Sometime in 2017, the year of the crypto boom, Bitcoin started to show a scalability problem. With its inevitable astronomical growth over the years, the blockchain started processing more transactions than ever before.
The fundamental problem, which is the slowness of the network, became prevalent, which caused concerns over the future of the cryptocurrency. Instead of overhauling much of its specifications, the community forked a separate called Bitcoin Cash officially on the 1st of August, 2017. This coin stayed true to the core of Bitcoin while solving the problem of block size. Not long after this introduction, another spinoff incorporating, again, the main characteristics of Bitcoin, launched on the 12th of November, 2017. This coin was named Bitcoin Gold, and had a goal to make mining more accessible again.
Bitcoin was the first successful launch of a cryptocurrency on the 3rd of January, 2009. A cryptocurrency is a digital currency secured through cryptography, making it theoretically impossible to interfere with or counterfeit. This revolutionary feature gave rise to the concept of decentralization, where no one single authority has any control over Bitcoin.
Instead, anyone with a computer compatible with Bitcoin’s network can form part of the community responsible for creating Bitcoin tokens. The process of creating these coins is possible thanks to blockchain technology. Blockchain is a public ledger consisting of blocks linked to each other that store transactions. Each block in the continuous chain (hence, ‘blockchain’) is currently a block of 6.25 BTC.
For a block to exist on the blockchain, the community partakes in computational mining where advanced computers attempt to solve complex mathematical equations as per the algorithm coded in the network. Whichever miner or mining group solves the equation first is rewarded a block or parts thereof, depending on how much computational power they’ve contributed.
Bitcoin’s scalability problem
With the accumulative adoption and popularity of the coin, the need for an upgrade in Bitcoin’s blockchain technology became apparent to handle more transactions. For all its beautiful hallmarks, a surprising element that still exists currently is the confirmation times for Bitcoin transactions. For example, the time to send BTC to another person ranges from 10 minutes to an hour (in rare cases, longer). The main reason for the sluggishness is due to the 1MB block size. This small block size holds a limited amount of transactions. The natural inclination would be to increase this size, though this faced resistance.
Religious Bitcoin miners and enthusiasts wanted to remain faithful to the whitepaper set by Satoshi Nakamoto in 2008. This scalability problem raised questions over whether Bitcoin should act more as a store of value or a transactional currency. Increasing the block size makes it a more transactional medium of exchange, though the majority of Bitcoin miners still wanted to remain faithful to the original protocols of Bitcoin.
The age of Bitcoin Cash
The first officially recognized hard fork of Bitcoin, which is essentially a split or change from the original blockchain, began officially on the 1st of August, 2017. The new coin was named Bitcoin Cash, and this cryptocurrency’s block size is 8MB to handle more transactions. Besides this similarity, Bitcoin Cash (BCH) shares much of the mainstays of Bitcoin:
- Decentralized cryptocurrency using the SHA-256 blockchain algorithm mined through a proof-of-work system.
- Each block takes roughly 10 minutes to form.
- There is a cap on the number of BCH, which is 21 million coins, with mining rewards halved every four years.
- The reward for solving a block is 6.25 BCH.
- Tradeable currency with its own wallet and found on most crypto exchanges.
The age of Bitcoin Gold
To understand Bitcoin Gold, we must first realize there have been tens of hard forks since Bitcoin’s inception, many of which have ceased. Hard forks are merely spinoffs from the original coin that serve different purposes than their predecessor. When a difficulty becomes imminent in the communities, miners discuss methods of solving them either through altering the existing blockchain or creating new coins away from the original.
Just as Bitcoin Cash solved the block size issue, there was another issue with Bitcoin: the mining equipment. With the growing competitiveness of mining, the necessity for owning increasingly fast computers to solve hashes went up. Speed with mining is crucial; the quicker your computer can solve hashes, the better chance you will have receiving a mining reward.
Originally, CPUs (central processing units), your average desktops or laptops, were meant to mine Bitcoin. GPUs (graphical processing units), which are graphic cards, became the next progression. In 2013, another advancement came to the fore by virtue of ASICs. An acronym for application-specific integrated circuit, these computer circuit boards offered astronomically faster hash per second functions. In other words, ASIC miners can solve equations significantly faster than any computer used to mine.
The main disadvantage with these computers is their hefty price tags, ranging from a few hundred to a few thousand dollars. ASICs are most associated with Bitcoin and have become almost the standard to mine even a fraction of the coin. The miners who could afford these machines meant excluding technologically-inferior miners since ASICs provide an unfair advantage in the network.
To combat this exclusion, Bitcoin Gold set out to solely be ASIC-resistant, bringing back mining to GPU miners who could still take advantage of Bitcoin. This distinction makes mining Bitcoin less monopolized and more affordable to mine. Like Bitcoin, Bitcoin Gold exhibits much of the same core attributes like decentralization, the halving structure, proof-of-work system, hash algorithm, coin supply, block time, block reward, and being a tradable instrument via an exchange. The initial release of this coin was on the 12th of November, 2017.
Bitcoin Cash and Bitcoin Gold all follow the price of Bitcoin and are both currently cheaper than their ancestor. So, in essence, owning any BCH (Cash) or BTG (Gold) is like owning BTC (Bitcoin).
It will be intriguing to see whether more notable hard forks will exist from Bitcoin. We should understand Bitcoin Cash and Bitcoin Gold as minor iterations that cater to specific purposes without deviating too much from Bitcoin. Nonetheless, any stake in either Cash or Gold still allows for an investment in Bitcoin overall.