Cryptocurrencies like Bitcoin are different from other software and standards-based platforms. There are no governing authorities or dominant players or established industry groups. That’s deliberate. The whole point is to create a way of exchanging value that’s not centrally regulated by governments or private organisations. But that means a super-majority of the millions of individual users have to accept and adopt software updates, or else there’s the risk that Bitcoin will splinter into different versions with different values.
That’s what happened last week. The debate within the Bitcoin community over the best way to increase the capacity and speed of the underlying software resulted in a tenuous compromise earlier this year between many users with different interests. But not all of them. So on Tuesday, another big group agreed on a different method of updating the software and began running it their own way, in the process creating a new version called Bitcoin Cash.
Anyone who had one Bitcoin on Monday now has one unit of Bitcoin and one unit of Bitcoin Cash. The splinter group is big enough that the new unit of Bitcoin Cash actually has some value. It’s fluctuated wildly, but might – might – be stabilising in the $200 to $300 range. On the other hand, it’s not big enough (yet) to have hurt the value of the original Bitcoin, which topped $3,000 for the first time yesterday.
The drama isn’t over. A cryptocurrency’s value is, from the beginning, the cumulative result of millions of freely made, individual decisions, rather than a declaration made by a central authority that’s then moderated by whatever market forces are allowed. The compromise within the original Bitcoin community hasn’t been implemented yet and could fall apart, producing even more versions of the currency. That’s the inevitable – purposeful – risk of an unregulated medium of exchange. So far, as Bitcoin holders learned today, that risk is overwhelmingly outweighed by the reward.