Battle for ‘True’ Bitcoin is just getting started

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INTERNATIONAL - In August, the bitcoin world split in two when bitcoin cash broke away from bitcoin.

It was the culmination of years of growing tension about how to improve the world’s most popular cryptocurrency. The divide has set up a battle over which is the “true” bitcoin, pitting rivals whose combined market value has eclipsed that of Citigroup Inc. and Coca-Cola Co. Now, investors are bracing for volatility and a fight that could define what a cryptocurrency can or should be.

1. Why the tension?





Bitcoin was created in 2009 with an early focus on thwarting hackers rather than becoming widely used. To enhance security, developers kept the technology at the heart of bitcoin on a relatively small scale. But as its popularity mushroomed, problems emerged.





2. What are the problems?





Bitcoin transactions are bunched into blocks and verified on the ultra-powerful computers of so-called miners. Those blocks, strung together, form the open ledger known as the blockchain -- one of bitcoin’s major selling points. The early worries over security led designers to cap each block at 1 megabyte. As bitcoin’s popularity surged, processing times and fees soared mostly because of the smaller size of the blocks, making it uneconomical for some small transactions.





3. What are the fixes?





Two competing solutions emerged. One is simply to increase the size of blocks, speeding up transaction times. This is called the "on-chain" approach. The other approach, "off-chain," foresees shifting some of the work away from the over-strained blockchain to so-called sidechains -- essentially, mini-blockchains that handle specific tasks, then sync with the main network. Off-chain also involves opening the way for software improvements such as Lightning Network, which promises to handle transactions at high volumes.





4. Why are the two approaches at odds?





On-chain advocates, including bitcoin cash supporters, say their approach hews most closely to the original vision of bitcoin as an "electronic cash system" capable of making and receiving payments, like a regular currency. Off-chain backers see that as limiting and outdated. They propose that bitcoin be the foundation upon which other services are built. They say Lightning Network, for instance, can deliver faster and cheaper payment-handling than bitcoin -- or Visa and PayPal, for that matter -- and sidechains could be developed to expand use of bitcoin into smart contracts (as bitcoin rival ethereum does) or processing transactions more secretly (as rival monero does).





5. Why couldn’t the two sides reach a compromise?





Besides the philosophical differences, there are clashing economic interests. On-chain is backed mainly by miners, whose influence and profit could be at risk if transactions were processed outside the main blockchain. Off-chain supporters include companies like Blockstream, Lightning Labs and ACINQ, which plan to sell sidechain solutions or Lightning Network technology. Each camp accuses the other of putting profit ahead of bitcoin’s interests.





6. Why did bitcoin cash split from bitcoin?





Fed up with the bickering, a group of on-chain supporters in August tweaked bitcoin’s underlying code and launched their own currency: bitcoin cash. (Such offshoots in the software field are known as "forks.") Bitcoin cash blocks are 8 megabytes instead of 1 megabyte. The extra size has attracted businesses and speculators: Bitcoin cash’s price has rocketed from around $300 at the time of the split to above $1,500 in early December. But that hasn’t stopped bitcoin, which rose from around $2,000 to $11,000 in the same period.



