Bitcoin, Bitcoin Cash and Bitcoin Gold: But Why?
Bitcoin (BTC) is almost a victim of its own success. The unexpected growth in the cryptocurrency, now valued at over $9000 CAD each, has created two major problems which have been addressed by individual “hard-forks”.
A hard-fork is a split in the blockchain, the underlying technology which forms the basis for Bitcoin, and is used as a control mechanism. While they sound similar in theory, hard-forks are not like stock splits. The purpose of a stock split is usually to reduce the value of each share, to make purchasing more accessible for individual investors. Bitcoin hard-forks have been to answer problems of processing and control.
In August and October, respectively, Bitcoin hard-forks created Bitcoin Cash (BCH) and Bitcoin Gold (BTG).
Bitcoin Cash (BCH)
In August 2017, a hard-fork split Bitcoin (BTC) into two, leaving the original Bitcoin and also creating Bitcoin Cash (BCH).
When a hard-fork creates two paths in the blockchain, the existing currency goes one way and the new currency the other. The forks become individual blockchains for the new cryptocurrencies. The blockchains are entirely separate, though for transparency the occurrence of a fork is recorded.
The hard-fork which created Bitcoin Cash (BCH), in particular, was to answer problems of scalability.
The sheer growth of Bitcoin (BTC) was slowing down the speed of Bitcoin transactions. The “miners” who validate each block in the blockchain couldn’t work quickly enough to cope with demand. The blocks which form Bitcoin Cash are bigger, 2mb in size, and contain multiple transactions, which makes the process faster.
One of the objections to the creation of Bitcoin Cash (BCH), was that mining larger blocks would take more processing power. This could potentially exclude independant miners, and give more power to the larger scale mining pools with better equipment. A shift of work to larger mining pools would begin to centralise Bitcoin. Ultimately, this did not stop the creation of BCH.
Bitcoin Gold (BTG)
Fast-forward a few short weeks after Bitcoin Cash was created. The value of Bitcoin has doubled and the concern is the large scale mining pools.
The emergence of companies operating powerful mining systems called application-specific integrated circuits (ASIC’s) is now giving a lot of power to larger groups, a notion that goes against the decentralised ideology of Bitcoin.
Jack Liao, founder of Lightning Asic, a manufacturer of the type of equipment independent miners use, approached Bitcoin in July and led the Bitcoin Gold initiative. According to Jack Liao, his motivations were to restore the decentralisation of Bitcoin and complete with Bitcoin Cash (BCH). He remains a key influence in the development of Bitcoin Gold (BTG).
Bitcoin Gold (BTG) was formed at the end of October, by another hard-fork, with the aim of restoring the decentralised nature of Bitcoin.
The powerful ASIC’s are prohibited by the new blockchain network of Bitcoin Gold (BTG) created by the hard-fork. This lessens the control of the mining organisations and pools, and puts back the control of bitcoin with individuals who can use smaller and cheaper computers.
Bitcoin is controlled by all Bitcoin users, not a single entity, protocols and software are published openly, and developers can create their own compatible software. Too much mining power to a single group, would give that group too much influence over the Bitcoin network.
Bitcoin Gold is still in development so owners cannot yet access their coins, but the development team launched a public testnet last night. Soon enough we’ll have Bitcoin, Bitcoin Cash and Bitcoin Gold, each separate currencies all, for the main, under control of their users.
Image credit: Bitcoin.org
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