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Bitcoin splits into two as transaction volumes increase

Bitcoin’s much-anticipated split into two currencies has taken effect, triggering a process that some fear could divide and undermine the crypto currency community.

Following an ideological conflict over the future of bitcoin, as transaction volumes increase to unmanageable levels, rebel users on Tuesday created a new version of the currency known as Bitcoin Cash.

As the crypto currency market now grapples with the most significant change in its architecture to date, it could still be days before the long-term effects of the change are known.

But with Tuesday’s so-called “hard fork” upgrade flying in the face of a separate agreement made by community heavyweights in New York in May, analysts say the development exposes a crisis at the heart of the community.

“You’ve got various vested interests at work fighting for the future of the bitcoin network,” said Charles Hayter, chief executive of CryptoCompare. “How the network develops and forms will define it . . . now we have an experiment at work.

“It is like the Greek city state, there are various political systems with money involved.”

Bitcoin’s systems have been threatened by a recent surge in popularity, which has seen its value jump to over $2,697, from around $997 at the start of the year. As transaction levels increase, the currency has run up against inbuilt limitations in its ability to process payments.

Bitcoin only allows one megabyte of data to be added to its ledger of asset ownership, the blockchain, every 10 minutes — a restriction that has caused huge delays and higher fees as transaction levels increase.

Bitcoin Cash, which launched on exchanges such as China-based ViaBTC and multinational Kraken on Tuesday, also uses the blockchain but allows 8Mb of data to be added every 10 minutes.

Investors will be given both versions of the currency once the split has been finalised.

Masterminded by a breakaway group including former Facebook engineer Amaury Sechet, Bitcoin Cash is thought to favour larger mining pools, which are predominantly found in China.

It is also supported by Craig Wright, the Australian who last year failed to prove decisively he was Satoshi Nakamoto, the architect of bitcoin, but who many people still consider influential in the market.

Many data miners switched to the new currency, which began trading on Tuesday. Bitcoin itself fell 6.1 per cent to $2,697.

The alternate proposal to Bitcoin Cash is known as Segwit2x. It is designed to facilitate more transaction processing capacity off the main blockchain, using so-called sidechains or compatible systems such as the Lightning Network.

Some commenters in online forums fear it may take days before enough blocks are forged to make Bitcoin Cash credible.

Additional reporting by Izabella Kaminska