A Slow-Moving Hard Fork Yields a High-Capacity Cryptocurrency Called Bitcoin Cash

Slowly but surely, a new version of the Bitcoin digital currency was emerging early Tuesday in what appeared to be the start of a hard fork in the Bitcoin code. The fork is expected to yield a parallel blockchain to support the new cryptocurrency, which is known as Bitcoin Cash.

The new coin officially went live at 8:20 a.m. Eastern time, but development of the new blockchain appeared to be slow in attracting the so-called miners that process Bitcoin transactions. Indications at mid-morning were a formal split may not occur until hours, or perhaps even days, later. At the same time, a Web site called btcforkmonitor.info at mid-morning posted a notice at the top of the site declaring, “No Unplanned Chain Split Detected.” Minutes earlier, the notice had simply said no split was yet detected. Later, the site went down.

Even before the split, major exchanges said they had no plans to support Bitcoin Cash. “In the event of two separate blockchains after August 1, 2017, we will only support one version,” said San Francisco-based exchange Coinbase in a July 27 blog post on its site. “We have no plans to support the Bitcoin Cash fork. We have made this decision because it is hard to predict how long the alternative version of bitcoin will survive and if Bitcoin Cash will have future market value.”

Nonetheless, the debut of Bitcoin Cash was already having an impact on the value of Bitcoin. At mid-morning, the digital currency was trading at just shy of $2,698, down 3.22% in the past 24 hours, according to Smith + Crown, a New York City-based cryptocurrency research firm. That drop shaved off about $1.5 billion in market capitalization, leaving it at $44.3 billion.

Meanwhile, Bitcoin Cash futures traded at $368, a 32% jump in 24 hours. But that’s based on relatively tiny volume.

The so-called hard fork comes after about two years of sometimes bitter debate in the Bitcoin community over how best to increase the capacity of the cryptocurrency’s blockchain, or distributed ledger, to handle more transactions more quickly. Miners process transactions into blocks that become part of the blockchain. Bitcoin’s original design called for a block size of 1 megabyte, but Bitcoin’s growth eventually ran against that restraint, causing processing delays for merchants and higher fees for users.

The new Bitcoin Cash, by contrast, is based on code that calls for an 8-megabyte block size. That capacity is not only dramatically greater than the existing Bitcoin, it is also four times higher than a competing hard fork, known as SegWit2x, that is set to take effect later this month. While this fork, as the “2x” part of the name implies, doubles block size to 2 megabytes, Bitcoin Cash backers see that boost as insufficient to account for future capacity needs.

Indeed, the capacity restraint on Bitcoin has led to frustration not only in what can be the somewhat arcane cryptocurrency community but also among the merchants that accept the currency. Daily transaction volume is hovering around 200,000, roughly double what it was two years ago, according to blockchain.info. That has led to longer wait times for transactions to confirm for a payment method that is widely seen as the ultimate near-real-time system.