After an update, the world’s largest cryptocurrency Bitcoin has split. Now users and investors are faced with the choice: Which digital coin is worth it?
For weeks, warnings were issued: users should temporarily stop transferring Bitcoins around August 01. It could be that their transactions are lost in the network. Reason for the panic: On 01 August, the software behind the world’s most popular cryptocurrency was updated. Now the update has been completed. Without any problems, as it looks. The only difference so far: since yesterday, there are two versions of Bitcoin – Bitcoin and Bitcoin Cash.
Every user who previously held Bitcoins in a digital wallet, whether on a smartphone or at an Internet trading site like Bitcoin.de, now automatically also owns the same number of Bitcoin Cash.
Paying with Bitcoins for the first time
The reason for this was a dispute between the developers who maintain the program behind the digital currency. This is because Bitcoin has grown in importance worldwide in recent years, with more and more users paying with it.
Now, however, the program was limited to only a certain number of transactions that could be stored in a block. Once the block was full, it moved immutably to the Bitcoin blockchain, the digital register that every participant worldwide can view.
Each block had a maximum size of one megabyte (Mb); it could not hold more information. But because the number of transactions on the Bitcoin network had been so high recently, participants had to wait longer and longer for their payments to be verified, that is, to be stored in a block.
This is the problem the update was supposed to solve
But how, the developers did not agree on. So the Bitcoin community divided into two camps. The majority of the community favored an adaptation of the existing Bitcoin. And it is considered the more radical solution.
With the update, as of 01 August, the block size has not yet been increased, it remains at one megabyte. But more information can be written into each block in this version, as some details are no longer stored in the blockchain. The incoming and outgoing payments will continue to be written to the register, but not the associated signature of the transactions. In simple terms, the holders of an account number on the Bitcoin network use such a signature to confirm that they are the owners of the account.
The fact that these signatures are now stored outside the blockchain means that, according to estimates, around 40-50 percent more data can be stored in each block. Then, in three months, the block size will be increased, from one to two Mb.
This has already happened in the new forked variant, Bitcoin Cash. With the update, the block size increased from one Mb to eight. This allows more transactions to be immediately recorded in one block. This variant was considered the more unpopular among developers, only a small part of the Bitcoin community supports Bitcoin Cash so far.
Yet the solution is considered more conservative. This is because all information still ends up in the blockchain. The Cash makes paying with Bitcoins more uncomplicated possible again. As the name suggests, the Cash makes paying with Bitcoins more straightforward again. Because the blocks have more capacity, payments can be processed faster. Thus, the fees for the transactions should fall again.
- Viktor Becher is the founder of the Berlin-based start-up Getsurance and an enthusiastic Bitcoin supporter. He has recently hardly used bitcoin to make payments because fees of one to two euros were incurred per transfer, Becher says.
- Originally, the charm was just that the fees for transfers on the bitcoin network are close to zero. He believes that both Bitcoin variants have a right to exist and can increase their value in the long term. That is also how the market currently sees it.
- Because after the update, the Bitcoin price only lost around 200 dollars, dropping from 2900 dollars to 2700. The new Bitcoin Cash, on the other hand, has increased rapidly since its launch. One Bitcoin Cash now costs 665 dollars. The prices of the two Bitcoin versions added together would result in a new all-time high of well over 3000 dollars.
With a market capitalization of 44 billion dollars, Bitcoin is still the largest cryptocurrency in the world despite the split. It is followed by Ethereum with 20 billion dollars. And in third place is already Bitcoin Cash with almost 11 billion in market value.
Bitcoin investors have made a profit on balance with the update
However, very few Bitcoin users are likely to see any of this so far. Because a look at the digital wallet (Wallt) shows: Nothing. Only the value of their Bitcoins is still displayed there. There is no trace of the new Bitcoin Cash. And that’s despite the fact that every user should actually be credited with the same amount.
Well, that’s because users have to collect their Bitcoin Cash first. They are deposited in their account. But because Bitcoin and Bitcoin Cash are not compatible, they also have to link their account to a new Cash wallet to do so. As yet, hardly any traditional Bitcoin wallet providers support Cash Coins in their apps.
Anyone who immediately sells the donated cash coins must also bear in mind that it is not yet clear under tax law how or whether the profits from them have to be taxed. After all, users do not acquire the cash coins, they receive them virtually out of thin air. In principle, the profits are tax-free if users have held their Bitcoins for a year. Even whether this regulation also applies to cash coins is currently not clarified.
The German Bitcoin exchange bitcoin.de already shows Bitcoin Cash holdings to its customers. Due to the update, Bitcoin.de was unavailable for about 15 minutes on Wednesday as planned. During this time, board member Oliver Flaskämper and his team had to adjust Bitcoin.de to the update.
“By the end of the week, we want to enable our customers to make withdrawals of Bitcoin Cash amounts,” Flaskämper said. “In one to two weeks, Bitcoin Cash should then also be tradable on our platform.” Like Flaskämper, not all exchange operators support the Bitcoin split. For him, however, it was a test of how other cryptocurrencies can be integrated on Bitcoin.de. “Because it is not said that bitcoin will always remain number one. We want to give customers the opportunity to trade alternative cryptocurrencies in the future.”
Founder Viktor Becher has already built up a small portfolio of various cryptocurrencies. He also counts Bitcoin Cash among them in the future. “For me, Bitcoin, Bitcoin Cash and other cryptocurrencies are just as much a part of a broadly diversified portfolio as stocks, bonds and gold,” Becher says.
But the flurry of activity surrounding Bitcoin’s software update shows: Investors should always keep an eye on current developments, even in this technically very complex topic. The bitcoin price cannot be influenced by any central bank. Instead, software developers scattered around the world in the Bitcoin community now determine the value.