Why a Bitcoin Fork Is Not a 'Stock Split'

 If you've been following the bitcoin fork drama this week, you may have heard the term "stock split" thrown around in interviews with "experts." Before we get to the problems here, it's true that there are now two publicly traded bitcoin assets, bearing similar names with similar value propositions. They even appear side by side on some major exchanges. ADVERTISEMENTThe  impulse to use existing terminology as a metaphor to refer to emerging  technology is understandable. In fact, it can be incredibly helpful to  use existing mental models as a metaphor for things we don't quite have  our heads around just yet. But this comparison, while well intentioned, is misguided: a blockchain fork isn't anything like a stock split. Here's why:

The drivers

Stock split: The basic motivation behind most stock  splits is to lower the price of individual shares of a stock to bring it  within the financial reach of retail investors. One of the best-known examples of a stock split in recent years is  the 7-for-1 split of Apple shares in 2014. Prior to the split, when  Apple was trading around $700, it was often debated  whether the individual stock price was too high. A steep rise in share  price in the months that followed seems to have settled the debate. (At  least in the case of Apple.) Bitcoin: The reasons for the split into two  cryptocurrencies are complex, but they have nothing to do with  ease-of-access for retail investors. The crux is this: A long-standing debate  has divided the bitcoin community on its technical roadmap –  specifically, about finding the best way to cope with a growing user  base and rising transaction volume. After the bitcoin fork, bitcoin is still trading at over $2,700,  roughly the same price as before. The price of the new asset, Bitcoin  Cash, is around $200 to $450 depending on the liquidity of the exchange  it's being traded on. In short, the two assets now have two separate  values, each derived from their technical roadmap and supporting  communities. Both could end up expensive for investors, but to the extent that one may end up affordable, it may not make it valuable. 

Governance

Stock split: In the broadest sense, stock splits and  blockchain splits share one thing in common: they must be approved by  someone. So who approves them? Publicly traded companies are owned by their shareholders. Those  shareholders then elect a board of directors to act as their proxies in  corporate governance issues. The board of directors hires managers to  run the company. The board of directors and management, which often  overlap, make decisions about matters that are crucial to the  functioning of the company. (In theory, this permits companies to behave  as rational actors; in practice, less so.) One of the most important decisions that management and boards of  directors make about the public companies they run concerns the makeup  of the capital structure, which is the category into which share  structure falls. Bitcoin: Bitcoin is a shared account of value  without centralized authority or control. There is no single third party  that verifies the accuracy of the value accounted for in the ledger.  There is no central governing authority; instead, decisions are made by  consensus based on miners (or nodes) signaling their approval for proposals, based on predetermined thresholds for passage that are embedded in the code. In the event of a split, every actor gets to make decisions in their best interest. Right now, some exchanges aren't listing Bitcoin Cash, some are. Some  miners aren't mining the new blockchain, some are. And some users are  trading both, in that both are now digital assets that can be sent  seamlessly around the world. Where they go from there will take  coordination, but for now, decision-making is isolated and dedicated by  self-interest. 

Final takeaway

Stock split: A stock split is a corporate action  that divides existing shares into more shares without changing the  underlying claims on assets that those shares represent. If you double  the amount of something, but cut its value in half, you haven't  effectively changed the underlying economics at all. (Which is worth  more to you: a $20 bill or two $10 bills?) But here's what really matters about a stock split: no new entity of  any kind is created. The same corporate entity that existed before the  split still exists afterward. From an operational standpoint, nothing has been added and nothing has been taken away. Bitcoin: When Bitcoin Cash split off from the  bitcoin blockchain it created an entirely new blockchain unique to  Bitcoin Cash. From this point forward, the two currencies will trade  under separate symbols. And they will each have their own transaction  history after the time of the split, and develop unique values. Both may fail, both may thrive. That's up to individual actors in the marketplace. And the ongoing popularity of ethereum and ethereum classic shows just how long it can take for the market to decide – if it will pick one winner at all