What is Bitcoin Cash?
Bitcoin Cash is a cryptocurrency created in August 2017, from a Bitcoin fork.1 Bitcoin Cash increases the size of blocks, allowing more transactions to be processed. The cryptocurrency underwent another fork in November 2018 and was split into Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision).2 Bitcoin Cash is known as Bitcoin Cash because it uses the original Bitcoin Cash client.
As proposed by Bitcoin inventor Satoshi Nakamoto, Bitcoin was intended to be a peer-to-peer cryptocurrency that was used for daily transactions. Over the years, as it gained general traction and its price rose, Bitcoin became an investment vehicle rather than a currency. Its blockchain witnessed scalability issues because it could not handle the largest number of transactions. The confirmation time and fees for a transaction on the bitcoin blockchain increased. This was mainly due to the 1MB block size limitation for bitcoin. Transactions were queued, waiting for confirmation, because blocks could not handle the increase in transaction size.
Bitcoin Cash proposes to remedy the situation by increasing the size of the blocks to between 8 MB and 32 MB, thus allowing the processing of more transactions per block. The average number of transactions per block in Bitcoin is between 1,000 and 1,500. The number of transactions on the Bitcoin Cash blockchain during a stress test in September. 2018 rose to 25,000 per block.
Leading proponents of Bitcoin Cash, such as Roger Ver, often invoke Nakamoto’s original vision of a payment service as a reason to increase the block size. According to them, the change in the size of the Bitcoin block will allow the use of bitcoin as a medium for daily transactions and will help it compete with multinational credit card processing organizations, such as Visa, which charge high fees for processing transactions across borders.
Bitcoin Cash also differs from bitcoin in another respect. It does not incorporate Segregated Witness( SegWit), another proposed solution to accommodate more transactions per block. SegWit retains only information or metadata related to a transaction in a block. Typically, all details related to a transaction are stored in a block.
Ideological and block size differences aside, there are several similarities between Bitcoin and Bitcoin Cash. Both use the proof-of-work (PoW) consensus mechanism to mine new coins. They also share the services of Bitmain, the world’s largest cryptocurrency miner. The supply of Bitcoin Cash is limited to 21 million, the same figure as Bitcoin. Bitcoin Cash also started using the same difficulty algorithm: emergency difficulty adjustment (EDA), which adjusts the difficulty every 2016 blocks or approximately every two weeks. Miners took advantage of this similarity by alternating their mining activity between Bitcoin and Bitcoin Cash. While it was profitable for miners, the practice was detrimental to increasing the supply of Bitcoin Cash in the markets. Therefore, Bitcoin Cash has revised its eda algorithm to make it easier for miners to generate the cryptocurrency.
History of Bitcoin Cash
In 2010, the average size of a block on the Bitcoin blockchain was less than 100 KB and the average fee for a transaction amounted to a couple of cents. This made their blockchain vulnerable to attacks, which consisted entirely of cheap transactions, which could potentially cripple their system. To avoid such a situation, the size of a block on the bitcoin blockchain was limited to 1 MB. Each block was generated every 10 minutes, allowing space and time between successive transactions. The limitation on the size and time required to generate a block added another layer of security on the bitcoin blockchain.
But those safeguards proved to be a stumbling block as bitcoin gained general traction on the back of greater awareness of its potential and improvements to its platform. The average block size had increased to 600K in January. 2015. The number of transactions using Bitcoin increased, causing an accumulation of unconfirmed transactions. The average time to confirm a transaction also moved up. Accordingly, the fee for transaction confirmation also increased, weakening bitcoin’s argument as a competitor to expensive credit card processing systems. (Users specify fees for transactions on the bitcoin blockchain. Miners often push transactions with higher fees to the front of the queue to maximize profits.)
The developers proposed two solutions to solve the problem: increase the average block size or exclude certain parts of a transaction to fit more data into the blockchain. The Bitcoin Core team, which is responsible for developing and maintaining the algorithm that powers bitcoin, blocked the proposal to increase the block size. Meanwhile, a new coin with a flexible block size was created. But the new currency, which was called Bitcoin Unlimited, was hacked and struggled to gain traction, raising doubts about its viability as a currency for daily transactions.
The first proposal also attracted sharp and diverse reactions from the bitcoin community. Mining giant Bitmain was hesitant to support the implementation of Segwit in blocks because it would affect the sales of its miner AsicBoost. The machine contained a patented mining technology that offered a “shortcut” for miners to generate hashes for crypto mining using less power. However, Segwit makes it more expensive to mine Bitcoin using the machine because it makes it difficult to reorder transactions.
Amid a war of words and staking out positions by miners and other stakeholders within the cryptocurrency community, Bitcoin Cash was launched in August 2017. Each bitcoin holder received an equivalent amount of Bitcoin Cash, thereby multiplying the number of coins in existence. Bitcoin Cash debuted on cryptocurrency exchanges at an impressive price of 9 900. Major cryptocurrency exchanges, such as Coinbase and itBit, boycotted Bitcoin Cash and did not include it in their exchanges.
But it received vital support from Bitmain, the world’s largest cryptocurrency mining platform. This ensured a supply of coins to trade on cryptocurrency exchanges when Bitcoin Cash was launched. At the height of the cryptocurrency mania, the price of Bitcoin Cash soared to diciembre 4,091 in December 2017.
Paradoxically, Bitcoin Cash submitted to a fork a little over a year later due to the same reason it split from Bitcoin. On Nov. 2018, Bitcoin Cash was split into Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision). This time, the disagreement was due to proposed protocol updates that incorporated the use of smart contracts into the bitcoin blockchain and increased the average block size.
Bitcoin Cash ABC uses the original Bitcoin Cash client, but has incorporated several changes to its blockchain, such as Canonical Transaction Ordering Route (CTOR), which rearrange transactions in a block to a specific order.
Bitcoin Cash SV is run by Craig Wright, who claims to be the original Nakamoto. He rejected the use of smart contracts on a platform that was intended for payment transactions. The drama before the last hard fork was similar to the one before bitcoin’s Bitcoin Cash fork in 2017. But the end has been happy as more funds have flowed into the cryptocurrency ecosystem due to the fork and the amount of coins available to investors has multiplied. Since their launch, both cryptocurrencies have earned respectable valuations on crypto exchanges.
Bitcoin Cash is a branch of Bitcoin and is the result of a hard fork of the original cryptocurrency blockchain in August 2017. Bitcoin Cash underwent a fork in November 2018 and was split into Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision). Bitcoin Cash ABC is known as Bitcoin Cash now.
Bitcoin Cash plans to have a larger block size compared to Bitcoin to accommodate more transactions in a single block and function as a means of daily transactions.
Despite their philosophical differences, Bitcoin Cash and Bitcoin share several technical similarities. They use the same consensus mechanism and have limited their offer to 21 million.
Concerns about Bitcoin Cash
Bitcoin Cash promised several improvements over its predecessor. But he still has to keep those promises.
The most important is with respect to the size of the block. The average size of the blocks mined on the Bitcoin Cash blockchain is much smaller than those on the Bitcoin blockchain. The smaller block size means that your main thesis of allowing more transactions through larger blocks has not yet been technically tested. Transaction fees for bitcoin have also decreased significantly, making it a viable competitor for bitcoin cash for everyday use.
Other cryptocurrencies that aspire to similar ambitions of becoming a medium for daily transactions have added another wrinkle to Bitcoin Cash’s original ambitions. They have established projects and partnerships with organizations and governments, both at home and abroad. For example, Litecoin announced partnerships with event organizers and professional associations and others, like Dash, claim to have gained ground in troubled economies like Venezuela.
While its separation from Bitcoin was quite high-profile, Bitcoin Cash is mostly unknown outside the crypto community and has yet to make big announcements about adoption. Based on transaction levels on blockchain, Bitcoin still has a considerable advantage in its competition.
The second fork in the Bitcoin Cash blockchain also highlights issues with the management of its developer group. That a sizable portion of the group thought Bitcoin Cash was diluting its original vision is troubling because it opens the door to new divisions in the future. Smart contracts are an essential feature of all cryptocurrencies. However, it remains to be seen whether Bitcoin Cash pivots to become a platform for incorporating smart contracts for transactions or simply for payment systems.
Bitcoin Cash also does not have a clearly defined governance protocol. While other cryptocurrencies, such as Dash and VeChain, have innovated and outlined detailed governance protocols that assign voting rights, Bitcoin Cash’s development and design appears to be centralized with its development teams. As such, it is not clear that investors without substantial holdings of the cryptocurrency have voting rights or say in the future direction of the cryptocurrency.