In this blog I am going to highlight the recent Bitcoin Cash developments and share a possible scenario that could have you banking mad Bitcoin Cash.
I will endeavor to lay off the technical details but I encourage you to look up and understand any terms that are not clear to you. Bitcoin is not going anywhere. You cannot ignore it. The sooner you understand the basics the sooner you will join the early adopters in the greatest wealth transfer in history.
If you are not up to date read my prior blog posts or this excellent Medium article.
How did we get here?
Bitcoin is a protocol for exchanging value peer to peer. Bitcoin is decentralized. However, for the past several years, a small group of coders called Bitcoin Core had exclusive access to update the protocol. As markets matured there were demands for changes to the protocol which Core did not approve. After years of heated debate a group chose to split from Core and they created Bitcoin Cash. Bitcoin Cash is the same as Bitcoin except there are a few upgrades now available.
So there are two Bitcoins?
That comes down to semantics. The short answer is yes. There is Bitcoin and Bitcoin Cash. There is disagreement about which CryptoCurrency gets the benefit of the Bitcoin name/brand. As of today, Bitcoin has the most miner support so it is Bitcoin. However, that may be changing…..
What do you mean this might be changing?
Bitcoins are created through “mining”. Bitcoin mining is a process by which computers must solve difficult math problems to bring new Bitcoins into existence. There are large companies that exclusively mine Bitcoin (John McAfee’s MGTI in the USA is aggressively entering this field). Think of Bitcoin miners like Gold miners. Rather than dig into the Earth Bitcoin Miners invest resources into large scale computer operations to solve math problems that provide ROI when they are first to solve a math problem and receive a Bitcoin reward.
Imagine a Gold miner has a profitable mine. The miner has millions invested in operating the mine and they are profitable. Then one day Gold crashes and Silver rockets 100 times in price. A traditional Gold miner would be in deep trouble. With Bitcoin miners there is a key difference. If the price of Bitcoin crashes and Bitcoin Cash goes up then miners can “flip a switch” and their entire mining operation will mine the more profitable Bitcoin Cash. This would be like a Gold miner having the ability to flip a switch in their mine and dig for Silver if it were more profitable than Gold.
How would miners switching to Bitcoin Cash affect Bitcoin?
Miners provide the backbone for the Bitcoin network. If you send Bitcoin your transaction is validated and recorded on the blockchain by the miners. If Bitcoin Cash becomes more profitable to mine than Bitcoin then miners will switch to mining Bitcoin Cash and the Bitcoin network will become slower and more expensive. A vicious circle of death. Bitcoin Cash value would increase and Bitcoin would decrease, perhaps very rapidly.
Here is the important part….
If you read the Medium article linked above they mention there is an upgrade in Bitcoin Cash in how it manages changes in difficulty. Simply put, Bitcoin auto adjusts mining difficulty to maintain an equilibrium in the distribution rate of new Bitcoins. This auto difficulty adjustment is key because Bitcoin Cash is now more nimble than Bitcoin. Bitcoin Cash is also as of this week more profitable to mine than Bitcoin. This could be the tipping point. When Bitcoin Cash split from Bitcoin the programmers updated the important way Bitcoin Cash handles difficulty adjustments. Bitcoin is running the old code. Bitcoin adjusts to difficulty changes VERY slowly…..
If you understood all of the above something may have clicked. When the miners start moving to Bitcoin Cash then the Bitcoin Cash network becomes more robust and adjusts to the new miners quickly. On the flip side, when the miners leave Bitcoin there is a problem…..Bitcoin does not adjust to the loss of miners quickly. The network suffers because it operates at a much higher difficulty level with much less mining support. Bitcoin becomes slow and expensive while Bitcoin Cash becomse faster and cheaper.
This could lead to…..
It’s possible this could lead to a “flippening”. Bitcoin Cash becomes “Bitcoin”. They are two unique coins now and if the current Bitcoin network moves to mining Bitcoin Cash then you’d see Bitcoin Cash replace Bitcoin. Bitcoin Cash holders would profit. Bitcoin holders could get #rekt.
Bitcoin Cash is trading at >80% discount to Bitcoin, despite doubling this week.
I’ve already offloaded a portion of my Bitcoin for Bitcoin Cash. If the flippening happens then I have exchanged Bitcion for Bitcoin Cash at 16 to 1 and lower. Today you can exchange Bitcoin for Bitcoin Cash at 5 to 1. The flippening has the potential to be the greatest wealth transfer inside of the greatest wealth transfer in histroy. A Russian nesting doll of financial windfalls.
If you are just getting started in Bitcoin and deploying new fiat do not overlook Bitcoin Cash. To play it safe you can deploy 50% Bitcoin/Bitcoin Cash. If you are more risk friendly up your ratio of Bitcoin Cash.
Ask questions. I am traveling in Asia so responses will likely be delayed.