For years the Bitcoin community has disagreed over how Bitcoin should scale, with some arguing that Bitcoin needs an immediate block size increase while others consider the change to be imprudent.
This has created a sort of "split" within the community, which has resulted in the creation of multiple Bitcoin Improvement Proposals (BIPs) and alternative clients such as Bitcoin Classic and Bitcoin Unlimited.
While these alternatives have sought to increase the block size limit through a hardfork, the Bitcoin Core development team has released Segwit, a soft fork update that allows more transactions to be contained in one block without the need to actually increase the block size limit.
However, Segwit failed to gain the necessary support as miners did not rally behind the proposal which needed a 95% approval rate. At the time, both Segwit and Bitcoin Unlimited, the alternative client spearheaded by names like Bitmain, ViaBTC and Bitcoin.com, were competing for miner approval.
Although the infamous scaling debate has been going on for what seems like forever, the situation has escalated as Bitcoin's popularity grew exponentially, making the network reach its maximum transaction throughput capacity. This resulted in what is called a "fee market" where transactions compete for processing, resulting in higher fees or slower transaction times for those who didn't pay them.
What was once a sort of academic debate turned into an urgent discussion, with several parties acting to activate their preferred solution. This urgency spawned what is known as the "User-Activated Soft Fork" or UASF, a contentious fork that sought to coerce miners into signaling approval for Segwit.
As a response to the UASF, an agreement was drawn between the major players in the industry which make up over 80% of the global hash rate. The parties involved agreed to push for the activation of the Segwit soft fork and a subsequent hard fork to double the block size limit. This agreement is known as SegWit2x and represents a sort of compromise between the two original options.
Nevertheless, the UASF (BIP 148) was set to be activated on the first of August. Given the nature of this fork, a contingency plan was then formed by Bitmain. This plan was to activate its own contentious fork, a User-Activated Hard Fork (UAHF) in which the blockchain would split in two. This plan is what is now known as BitcoinCash.
As an emergency measure BIP 91 was created. This BIP allowed miners to vote for SegWit2x before the original date, allowing the update to be locked in and superseding the UASF. This plan was successful, and SegWit2x has been locked-into Bitcoin.
However, not everything went as expected. ViaBTC decided to continue with the BitcoinCash plan, moving to activate the UAHF on the 1st of August, despite the resolution brought about by SegWit2x. This means that on the first of August, a hard fork that will split the blockchain in two will take place. This will occur at 11:20 GMT.
What does this mean for the user?
Although the thought of a Blockchain split seems a bit scary, there isn't much to worry about from the perspective of the user. The best way to picture the event is to envision an actual fork in the road. The Bitcoin we have now is the main road and, come August 1st, we will reach the fork. What this means is that although the fork causes a divergence, the path until the fork has been the same.
This applies to Bitcoin and BitcoinCash, where the complete history of the Bitcoin blockchain will be exactly the same right until the moment of the fork. This means that every wallet and every balance will be the same. Your private key from the Bitcoin blockchain we have now, allows you to use the wallet on both blockchains.
Although the average user can take advantage of this knowledge to get his respective BitcoinCash coins, users are not required to do anything. If they want to continue using Bitcoin as before or if they want to use BitcoinCash, they can check which blockchain their wallet or exchange supports and choose the correct service, with BitcoinCash receiving the alternative ticker BCC.
It is advisable that users hold for a few days before making Bitcoin transactions as a safety measure against possible complications.
What is BitcoinCash (differences)
BitcoinCash is a hard fork, more specifically a User-Activated Hard Fork. This is a type of contentious fork that does not require the majority of miners to be on board in order for it to be implemented. Instead, a group of users simply runs an alternative client (In this case, BitcoinABC) that dictates a certain set of rules that make the current blockchain invalid, leading to a divergence between the two groups running different clients.
In the upcoming BitcoinCash blockchain, there will be an 8x increase to an 8mb block size which will allow for more transactions to fit into a block, which means that fees can remain low and transaction speed high.
BitcoinCash proposes other new features, including a new way of signing transactions (SigHash) that "improves hardware wallet security, and elimination of the quadratic hashing problem," a problem that can lead to longer signature validation times.
How is the Market Responding
People are buying bitcoin to take advantage of the free dividend of BCC. As such altcoins are falling as demand is directed into Bitcoin itself.
BCC is trading very illiquidly on a premarket but showing an indicative price of $300 or just over a tenth of bitcoin's price at $2900. Bitcoin is trading cum dividend - i.e. with the extra $300 dollars of BCC priced into it.
When the fork occurs it can be expected that the price of bitcoin will drop by the price of BCC; however, these are crypto markets and nothing is ever certain.
Who's doing what? - Who supports What
The Segwit2x agreement was signed by a group of leading companies in the cryptocurrency industry and gathered an overwhelming support. The group of signed companies included the likes of Bitmain and Bitcoin.com, who were previously opposed to segwit. It represents a critical mass of the Bitcoin ecosystem.
As of May 25, this group represents:
- 58 companies located in 22 countries;
- 83.28% of hashing power;
- 5.1 billion USD monthly on chain transaction volume; and
- 20.5 million bitcoin wallets.
Despite not being the most popular solution, there are several services who will also allow users to interact with BitcoinCash. These include exchanges like ViaBTC, OKCoin, Bithumb, Huobi, Kraken, Coinfloor, Bitfinex, and wallet providers like BTC.com, Electron, Ledger and Trezor.
Several exchanges like Bitstamp, Coinbase, BitMex have stated that BitcoinCash will not be traded on their platform. These divisions are drawn on practical as well as ideological principles.