Bitcoin Cash: A Week After the Fork

Bitcoin Cash. It’s just a week since Bitcoin “forked”, turning one digital currency into two, Bitcoin (BTC or XBT) and Bitcoin Cash (BCH or BCC). Regardless of what happens to Bitcoin Cash following this event, Bitcoin has reaffirmed itself as stable and worthy of its “gold” status among digital currencies!

What Just Happened?

There was a lot of angst and concern about bitcoin over the last several weeks. Some people thought that the August 1st “fork” would spell disaster for bitcoin. Others thought that Bitcoin Cash would take over given its “improved” characteristics, being able to handle a greater number of transactions than Bitcoin itself. And still others thought that this event would show how unstable digital currencies are.

What really happened is “none of the above”.

Bitcoin, first and foremost, showed its resilience as the first mainstream digital currency that was able to weather the criticism, the fear, and the uncertainty to come out more valuable and more valued than ever in its history. In fact, Bitcoin is now at its all-time high!

Furthermore, Bitcoin Cash continues to operate as an “infant” digital currency, with all the challenges that infants have.

Bitcoin Cash, as an offshoot (a fork) of bitcoin, takes on most of bitcoin’s characteristics except for the few that it has “improved”, notably the increased block size in its new blockchain. That means, Bitcoin Cash can handle far more transactions than Bitcoin can. It was, in fact, designed to be an improvement over Bitcoin itself. Given the scalability challenges that Bitcoin has faced over the last year with the greater numbers of people getting involved, the goal was a good one.

The Real Value of Bitcoin

I still believe that although Bitcoin is at its all-time high, it is still far undervalued. Time will tell, but I expect $10,000 Bitcoin by early next year, and far greater numbers in the near future. This fork event solidified Bitcoin’s prominence, and more importantly, the resilience of its network. As its network is based on software running on thousands of computers, including algorithms for consensus when unusual things occur (like forks), this event showed publicly that the software that runs bitcoin is stable, robust, and build to grow.

Forks will become more common in the years ahead, with Bitcoin and with other currencies using this mechanism to grow and expand the way they operate. The Bitcoin algorithm was design to grow and expand using forks, so this is exactly as planned. And, it will happen again, as new software is instituted to help Bitcoin and other digital currencies grow and scale to meet future demand.

How Does This Effect Other Digital Currencies?

What many people missed in this experiment were two things.

First, every Bitcoin held split into two coins, one Bitcoin and one Bitcoin Cash. With the few exceptions of some exchanges (Coinbase and a few others) that snubbed their nose at Bitcoin Cash, investors who took the “custodial risk” of keeping their Bitcoins at an exchange like Kraken, Bitfinex, and HitBTC automatically received the amount of Bitcoin Cash equal to their Bitcoin holdings. And those that kept custody of their Bitcoin private keys, in a paper wallet or a hardware wallet, have access to an equal amount of Bitcoin and Bitcoin Cash.

Given the current price of Bitcoin Cash is about $345, and the price of Bitcoin at $3,440, that means that 1 Bitcoin owned just before August 1st is worth $3,785 today, the combined total of Bitcoin and Bitcoin Cash. (Remember that fact when it comes to tax reporting.)

The second consideration is that nearly every other digital currency is based on the Bitcoin software. That means that Bitcoin was not just the most traded or the most valuable, but also the first digital currency to have a major fork and prove the brilliance of its invention, as created by Satoshi Nakamoto in 2008. It works as designed in real life, without nearly a hiccup on the Bitcoin side. (Of course, it will be a matter of weeks or months until wide trading support is available for Bitcoin Cash. This adoption cycle happens with every new digital currency.)

What Comes Next?

For those who owned bitcoin in a paper wallet or hardware wallet, as I teach my students, your Bitcoins and Bitcoin Cash are safe as long as you hold on to your private keys. New “on ramps” for Bitcoin Cash will be coming in the coming weeks and months, allowing paper wallet holders to directly access and trade their Bitcoin Cash.

In time, we will see whether Bitcoin or Bitcoin Cash with reign supreme. It does seem like Bitcoin will retain its dominance for some time, however. And, both digital currencies will be run completely separately, however with a shared history prior to August 1, 2017.

In closing, there’s a great lesson here. Digital currencies are resilient and able to weather the storms, including those that are coming to the global financial system in the months ahead. In fact, it may become the safe haven for investors as turmoil envelops the traditional monetary system.

If you aren’t already on board, it’s time to take the leak. If you already are invested in Bitcoin or other digital currencies, congratulations. You are well positioned for the greatest transfer of wealth in history.

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