Over the past 24 hours Bitcoin Cash has seen a huge jump in the market. With share prices jumping by as much as 25 percent at its peak, is it going to be the new Bitcoin? Or is there something else driving it? Does Bitcoin Cash really address any real world problems? Read on to find out.
Also read: Bitcoin Cash Is Now Just Bitcoin, Declares ‘Bitcoin Jesus’ Roger Ver
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The rise in the price of Bitcoin Cash over the past 24 hours came as a surprise, since almost all other currencies fell by small margins. In my opinion this not only poses serious risks, but might also cause blockchain-based ledgers to commit suicide in future. To understand the problems associated with it, we need to go through the basics.
The Bitcoin Scalability Problem
In the original Bitcoin protocol, block sizes were limited to only 1MB. Everything was going well with it until it became a bottleneck.
With more and more transactions being loaded onto the blockchain, transaction fees soared. The more you pay for your transaction to be included in a block, the less you need to wait. As a result, two solutions were proposed:
- Increase the block size to 8MB – (ultimately implemented in Bitcoin Cash)
- Segregated witness (SegWit), which would segregate the witness data at the end of each transaction, with each byte counting as only one quarter of a unit. With data counted as “block weight”, this would increase the effective block size to 1.7MB. SegWit was activated on the main Bitcoin blockchain in August 2017.
The Problem With Increased Block Sizes
So far, so good. But there is a major risk in increasing the block size to as much as 8MB: the problem of centralization.
The increased block size favors large mining pools. Larger block size means larger data storage costs. This makes it nearly impossible for individual miners and small pools to compete with the larger ones.
“But Ted, we don’t care! We’ll just be a part of the larger pools! We’re one and we’ll all mine together! Decentralization is anarchy!” Nope, not quite the case. Imagine a situation where only one pool survives in the end, with 10 servers spread across the globe. Now that pool would become a ‘single point of failure’. This means that if the pool fails, you lose the entire blockchain.
Taking down 10 servers wouldn’t be a difficult task at all. They can easily be taken down by force. So who is really supporting increased block sizes? Without a doubt, it had to be the big businesses and parties controlling a large number of ASICs and a huge amount of storage.
This would make them more money as it eliminates the smaller miners. Another huge surprise was South Korea, which was supposedly “officially” against SegWit2X and now has pumped up Bitcoin Cash.
The Way Ahead
The pumping of Bitcoin Cash by South Korean traders definitely seems suspicious. Once the price rises higher, they’ll likely sell it at the expense of smaller traders.
In my opinion, it would be the best to immediately cash out from Bitcoin Cash and invest in a cryptocurrency that favors decentralization. There are many of them out there, the most prominent one being Ethereum’s ether (ETH).
There are a few ways to solve the problem of centralization and increasing the block size is definitely not one of them. Here are a few other suggestions:
- For those currently holding bitcoin, watch out for Bitcoin Gold. BTG promises decentralization and is an interesting solution until others like lightning network and impulse help solve the scalability problem.
- Load-sharing with altcoins. For the tasks that are suited for altcoins like ether, the full potential of Ethereum must be utilized. With various companies building on top of Ethereum, it would likely be one of the major cryptocurrencies in the near future.
Do you agree with this point of view? Please share your thoughts in the comments below.
Note: This opinion piece reflects the personal views of the author, not Bitsonline editorial policy.
Images via Bitcoin Cash team, Pixabay, CoinMarketCap