Coinbase, the most popular U.S. cryptocurrency exchange, released “Bitcoin Cash”—a new currency created this summer and currently worth around $3,000—into many customer accounts on Tuesday evening.
The decision came as a surprise since Coinbase had previously said it would deliver the Bitcoin Cash, which is owed to anyone who held bitcoin on or before August, early in 2018. Bitcoin Cash becomes the fourth cryptocurrency available to trade on Coinbase, along with Bitcoin, Ethereum, and Litecoin.
The move caused the price of bitcoin, which started the day around $19,000, to drop sharply. Shortly after Coinbase announced the news, the price fell below $16,000 but has since risen closer to $17,000 according to Coindesk.
Bitcoin Cash, meanwhile, has soared nearly 50% in the last 24 hours, from around $2,100 to a brief high of around $3,600, and is now the third most valuable digital currency after bitcoin and Ethereum.
Here is what the announcement looked like on Coinbase:
While the arrival of Bitcoin Cash amounts to a windfall for Coinbase customer, it also has the potential to create a nightmare when it comes to dealing with the IRS. As Fortune explained last month, some lawyers think Bitcoin Cash could amount to a taxable event like a dividend while others believe the tax obligation will only arise when they sell it.
A schism in bitcoin
The creation of Bitcoin Cash took place this summer following a bitter schism between bitcoin insiders. It’s essentially a clone of the original currency, which was created in 2009, but with “blocks” that are twice are as big. (Blocks are the units that make up a blockchain, a type of software that contain a permanent ledger of transactions).
When it arrived, Bitcoin Cash replicated every record found on the original bitcoin blockchain — including the existing distribution of bitcoin wealth. As such, everyone who possessed bitcoin received an equal amount of Bitcoin Cash.
Coinbase initially said it would not distribute the Bitcoin Cash, in part because it was wary of recognizing “forked” versions of the original currency. But following an outcry, and a threatened class action suit, the company relented.
Meanwhile, others who did not rely on a third party custodian like Coinbase to hold their bitcoin had immediate access to the Bitcoin Cash, and have been trading it in the market.
In the short term, the widespread distribution of Bitcoin Cash is likely to intensify the speculative mania surrounding crypto-currency, which some are warning is a bubble. In the longer term, Bitcoin Cash will also be a test of the viability of “forks” from the original bitcoin, including whether their proliferation will pose a threat to the larger market (one longtime bitcoin advocate notably called Bitcoin Cash a “dangerous trick“).
For companies like Coinbase, the arrival of forks also present engineering and security challenges that they must accommodate. In its blog post, Coinbase explained its decision to support Bitcoin Cash as follows: “We have been monitoring the Bitcoin Cash network over the last few months and have decided to enable full support including the ability to buy, sell, send and receive. Factors we considered include developer and community support, security, stability, market price and trading volume.”