethereum, Litecoin, Bitcoin and others.
Bitcoin is limited by the block size of its blockchain. This effectively dictates how many transactions can be processed in a period of 10 minutes. It's currently set at a hard limit of 1MB, the maximum amount of data that can be added to Bitcoin's transaction ledger every 10 minutes.
As Bitcoin's popularity has ballooned, this limit has proved to be restrictive. The 1MB cap has been exceeded, creating long backlogs of transactions that have frustrated miners, investors and users. If Bitcoin's to succeed as a stable currency, purchases made with it must be able to process promptly.
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There have been calls within the community to raise the limit. This would allow more transactions to be made in each 10 minute period but could also make it harder for miners to get established. More powerful hardware would be required to mine the bigger blocks, making it easier for large mining groups to gain a stranglehold on the currency.
Last month, it appeared as though a compromise solution had been found that would avoid a split. However, a group of mainly Asia-based investors today decided to "hard fork" the currency regardless, creating an alternative called Bitcoin Cash. Both cryptocurrencies are now trading on the markets, with Bitcoin at around $2,770 and Bitcoin Cash at $220.
One day in, Bitcoin and Bitcoin Cash are currently peacefully coexisting. The two seem to be trading smoothly alongside each other and experts have described the trade in Bitcoin Cash as "robust." The new currency is considerably less valuable than its parent though, worth just $1 billion next to Bitcoin's $44 billion.
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Bitcoin Cash now needs to attract its own dedicated mining community so it can increase its value. It's possible this could happen if miners flock to the currency while it's still in its early days, creating a repeat of Bitcoin's birth. While it's too early to tell if Bitcoin Cash will succeed, there is potential for it to be more widely used than Bitcoin itself.
As Bitcoin Cash removes the biggest technical issue with Bitcoin, it should scale more freely than its parent. Since more transactions can be processed in the same time, it's better suited to use as a general purpose currency that could also be used for physical goods.
Bitcoin Cash is still at risk of being dominated by a few big mining groups though, a challenge that the Bitcoin community won't have to face. It's keeping its own block size at 1MB, preserving the currency's decentralised status but potentially limiting its range of applications.
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