Two rival versions of Bitcoin might be better than one.

On Tuesday, a faction of the Bitcoin community launched an audacious experiment: a new version of Bitcoin called Bitcoin Cash that's incompatible with the standard version. As a result, the Bitcoin network split into two mutually incompatible networks that will operate side-by-side.

The confusing result is that if you owned one bitcoin before the split you own two bitcoins now: one coin on the original Bitcoin network, and a second coin on the new Bitcoin Cash network. The two coins have the same cryptographic credentials, but they have very different values if you sell them for old-fashioned dollars. On Wednesday morning, one standard Bitcoin was worth about $2,700, while—on paper at least—a unit of Bitcoin Cash was worth around $600.

Getting Bitcoin Cash off the ground is a remarkable achievement. The big question now is whether the network's supporters can keep it aloft in the coming weeks and months. So far, most of the Bitcoin community has chosen to stick with the mainstream Bitcoin software and network. If Bitcoin Cash can't attract a critical mass of users and businesses, the rival payment network could wither on the vine.

If Bitcoin Cash does achieve critical mass, on the other hand, its future could be bright. It was created by Bitcoin supporters worried about growing congestion in the mainstream bitcoin network that has led to slow payment processing and high fees. Bitcoin Cash removes an important technical obstacle that has hampered the growth of the mainline Bitcoin network. In principle, that could allow Bitcoin Cash to become more widely used—and hence more valuable—in the long run.

Why people created a rival version of Bitcoin

For over a year, the Bitcoin network has been bumping up against a capacity limit hard-coded into the Bitcoin software. Each block in the Bitcoin blockchain—the network's public, shared transaction ledger—is limited to 1 megabyte. That artificial limit prevents the network from processing more than about seven transactions per second.

Technically speaking, it would be trivial to change that 1 megabyte limit to a higher value. But proposals to do so have faced opposition from traditionalists who argue the limit is actually an important feature of Bitcoin's design that protects the network's democratic character. To participate in the network's peer-to-peer process for clearing transactions, a computer needs a copy of every transaction ever made on the Bitcoin network, which adds up to gigabytes of data per month.

Small-block supporters worry that raising the block limit will raise the storage and bandwidth costs of participating in the network, pricing out ordinary users. That could lead to a Bitcoin network dominated by a few big players, making the network more susceptible to government control and regulation—exactly what Bitcoin was created to avoid.

Big-block supporters say storage and bandwidth costs have fallen so quickly that this isn't a serious concern. And they say Bitcoin is going to need to process a lot more than seven transactions per second to become a mainstream technology with a real shot at changing the world.

This argument has dragged on for more than two years with no resolution. So instead of continuing to bicker, a group of big-block supporters took matters into their own hands. They forked the standard, open-source Bitcoin client to create a rival version of the software.

They could have started over with an empty blockchain—the cryptocurrency version of a clean slate. But if they'd done this the new software would likely have languished in obscurity. Instead, they chose to branch off from the existing Bitcoin blockchain. Bitcoin Cash has the same transaction history prior to August 1, 2017, which means that anyone who owned ordinary bitcoins before the switch owns an equal number of Bitcoin Cash bitcoins, secured by the same cryptographic keys, after the switch.

Forking the blockchain allows the creators of Bitcoin Cash to position themselves as the true heirs to Bitcoin's still-pseudonymous founder Satoshi Nakamoto. The Bitcoin Cash faction views themselves not as creating an alternative to Bitcoin, but as laying the groundwork for the next stage of Bitcoin's growth. They believe that the higher block limit will allow Bitcoin Cash to overtake the standard Bitcoin network in transaction volume, eventually making it the most popular version of the technology.

Bitcoin Cash still needs to prove itself

Bitcoin Cash is only about 24 hours old, but on paper it's already a huge success. One listing of cryptocurrencies rates Bitcoin Cash as the world's third most valuable, behind only Bitcoin and Ethereum and way ahead of rivals like Litecoin and Dash.

But it's not clear how durable this apparent early success will prove to be. Right now, Bitcoin Cash's value is driven by a relatively small number of speculators who are making bets about the currency's future viability. But those bets could prove to be either way to optimistic or way too pessimistic.

In the short term, one of Bitcoin Cash's big challenges will be a shortage of miners. These are the people who participate in Bitcoin's decentralized transaction-clearing process. Bitcoin miners race to solve a hard mathematical problem—calculating hash functions over and over again until they find one starting with a minimum number of zeros—and the first miner to solve the problem gets to add a block to the blockchain and claim a reward of 12.5 bitcoins. The network periodically adjusts the difficulty of the problem to ensure that it's solved every 10 minutes, on average.

The difficulty of this problem was calibrated to the amount of computing power that existed on the Bitcoin network prior to the split. But only a small minority of computers that had been mining on the main Bitcoin network have switched to Bitcoin Cash. With less computing power, Bitcoin Cash miners are finding blocks much more slowly: fewer than once per hour, on average, compared with once every 10 minutes on the main blockchain. That means users of Bitcoin Cash will need to wait a lot longer—hours rather than 30 to 60 minutes—to be sure that their Bitcoin Cash payments are final.

Over the next few days, the Bitcoin Cash software should automatically adjust the difficulty level downward to speed up transaction processing. But the sluggish early start means that anyone who experiments with Bitcoin Cash in its first few days is likely to have a bad experience.

The longer-term challenge is convincing a broad range of stakeholders to start supporting Bitcoin Cash alongside conventional Bitcoin. Bitcoin's value flows from the fact that it's so widely recognized and supported by so many different service providers.

Bitcoin Cash is just a slight modification of conventional Bitcoin, so it wouldn't be technically difficult for companies to add support for Bitcoin Cash. But it's still extra work for service providers, and so far most have signaled that they won't be doing it. For example, the popular payment processor Bitpay has said it won't support Bitcoin Cash, which means that the thousands of ordinary merchants that accept Bitcoin payments using Bitpay won't accept Bitcoin Cash payments. Coinbase, a leading provider of Bitcoin wallet services, has also said it won't support Bitcoin Cash.

Of course, these service providers could always change their mind. And the thing that's most likely to change their minds is if the mainstream Bitcoin network continues to suffer from severe processing bottlenecks and correspondingly high fees. Bitcoin Cash has an 8 megabyte block size limit, immediately giving it eight times the capacity of classic Bitcoin. And it has a community that's more likely to support further increases if 8 megabytes ultimately proves to be insufficient.

So the bullish case for Bitcoin Cash would be if the mainstream Bitcoin community continues to be paralyzed by internecine conflict, preventing it from accommodating growing demand. Transaction fees could soar, causing consumers and businesses to look for alternatives. More and more frustrated businesses could add support for Bitcoin Cash. And then users could start to prefer it because it's faster and cheaper than conventional Bitcoin.

The split might wind up being better for everyone

Last week we covered a deal that offered the prospect of uniting Bitcoin's disparate factions and avoiding a blockchain fork. Obviously, a fork happened anyway, as some big-block supporters decided that the deal didn't go far enough in expanding the capacity of the mainstream Bitcoin network.

Still, that deal helped ensure that Bitcoin's divorce was an amicable one. The big danger was that we'd wind up with two warring factions both insisting they were the real version of Bitcoin, potentially creating both technical problems and massive user confusion. Instead, most people stuck with the standard Bitcoin software, while Bitcoin Cash explicitly positioned itself as a spinoff. Bitcoin Cash developers have taken measures to ensure that the split goes smoothly, including a feature called replay protection to prevent trouble-makers from re-broadcasting transactions from one network to the other.

At the same time, we can expect the existence of Bitcoin Cash to influence the direction of the mainstream Bitcoin community's ongoing block size debate. On the one hand, the existence of Bitcoin Cash could give the mainline world community a sense of urgency about addressing scaling problems. With less congestion on the network, Bitcoin Cash transactions are likely to come with much lower transaction fees. If those lower fees start to attract users away from mainstream Bitcoin, the latter will feel pressure to take their own steps to expand network capacity and lower transaction costs.

But it's also easy to imagine Bitcoin Cash having the opposite effect—of entrenching small-block ideology. Some of the most vocal big-block supporters have left for Bitcoin Cash. If the project succeeds, others might follow them. Small-block supporters might start to say that people who want a big-block version of Bitcoin should just use Bitcoin Cash. In this scenario, the two Bitcoin communities could wind up with diametrically opposed philosophies about network scaling.

This might wind up being the best outcome for everyone involved. Something similar happened last year, when the fledgeling Ethereum community had to decide whether to modify the network to reverse the theft of $50 million worth of ether, the Ethereum currency. Pragmatists argued that allowing the thefts to go unaddressed would undermine Ethereum's legitimacy. Purists argued the opposite: that the irreversibility of Ethereum transactions was a fundamental part of its design. Ultimately, the community split into a mainstream currency (where the thefts were reversed) and a rival called Ethereum Classic (which refused to reverse them).

Surprisingly, the combined value of the two currencies turned out to be higher than the value of the original, pre-fork version. Far from undermining confidence in Ethereum, the results suggests the split may have actually created value by giving both factions of the Ethereum community what they wanted. The same thing appears to be true for Bitcoin: standard bitcoins are worth about what they were before the fork, while the newly created Bitcoin Cash coins are worth more than $10 billion.