Bitcoin facing August split as miners, developers and users come down in favour of 'hard fork'

Need to make bitcoin more scalable looks like provoking a fork between bitcoin and 'bitcoin cash'

Bitcoin could split in two after 1 August in the culmination of disagreements between bitcoin's 'miners' over how the blockchain needs to be changed to enable it to better scale.

A hard fork is a scenario that most miners and holders have been keen to avoid, the majority instead favouring the adoption of a consensus technique known as "segregated witness" or "SegWit".

This would ease the scaling difficulties, but also enable it to remain compatible with the existing chain, avoiding a fork of the code. Indeed, until last weekend this option looked the most likely outcome.

However, a group of miners, developers, investors and users has now come down in favour of a hard fork, known as bitcoin cash (BCC).

BCC will have a larger block size (up to 8MB compared with the 1MB limit in place today) and with "upgraded consensus rules that allow it to grow and scale", according to the BCC website.

Changes to the bitcoin code require a consensus among its miners (organisations running the server farms that essentially secure the blockchain); if consensus is not reached then the code is forked. This is what happened to the ethereum currency, which split into two (ethereum and ethereum classic) following the failure of the DAO exchange.

This eventuality appeared to have been avoided by bitcoin when a proposition called Bitcoin Improvement Process 91 (BIP91) that would in theory lead to a soft fork and SegWit was "locked in" by miners. However, not everyone is happy with SegWit, seeing as a short-term solution at best, and it now seems that consensus will not be reached by the deadline of 01 August meaning a hard fork is likely.

The hard fork will result in two currencies, bitcoin and bitcoin cash. Holders of bitcoin who also hold their private keys will automatically receive the new currency if and when the split happens.

However holders whose bitcoins are held in online exchanges, such as Coinbase, that do not allow access to private keys will not receive the new currency. This is expected to lead to a major exodus of bitcoin from these services in the short term.

One uncertainty is which currency miners will ultimately choose to support. Bitcoin cash will only succeed if enough miners choose to mine it. Another uncertainty is how protocols, such as Omni, which operates on top of the bitcoin blockchain and on which a number of crypto-currencies and tokens are based, will be supported once two versions of the blockchain are being used in the wild.

While the dollar price of bitcoin has dropped a little from recent highs, the falls are smaller than occurred when the likelihood of a split first became common knowledge.

That indicates that there's a reasonable amount of confidence in the currency's future whatever happens after 1 August. Some people, no doubt, will be buying bitcoin because of the prospect of free bitcoin cash if the hard fork takes place.