Rivals to Bitcoin mushroom in battle for dominance in cryptocurrency arena
It’s getting tougher and tougher to keep track of all the different versions of bitcoin.
New iterations of the cryptocurrency are multiplying as disagreements over bitcoin’s design persist and opportunities for making a quick buck prove hard to pass up.
The biggest offshoot, called bitcoin cash, appeared in August after it split from the bitcoin blockchain in a so-called hard fork. That spin off, currently valued at almost US$18 billion, was followed by a less successful fork to create bitcoin gold in October, while major spin off that was planned for this week, stemming from an upgrade of the bitcoin technology called SegWit2x, was suspended. Now, several other splits are being planned.
There’s bitcoin diamond, bitcoin silver, bitcoin unlimited and super bitcoin – the latest proposal to emerge. But that’s not all, there’s also bitcoin platinum and bitcoin uranium, whose descriptions in Reddit posts looks suspiciously similar – and the uranium version carries the unfortunate ticker of BUM.
The proliferation of bitcoin break-up plans highlights the double-edged sword of the cryptocurrency’s decentralised design; it allows for experimentation where ultimately the market will pick each coin’s value and use, but it can also get confusing and messy for users.
The software underpinning bitcoin is open source, meaning anyone can simply copy it and make adjustments to form a new version of the coin if they have issues with the original. There’s also a profit motive: if offshoots are successful, the creators can earn windfalls by “pre-mining” coins for themselves or foundations they control.
Each cryptocurrency that breaks off from the main bitcoin chain aims to solve a problem the developers believe bitcoin has. In the case of bitcoin gold, it’s the centralisation in mining that results from the amount of power and specialised hardware required to mine bitcoin.
Bitcoin gold tries to solve this by allowing the cryptocurrency to mined with any gaming graphic card. In bitcoin cash, the aim is to increase the block size to 8 megabytes from 1 in the bitcoin blockchain, to speed up transactions and reduce fees.
The appeal of creating a bitcoin fork rather than a new cryptocurrency is that the spin-offs gain access to bitcoin’s user base, as well as brand recognition. When coins split from the main chain, bitcoin investors get the equivalent of their holdings in the new coin. This has caused bitcoin to rally ahead of hard-forks, as traders anticipate what feels like free money.
The website advertising super bitcoin says the offshoot is backed by Chinese cryptocurrency entrepreneur Li Xiaolai. It promises to “make bitcoin great again” by, among other things, increasing the size of blocks on which transactions are processed – a move that would reduce confirmation times and fees.
The question for the crypto community – which includes a growing number of Wall Street banks and fund managers – is how fractured bitcoin will become. The popularity of bitcoin cash, along with talk of other offshoots, has fuelled big price swings over the past two weeks as traders struggled to gauge which cryptocurrency will come out on top.
Bitcoin, which touched a record on November 8, sank as much as 29 per cent from its peak before recouping most of its losses this week. It traded on Thursday at US$7,448 in New York.
Despite the turbulence, bitcoin still has a commanding lead in the crypto league tables. Its US$124 billion market value is at least four times larger than any of its competitors, which include hundreds of “alt-coins” like ethereum and monero, according to Coinmarketcap.com.
But bitcoin’s top-dog status is far from guaranteed, given the ongoing feuds among its many stakeholders.
“The community is really divided on the technological direction and since bitcoin is such a decentralised network, there is really no method to come to a good consensus,” said Gavin Yeung, chief executive officer at Cryptomover, a Hong Kong-based investment company.
Yeung says bitcoin cash has the potential to eventually overtake the original, adding that multiple versions of the cryptocurrency could prove successful over the long haul.
“We’re not bitcoin maximalists who believe there’s one chain that rules them all,” Yeung said. “We think there are multiple use cases.”