A group of Chinese cryptocurrency "miners" who use special software to solve math problems and get bitcoin in return, were longing for their own version of bitcoin. With a spin-off launched this week, they partially achieved their dream.
On Tuesday night, bitcoin cash, an alternative to blockchain technology-based bitcoin, made its debut. The split derived from a three-year "civil war" in the polarised bitcoin world over the technical direction in which the de-centralised cryptocurrency is going. Some see it as the inevitable outcome of irreconcilable conflicts between bitcoin developers, who maintain the bitcoin software, and "miners," many of whom are based in China and use massive computing powers to generate the coin.
"You have this one side, which is saying that we need to keep bitcoin as fast, cheap, and efficient as possible ... those are kind of people that want to be able to pay for coffee in bitcoin and they want bitcoin's transaction speed to be better than [that of] credit cards," said Thomas Glucksman, head of marketing at Gatecoin, a Hong Kong-based bitcoin exchange.
"But there is another camp, which is saying this is very early-stage technology. Let's maintain the security of the bitcoin network first," he said.
One of the biggest supporters of bitcoin cash is ViaBTC, a Shenzhen-based bitcoin startup founded in mid-2016 by Yang Haipo, who had worked as a programmer at tech giant Tencent (TCEHY) on its cloud service and defunct Tencent Weibo, China's answer to Twitter.
Yang is a die-hard advocate of turning bitcoin into a global payment system matching the power of conventional systems like Visa (V) by expanding the capacity of a "block," where bitcoin transactions are processed, from one megabyte to eight megabytes.
But critics of bitcoin cash, many of whom are bitcoin developers, argued such scaling would require more hardware and computing power and questioned whether the alternative would garner the popularity of bitcoin without confusing investors.
"The rift is simply so wide that it led to the split," Yang said. "It's a misunderstanding that we created bitcoin cash. But harbouring massive mining power in China does give prominence to our backing."
Bitcoin cash, with similar bottom technology to bitcoin but with larger block sizes, can process about 30 transactions per second, four times more than bitcoin, though still a far cry from the thousands of transactions handled by Visa every second.
Today, China controls about 70 percent of global computing power on bitcoin "mining," thanks to cheap labour, hardware and electricity. Miners pooled at ViaBTC have close to six per cent.
Utility costs brought down by industrial overcapacity and a rising bitcoin price have made large-scale mining farms in China profitable and enabled them to elbow out their foreign counterparts in the market. Built near power stations in remote areas such as Xinjiang and Tibet, theses secretive server farms often feature a web of cables connecting thousands of mining machines that work around the clock under controlled cooling.
Bitcoin has been one of the best performing currencies this year, lately trading above US$2,700 per coin. It has attracted the savings of many Chinese investors, as assets with high investment returns remain scarce on the mainland.
Chinese authorities, meanwhile, keep a wary eye on the digital currency, and the country's central bank has explicitly banned Chinese financial institutions from accepting bitcoin as a means of value. Meanwhile, the People's Bank of China is investing in developing a sovereign digital currency, although limited progress has been made in that endeavour.
When the split started on Tuesday night, bitcoin's price plunged 11 percent within two hours but later rebounded. The price of bitcoin cash has soared as much as 200 percent to more than US$700 and now stands at around US$300.
The market is still cautious about the spin-off's future, which depends on how many exchanges allow it to trade and whether "miners" would dedicate their computing power to the new asset. Even in China, only few bitcoin exchanges have supported it in public.
It's also been a tough week for Yang and his team. Haters of bitcoin cash referred to it as B-cash in an attempt to cut its ties from bitcoin. On Thursday night, ViaBTC's website went dark briefly after suffering overwhelming traffic in what is known as a DDoS, or distributed denial of service, attack.
But Yang seemed to have prepared for it long time ago, as he wrote in a heated debate over bitcoin scaling on a Reddit forum thread eight months ago, "We're not at all afraid of DDoS attacks. If you want to attack us, bring it on."
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