Bitcoin, BCH and BSV: Will the real Bitcoin please stand up?

by 19 Feb, 2020

Bitcoin’s recent surge above $10,000 has fomented murmurs of an incoming bull market, with Bitcoin (BTC, or Bitcoin Core), Bitcoin Cash (BCH), and Bitcoin SV (BSV) all ranking among the top five traded coins. But what are these different bitcoins? And which is the most important, or interesting, to watch? 

Over the past fews days green candles have blanketed the market, with many coins breaking their price resistance, trade volumes going sky-high, and new money entering the market. Despite these positive signals, though, we are still in the midst of a two-year bear market with no clear indications of an end. Crypto tyros frequently invest during steady pumps, and deciding which coins to invest in can be a thorny process. Especially when they are bitcoins.

Why are there so many different bitcoins? 

The answer lies in a complicated, and oftentimes absurd, history of palace intrigue within the bitcoin community. No camaraderie exists between Bitcoin, Bitcoin Cash, and Bitcoin SV, and each asserts itself as the genuine legacy of mysterious Bitcoin founder Satoshi Nakamoto’s 10-page whitepaper. So, let’s dive in to understand what caused the schism, what each coin offers, and (if possible) decipher the true bitcoin.

Nakamoto designed Bitcoin to be egalitarian. The elegant simplicity of the code allowed even outdated and sluggish computers to operate the network software, which ensured decentralization, security, and censorship resistance. 

Bitcoin works like this: Computers compete to solve complex mathematical computations and the winner receives a reward (this is called “mining”). Every ten minutes, miners verify a new block containing all recent transactions. These blocks are immutable and irreversible, stacked on top of one another, in chronological order, like Legos. 

Block-size matters: The birth of BCH

An ongoing debate occurred from 2010 to 2017 regarding Bitcoin’s block size. Nakamoto chose a 1MB block size to heighten security and prevent network spam. Some argued the 1MB block size curtailed Bitcoin’s ability to contend as a digital cash system since it could only process 3-7 transactions per second (compared to Visa’s 1,700 tx/s) and suffered from high fees during periods of congestion. In other words, it wasn’t scalable.

This came to a head in May 2017 when transactions were backlogged for days and fees reached upwards of $20. It became apparent that bitcoin was more useful as a store of value than an electronic cash system. Some community members became disgruntled, insisting Bitcoin had gone awry and changes had to be made.

The only way to alter a blockchain is through a soft fork or hard fork. A soft fork occurs when the entire network updates its code. A hard fork occurs when only a portion of the network adopts a change, resulting in two separate and distinct blockchains. They are identical up to the point of the split.

In August 2017, the block size dispute culminated in two critical developments. To speed up small transactions, Bitcoin implemented a soft fork called SegWit (Segregated Witness). However, a modest but influential faction (led by crypto titans Jihan Wu, Roger Ver and Craig Wright) abandoned SegWit and advocated for an 8MB block size instead. ViaBTC, a formidable mining pool, instigated a split from the Bitcoin network on August 1, 2017, and Bitcoin Cash (BCH) was created

Bitcoin maximalists viewed BCH as nothing more than a money-grabbing, blasphemous scam that disregarded crypto’s “code is law” principle. BCH advocates asserted Bitcoin no longer achieved Nakamoto’s vision of a digital cash system with high transaction throughput and low fees. The community underwent an ugly, toxic divorce that lingers to this day.

Pssst… Want to learn how to get into bitcoin and altcoins? Then check out Matt’s ‘Cryptocurrency 101’

Two tribes go to war spawning BSV

One year later, the BCH community faced its own dilemma. A proposed update would increase BCH’s block size to 32MB and enable the use of smart contracts. This didn’t sit well with Craig Wright, a crypto magnate and computer scientist from Australia. Wright argued that the update would make the network less secure, and the inclusion of noncash transfers didn’t follow Nakamoto’s vision. He would know, after all since 2015, Wright has professed that he is, in fact, Satoshi Nakamoto.

Dubbed “Faketoshi” because of this dubious claim, Wright’s chicanery includes attempting to copyright the original Bitcoin whitepaper, duping journalists by using backdated PGP codes, and lying about his credentials and education on LinkedIn. When it matters most, Wright has consistently and conveniently failed to prove he created Bitcoin.

Ethereum co-founder Vitalik Buterin takes particular delight in discrediting Wright, dedicating an entire GitHub page to his gamut of lies. Of course, Wright threatened Buterin with legal action, as he is wont to do. Wright could be Nakamoto, but most evidence indicates he’s merely a savvy forger and serial liar.

Anyhow, the proposed update caused a civil war to break out among BCH miners. During the week-long “hash war,” a combined $12 million in computing power was spent. In the end, Jihan Wu and Roger Ver won, and the BCH update went forward. Knocked down but not out, Wright split from BCH and created a hard fork called Bitcoin SV (Satoshi Vision), omitting the update and increasing the block size to 128MB.

Demand = dominance

So, how do we assess which crypto is Nakamoto’s true vision? All three communities interpret his whitepaper differently, and – like all dedicated devotees – each has cherry-picked passages that benefit their argument. Since we can’t hear from Nakamoto himself, data becomes a necessary tool. 

Useful metrics include hash rate (the total computing power dedicated to the network), daily transactions, and market capitalization. BTC tops BCH and BSV in hash rate and market cap by an enormous margin: It has 20 times the hash rate of BCH and BSV and controls over 60% of crypto’s market cap. Surprisingly, BSV has the most daily transactions, but (unlike BTC) not all of them are financial. And despite the hullabaloo over block size, it’s rare for BCH or BSV to issue a block with much more than 1MB of data. This could change in the future as network usage increases.

At the moment, the “real” bitcoin is Bitcoin Core. It has the most recognition, widest usage, and highest demand. The survival and success of crypto likely depends on BTC. It does have problems, however. The most salient issues include slow transaction times, high fees, and a lack of development.

Furthermore, powerful mining rigs (ASICs) and mining pools have warped its hash rate distribution, threatening the network’s decentralization and security (BCH and BSV don’t fare any better). Ten years ago, anyone could mine bitcoin. Now it requires an immensely powerful computer and asinine amounts of energy. Three mining pools control nearly 50% of BTC’s hash rate, and 65% of its hash power comes from China. So much for egalitarianism…

Perhaps BHC and BSV are closer to Nakamoto’s vision of a bona fide electronic cash system. But what’s more important: a secure, censorship-resistant network, or a fast, low-fee network? Read Bitcon’s whitepaper and decide for yourself. Once crypto exits its speculation phase and reaches adoption, we’ll have a better idea of what the public wants. Until then, it appears Bitcoin Core will reign supreme.

 

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About the author

About the author

Matthew Partington

Matthew Partington is a North American writer and cryptocurrency enthusiast based in Vietnam. Check out his work at www.matthewpartington.com