Bitcoin has been more volatile than usual lately and a lot of those swings have been due to rumours around a potential fork of Bitcoin. This would see it split into two distinct cryptocurrencies with different rules and management systems. Any existing Bitcoin investors would receive an equal amount of the new and old currencies. This would present a natural advantage to anyone who managed to get into Bitcoin before the split, which is what has driven the growth over the last few weeks. In this article, we'll take a look at the rumours that are driving the split and what any division would mean for the long-term future of Bitcoin.
Why is Bitcoin splitting?
The fork is driven by what may seem like a fairly mundane question to most non-technical Bitcoin investors - how to increase the number of transactions that the cryptocurrency can handle every second. While this is undoubtedly an important factor in Bitcoin's long-term health, it's probably not the sort of issue that most people would imagine might drive this type of major schism. Nevertheless, after almost three years of Twitter wars and email battles, the two sides have agreed to disagree and pressed on with plans for the fork.
Will the split actually happen?
The team pushing for the Bitcoin fork has suggested that there are certain conditions under which they would call off the fork. Counter-intuitively, while this would bring stability back to Bitcoin, it would probably cause an immediate and probably quite sharp fall in the value of the currency. This is something that savvy traders could take advantage of by shorting Bitcoin if they believe the fork is not likely to happen. However, given the significant volatility that Bitcoin has seen over the last few weeks, it would be a brave trader that took this decision.
Forking is an area of cryptocurrencies that is fairly challenging to non-technical investors. While it is tempting to see this as similar to a de-merger in corporate terms, in reality the wars and spats that lead to a split make it much harder to predict. Bitcoin would be the first major fork in the history of cryptocurrencies so it may well set the stage for any future moves.