2018 has been something of a watershed year for the cryptocurrency. The volatility that has been part and parcel of digital currency over the past ten years has started to level out into a pattern of steady, predictable growth. The major players Bitcoin, Ethereum and Ripple are being taken seriously and widespread adoption looks to be ever closer.
At least, that was the case for the first 10 months of the year. Over the past week or so, the major cryptocurrencies have tanked in a fashion that many commentators hoped, had been consigned to history. Bitcoin, Ripple and Ethereum investors have been left licking their wounds, and one phrase has been resonating by way of explanation: The Bitcoin Cash hard fork. Nodding sagely is well and good, but let’s be frank – most people are wondering what on earth it means and why it is causing chaos in the halls of crypto. Let’s try to find out.
What’s so hard about a fork?
Bitcoin Cash is itself, the product of a fork. It was created in 2017 to ease concerns over scalability by increasing the block size to 8MB, from Bitcoin Classic’s 1MB and by freeing up more space within blocks. Now, it has reached a point where it needs to fork again.
The network undergoes two revisions per year. The problem is that this time, there will be two separate updates, and they are mutually incompatible. Think of it like Noel and Liam Gallagher each having their own creative ideas about where to go next. The only solution is for each to go his own way – but they can’t both be called Oasis.
The Oasis parallel is not as fanciful as it might sound. For Liam and Noel, read Craig Wright and Roger Ver, the hitherto partners, each of whom will now be taking control of his own fork. The recently released email exchange between the pair certainly sounds more like the bickering of rock stars than a professional exchange between two middle-aged computer scientists and businessmen.
Knock on effect
Two grown men behaving like schoolchildren and calling each other names is the sort of thing that most of us would either find mildly amusing or just plain pathetic, and that would be an end to it. However, in this case, the fork, the fallout and the obscurity over which path will retain most mining support have combined to give the whole crypto community a case of the collective jitters.
There are many who use cryptocurrency as more than just an investment tool. For example, as a preferred currency in the rapidly growing Bitcoin casino sector or as a cost-effective way of affecting international money transfers. One point that all these different types of users agree on is that any change in the landscape can cause destabilisation. This becomes something of a self-fulfilling prophecy, as traders make a dash for the door, selling off their stocks, and hey-presto, we have a price crash of 10 percent across all the major cryptocurrencies.
Unsurprisingly, it was Bitcoin Cash itself that bore the brunt of the losses, a fact made all the more ironic given that this was the only significant cryptocurrency that had been showing gains over recent weeks when the likes of Bitcoin, Ripple, and Ethereum were holding steady.
Angel Versetti is the CEO of Ambrosus, a tech firm that uses blockchain technology for its IoT sensors. In an interview with The Independent last week, he explained the dynamic at work: “In the first week of November, while the markets for the main large cryptos were flat, bitcoin cash was the only major cryptocurrency shooting up. It created strong expectations and pulled the price up, resulting in outflow from other cryptocurrencies. However, now the split is looming and the outcome is yet undefined. This has impacted the outflow of money from bitcoin cash. As people are moving into fiat, cryptocurrencies are taking a fall.”
What lies ahead?
Predicting the future behaviour of cryptocurrencies is a notoriously hazardous business, and up until last week, market analysts had been predicting a strong end to 2018 and a surge in values. This sudden drop might not have been part of the script, but the prognosis for the coming months is not necessarily doom and gloom.
If certain market conditions are met, the crypto market could bounce back stronger than ever. Market research agency SharePost has been looking at the indicators and their Managing Director, Rohit Kulkarni says that it would only take some clarity from regulators and perhaps some commercial innovation in the market from one of this year’s blockchain startups to turn the bear into a bull and get the market back on track.
The Bitcoin Cash fork has come at an unfortunate moment, but hard forks like these will be inevitable bumps in the road that the market will have to ride. From a broader perspective, 2018 could still be looked back upon as the year that cryptocurrency really came of age.