Bitcoin’s Split Personality Problem May Pop the Bubble

Bitcoin’s breakups could come back to bite the digital currency. They may already be nibbling.

The biggest problem is bitcoin’s theoretical 21 million limit. By my math, 20.3 million bitcoins are already in existence. What’s more, the maximum limit by my count is now 25.5 million and climbing. That’s an enormous issue for a currency whose price, and in part its astounding 652 percent rise this year, is based on the fact that its supply is supposedly capped. In the real world, though, that doesn’t appear to be the case.

This all has to do with bitcoin’s breakups. Bitcoin spinoffs happen when there is a fork. Bitcoin is run by committee, and when it disagrees about rules governing bitcoins, a fork is announced and the currency is split in two. Everyone who thinks a change would be good can go down one road with the new bitcoin variant. Everyone else heads the other way. But the splits are messy. In fact, split isn’t really the right description. The number of bitcoins doubles, but the price doesn’t drop in half, as it would in a stock split.

For example, Just 2 percent of the currency’s value was hived off with the latest offspring, and the rest stayed with original bitcoin. That spinoff, bitcoin gold, began trading on Sunday, and it didn’t go so well. It opened at nearly $500 and plunged from there. (The latest disagreement was over how hard it has become to mine bitcoins; some think it should be easier.) Bitcoin gold was fetching $160 as of Wednesday morning. That’s not bad for a currency less than a week old but no match for actual bitcoin, which after a wobble this weekend was back up to $7,200 on Wednesday…

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