Bitcoin cash: challenger, child or just chatter?
Bitcoin was forked recently, and as a result bitcoin cash was created. What are its implications? Experts and stakeholders try to find out
Even as the Indian government and financial regulators are trying to make sense of bitcoin, a new offshoot of bitcoin has emerged. Called bitcoin cash, it entered the world of crypto-currencies on 1 August.
So now, we have bitcoins and we also have bitcoin cash. Currently, in the cryptocurrency world, bitcoin is important because it holds 40-50% market share in terms of value. According to Coinmarketcap.com, a website that tracks crypto-currencies, there were over a thousand crypto-currencies in the market. Bitcoin tops the list, followed by ethereum and ripple. Crypto-currencies are digital currencies created through digital encryption techniques. Some of the other crypto currencies today are: litecoin, peercoin, namecoin, ether and primecoin. Let’s try and make sense of what is happening in the crypto world.
Bitcoin and bitcoin cash
On 1 August, bitcoins and blockchain experts heralded the arrival of a new crypto-currency called bitcoin cash. We know that bitcoins are created using encryption techniques and that bitcoin cash is an offshoot of bitcoin. Expert say that bitcoin cash is created by forking or splitting bitcoins. According to Coinmarketcap.com, on 4 August, the value of one bitcoin cash was $370 while the value of one bitcoin was $2,760. However, from a technical point of view, the main difference between bitcoin and bitcoin cash is the increase in the block size and code. For instance, the block size of a bitcoin is 1 MB (megabyte) while bitcoin cash has a block size of 8 MB.
So they are different. But why do we need bitcoin cash when we have bitcoin already? A set of data miners believe that bitcoin cash is more efficient than bitcoin. “The new cryptocurrency has emerged from a different school of thought.One way to explain the two sets of currencies would be an analogy of roads: bitcoin being the express way while bitcoin cash emerging as a small adjacent lane. Now it is up to you which road you want to take,” said Sandeep Goenka, co-founder, Zebpay, an app-enabled bitcoin exchange in India. Another analogy is of a tree and an offshoot of that tree. If bitcoin is a tree, bitcoin cash can be considered an offshoot that eventually grows on its own.
There are two very different ways of looking at bitcoin and bitcoin cash. And there is a reason why these two views are different. Some sections of bitcoin miners believe in increasing the block size and are for the new version of bitcoin, while the majority does not. One of the problems is: “When you increase block size without demand, it increases the cost of handling the network and makes it more expensive,” said Goenka.
Either ways, cryptocurrency geeks have split the bitcoin and bitcoin cash is here. The term splitting has a very different meaning from, say, in the equity market; where a stock split simply means that if a stock at Rs10 was split 2:1, you would have two stocks of Rs5 each. In the bitcoin world, splitting refers to moving away from the current path to a new one, and the outcome of which is a new currency. In fact, it created two ecosystems controlled by two protocols.
“This is not the first time a cryptocurrency has been split. For instance, ethereum was split in August 2016 and hence gave rise to ethereum and ethereum classic,” said Sathvik Vishwanath, co-founder and chief executive officer, Unocoin. Ethereum is currently trading at $225 while ethereum classic is at $15.
Bitcoin cash uncertainties
Not all bitcoin exchanges are ready with technology that can handle bitcoin cash. “As of now, none of the exchanges in India support bitcoin cash. It is still too early to say whether the valuation of bitcoin cash is correct. We are monitoring bitcoin cash and we will take a call whether to offer bitcoin cash based on volatility and demand,” said Hesham Rehman, co-founder and chief executive officer, Bitxoxo Bitcoins Pvt. Ltd.
The crypto-currency world is still unclear about the future of bitcoin cash. As an investment product, Mint Money does not recommend investing in crypto-currencies. First, the price of bitcoins has been extremely volatile in the last 1 year, which indicates that it is a high-risk product. Bitcoin cash too carries similar risks. Second, the government and the Reserve Bank of India are yet to decide on the legality of digital currencies in India. Currently, crypto-currencies are unregulated and hence there is no regulator to solve complaints of market manipulation, market failure and fraud. There have already been reports of fake crypto-currencies and scams too. Third, for any investment you need to understand the product before investing. Unless you understand the product and the fundaments clearly, you should not invest in it. Cryptocurrency experts too are currently uncertain about the future of the new currency. However, if you still want to venture in this space, tread with caution. Currently you cannot buy bitcoin cash in India. You can buy bitcoin from bitcoin exchanges in India through apps and websites. To buy, you need to do the Know Your Customer (KYC) process and provide details such as Permanent Account Number, address proof and bank account details.
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