The creation of a second Bitcoin asset this week did almost nothing to dilute the original price, instead the value of the new asset rocketed skyward, generating almost $US7.5 billion out of thin air.
This week, a group of Bitcoin activists and developers created a second version of Bitcoin, within a few hours, the value of the new unit – Bitcoin Cash – leapt to over US$600.
Firms have spent hundreds of millions of dollars establishing server farms that run 24-hours-a-day generating new Bitcoins and verifying the legitimacy of the existing ones. Photo: Bloomberg
The original Bitcoin price however, remained fairly steady, still trading at around $US2700 a coin, despite an almost 1:1 duplication of itself.
“Everyone who has Bitcoin, now has Bitcoin Cash and because the market reckons this is worth $600, it’s almost like free money!” crowed one Reddit user.
The “fork” – instigated by some Bitcoin miners as they ran different software to generate different sized blocks – meant Bitcoin Cash essentially inherited a similar amount of coins in circulation: around 16.5 million units.
Calculating the market capitalisation of cryptocurrencies is similar to that of a stock’s: you multiply a coin’s price by the total supply of coins in circulation.
But unlike when a company issues more stock and the price re-rates, Bitcoin simply cloned itself and the market instantly ascribed value to the new asset.
Investors who held on to Bitcoin – and who clearly weren’t frightened off by the fork because there wasn’t a selloff – are now credited with an equal amount of Bitcoin Cash.
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Bitcoin’s total market capitalisation is around $44.8 billion and as of Thursday morning, Bitcoin Cash is around $7.2 billion.
Bitcoin exchanges around the world are scrambling to support the new cryptocurrency and allow withdrawals, but the risk of an almost inevitable run on the exchange has many wary.
BCH deposits + withdraws may not be available for several days. We won’t enable funding until we think it’s safe.
— Kraken Exchange (@krakenfx)
August 2, 2017
Y tho?
This week’s fork is a culmination of months of internal debate amongst Bitcoin developers and miners.
Slow transactions and soaring fees had Bitcoin miners – those that decipher algorithms and reaffirm the legitimacy of the blockchain – wanting to expand the size of each block, so transactions would flow more easily.
A compromise was reached between the Core developers of Bitcoin – those that maintain the underlying technology – and the miners, but some miners decided to branch out and run their own software, that increased the blocksize quicker.
These new miners have developed Bitcoin Cash.