This has been a busy year for bitcoin. In August, the cryptocurrency hard forked for the first time, creating a new version of bitcoin called Bitcoin Cash. Less than three months later, bitcoin forked again, creating a third version called Bitcoin Gold.

The process of forking isn't complex. Developers record the state of the blockchain just before the fork then add new blocks listing the transactions of the new currency in a separate blockchain. The reasons for each of the forks were clear too. Bitcoin Cash was intended to create a version that could quickly confirm transactions. (Bitcoin movements currently take anywhere from ten minutes to several hours to confirm.) Bitcoin Gold is intended to be easier to mine. While the mining of bitcoin now uses specialized computers, usually run by companies in China, Bitcoin Gold is supposed to be minable using the kind of GPUs found in gaming machines.

It's still too early to call either of the forks a success. After spiking to about $900, Bitcoin Cash has settled at around a third of that level. Bitcoin Gold has seen even weaker movement. The currency debuted at about $500 and quickly sank below $200 even before the new blockchain was fully up and running.  

It's possible that the value of both the currencies will rise as they establish themselves but even if they don't, bitcoin holders will still have earned from them. Exchanges credited owners of bitcoin with equal amounts of Bitcoin Cash and Bitcoin Gold. (That sudden availability might have contributed to the decline in value as people who didn't want the new coins looked to cash in quickly on their windfall.)

Experts are split on whether bitcoin forks are good for the community or not. Some have argued that the different versions of the cryptocurrency allow disputes within the community to be settled amicably. Users who want faster transactions or easier mining can simply choose a version that suits their preferences. Others have argued that the creation of new currencies dilutes the market and weakens the appeal of cryptocurrencies as a whole.

Sol Lederer, blockchain director at Loomia, a company that's using blockchain technology to create smart textiles, was widely quoted criticizing the move: "These forks are very bad for bitcoin. Saturating the market with different versions of bitcoin is confusing to users, and discredits the claim that there are a limited number of bitcoins -- since you can always fork it and double the supply."

If demand for cryptocurrency stabilizes but the forks increase supply, he might be right. But at the moment, demand for bitcoin is red-hot and the limited supply is pushing up prices. That's bad news for bitcoin as a currency but it's great news for people who hold bitcoin.

If you're not interested in pushing through speedier transactions or using your gaming computer to mine coins, then consider the new currencies as free money that might rise in value, and keep enjoying the rising price of classic bitcoin.

Published on: Oct 26, 2017
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