In the past three days, Bitcoin prices have plummeted from over $1,200 to $1,100 with clear signs of onset of bearish behavior owing to a strong fundamental factor. The market cap of the cryptocurrency dropped from over $20 Billion to $18 Billion in the past three days owing to the drastic fall in prices. While the market is in a strong uptrend on a long term time frame, this might very well be a major blow to the trend and might shadow the Bitcoin markets with bearishness. The influencing fundamental is the Bitcoin forking problem that has had negative impact on the prices in the past. Let’s dive deep into what exactly the problem and will forking really solve it:
The issue at hand:
During the processing of Bitcoin transactions, the processed transactions are stored in ‘blocks’ which is turned into a complex math problem. Bitcoin miners, owing to their high hashing power (processing power), calculate the solutions of these problems to determine if the transaction is possible. The solutions are then validated by the other minors and are added to the ledger as complete blocks. This would result in reward generation for miners. However, it has been observed recently that the number of outstanding transactions to be processed has been piling up and is defeating the purpose of the cryptocurrency which promises quick transactions.
The solution and attaining consensus:
Due to the piled up transactions, Bitcoin unlimited has emerged which suggested that to tackle this problem, we can increase the block size. Major Bitcoin industry players like Roger Ver have backed the idea but many in the community are of the opinion that the method might not be totally safe and might lead to disruption in the blockchain ecosystem. Currently about 11% of the nodes run Bitcoin Unlimited and the rest of them run Bitcoin Core(The original block size). The idea is that the nodes can run Blockchain Unlimited software which would indicate their support for increasing the block size. If 50 percent of bitcoin miners adopted Bitcoin Unlimited, there would then be two major blockchains. This would result in a “fork” between Bitcoin Core and Bitcoin Unlimited.
Both blockchains would be operational with their respective nodes but there would then be essentially two different coins – Bitcoin and Bitcoin Unlimited.
The impact on the price and the boost to Ethereum:
The Bitcoin community is yet to hit consensus on what would be the next move – a plausible scaling or a forked blockchain. Both the events are expected to have adverse effects on the prices and would take some time to settle down from the impending volatility. Hence Bitcoin traders and investors are offsetting their exposure to altcoins like Ethereum. Hence there was a sudden rise in the prices of Ethereum that has made the cryptocurrency reach all-time highs for the year. How the forking would impact prices further is to be seen.