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Why the Bitcoin Network Just Split In Half and Why It Matters

In a report via Ars Technica, Timothy B. Lee explains why the Bitcoin network split into two and why it matters: On Tuesday, a faction of the Bitcoin community launched an audacious experiment: a new version of Bitcoin called Bitcoin Cash that’s incompatible with the standard version. As a result, the Bitcoin network split into two mutually incompatible networks that will operate side-by-side. The confusing result is that if you owned one bitcoin before the split you own two bitcoins now: one coin on the original Bitcoin network, and a second coin on the new Bitcoin Cash network. The two coins have the same cryptographic credentials, but they have very different values if you sell them for old-fashioned dollars. On Wednesday morning, one standard Bitcoin was worth about $2,700, while — on paper at least — a unit of Bitcoin Cash was worth around $600. […] For over a year, the Bitcoin network has been bumping up against a capacity limit hard-coded into the Bitcoin software. Each block in the Bitcoin blockchain — the network’s public, shared transaction ledger — is limited to 1 megabyte. That artificial limit prevents the network from processing more than about seven transactions per second. Technically speaking, it would be trivial to change that 1 megabyte limit to a higher value. But proposals to do so have faced opposition from traditionalists who argue the limit is actually an important feature of Bitcoin’s design that protects the network’s democratic character. To participate in the network’s peer-to-peer process for clearing transactions, a computer needs a copy of every transaction ever made on the Bitcoin network, which adds up to gigabytes of data per month. This argument has dragged on for more than two years with no resolution. So instead of continuing to bicker, a group of big-block supporters took matters into their own hands. They forked the standard, open-source Bitcoin client to create a rival version of the software.

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