In 200 CE, merchants across the ancient trade routes of the Silk Road were willing to accept a variety of coins. From Roman Emperors to Eastern Gods, these coins had completely different engravings and depictions on them. Often, coins were not even introduced by a state, but rather the merchants themselves. Therefore, coins in the ancient world derived their value the same way as crypto, by establishing their exchangeability.
Ultimately, the terms on which a coin may be exchanged must be democratically established by all those who use that coin. In simpler terms, if 99% of users believe that a certain coin can only be spent at Disneyland, but 1% believe it can be spent anywhere, then the coin is most likely only going to function in Disneyland since that is the consensus of the majority using the currency. In the world of digital currencies, establishing this democratic consensus can be crucial. Otherwise, a blockchain network can split into multiple coins since its users cannot agree on the underlying terms of exchange. This is precisely what happened to the Bitcoin Cash community in November 2018.
A QUICK FORKING REVIEW
Before delving further into why Bitcoin Cash split up into two new coins, it is important to understand the concept of forking. Here is a quick explanation:
Blockchains run on a distributed ledger technology, and in order for that ledger to operate, all nodes on the network must agree on the series of transactions that existed in previous blocks (the historical chain of blocks) and agree on what features and algorithms are in the current blocks.
- If a large portion of the network agrees to change the rules resulting in a fork to a new blockchain that isn’t compatible with the current chain, it’s called a “soft fork”.
- If a large group of nodes on the chain wants to start a new chain and branch off of the main chain, it’s called a “hard fork” and this can create an entirely new blockchain and token.
For a deeper understanding of blockchain forks, please read What the Fork? Understanding Blockchain Forks.
THE POLITICAL LANDSCAPE OF BITCOIN CASH
Bitcoin Cash was actually the result of a hard fork in the Bitcoin blockchain. A group of nodes decided to implement a new blockchain protocol, thus establishing a new way of tracking transactions and the birth of a new coin. At the inception of Bitcoin Cash, the largest client was a group called Bitcoin ABC who were publically responsible for introducing and implementing new changes to the underlying protocol.
As a way to push out regular updates, the Bitcoin Cash community implemented a scheduled hard fork every 6 months. A similar update was planned for November 2018.
According to CoinTelegraph, when Bitcoin ABC announced the details of the scheduled hard fork, it caused absolute havoc in the community. Only 19.3% of nodes seemed to be in support. Another major Bitcoin Cash client named nChain had suggested implementing a different protocol, which about a third of the community (29.5%) supported. This protocol promised to revert back to the classic Bitcoin protocol as it was initially released by Satoshi Nakamoto, thus naming their new coin Bitcoin SV for “Satoshi’s Vision”. Lastly, 51.2% did not support either.
Therefore, it became clear that this network was likely to split into multiple coins, and alas, on November 15th 2018, two new coins, Bitcoin ABC and Bitcoin SV were launched.
The democratic and open source nature of blockchain technology is essential for maintaining a trustless method of verifying transactions. This is a crucial aspect of this technology. Of course, democratization has some caveats associated with it, as seen by the split in the Bitcoin Cash community. Especially since this technology is so new, there is much debate about how to improve a blockchain network for the sake of decentralization, scalability, and security.
Since nobody has a clear cut answer, there are bound to be differences of opinion within the community. By familiarizing yourself with the underlying technology, you can better understand the cause of the fork and make an informed decision of which side you support. Ultimately, this will help you make sound investment decisions concerning coins that emerge from hard forks.