It’s the free market in action.
On August 1, the digital currency Bitcoin split into two derivative currencies, Bitcoin Classic (BTC) and Bitcoin Cash (BCH). Far from being a “rushed spinoff,” as Blockstream Chief Strategy Officer Samson Mow’s August 7 op-ed in Fortune claims, the split was a long time coming.
The origins of the debate can be traced back to 2010, when a one megabyte per 10 minutes limit was quietly added into the Bitcoin codebase as a spam control measure. Because the value of a bitcoin was so low at the time, trading for pennies each, the limit was intended to prevent would-be attackers from overloading the network with a flood of cheap transactions.
This one simple variable gradually led to the emergence of two competing factions within the Bitcoin industry. One side wanted the limit raised to allow Bitcoin to scale with growing demand, while the other side claimed that allowing Bitcoin to grow too quickly would result in its centralization and shift to corporate control.
As the Bitcoin network grew in popularity, this one megabyte limit started being pushed up against in late 2016, but through organic network growth rather than by a flood of maliciously generated transactions. The result was that Bitcoin found itself unable to absorb increased demand: Every transaction would now be at the expense of another, and a fee bidding war drove the average transaction fee from pennies to a peak of more than $5 in June 2017.
Many worried that such high fees would hinder Bitcoin’s growing adoption and use, disenfranchising most of the world’s actual Bitcoin users, leaving only price speculators and those willing to pay high fees to transact in bitcoin.
After years spent at loggerheads with the other faction, the Bitcoin Cash supporters decided that rather than try to morph Bitcoin to their wishes, they would simply create a split of the ledger and let the market decide. The Bitcoin Classic chain retains the one megabyte limit and the legacy ticker symbol, BTC, while the Bitcoin Cash chain has increased the limit to eight megabytes and adopted a new ticker symbol, BCH (alternatively BCC, depending on who you ask).
Any person holding bitcoin at the time of the split on August 1 received identical amounts of each new coin at the time of the split. If you had one Bitcoin at the end of July, you’d now have one BTC and one BCH in August. Rather than causing a market upset, the split achieved the desirable outcome of allowing both visions of Bitcoin to compete in the free market.
Many have decided to sell one side of the split to buy more of the other side, but more conservative holders can benefit from holding both and refraining from speculation. Preventing either of the two ideologically divided camps from pursuing their vision does no one any favors: Both camps were stuck with a version of Bitcoin they viewed as suboptimal. The split allows each coin to develop and grow in the way its supporters believe to be best.
And the markets seem to agree. The price of both tokens combined is now greater than the price of one Bitcoin before the split. In the long term, expect to see market demand coalesce around one of the two coins. Bitcoin has always belonged to the free market—may the best coin win!
Jake Smith is a manager at Bitcoin.com.