Bitcoin cash is a cryptocurrency created in August 2017 from a Bitcoin fork. Bitcoin Cash has increased block size, allowing more transactions to be processed and improving scalability.
The cryptocurrency went through another fork in November 2018 and split into Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision). Bitcoin Cash is known as Bitcoin Cash because it uses the original Bitcoin Cash client.
Bitcoin Cash is the result of a Bitcoin hard fork that occurred in August 2017.
Bitcoin Cash is designed to accommodate a larger block size compared to Bitcoin, allowing for more transactions in a single block.
Despite their philosophical differences, Bitcoin Cash and Bitcoin share several technical similarities. They use the same consensus mechanism and have limited their supply to 21 million.
Bitcoin Cash itself bifurcated in November 2018 and split into Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision). Bitcoin Cash ABC is now known as Bitcoin Cash.
Understanding Bitcoin Cash
The difference between Bitcoin and Bitcoin Cash is philosophical.
As proposed by Bitcoin inventor Satoshi Nakamoto, Bitcoin was created to be a peer-to-peer cryptocurrency used for daily transactions. Over the years, as it gained traction and its price skyrocketed, Bitcoin became an investment vehicle rather than a currency.
Its blockchain witnessed scalability issues because it couldn't handle the increasing number of transactions. Commit time and rates for a transaction on the bitcoin blockchain skyrocketed. This was mainly due to the 1MB block size limitation for bitcoin. Queued transactions, waiting for confirmation, because blocks could not handle the increase in transaction size.
Bitcoin Cash proposes to solve the situation by increasing the size of 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 at the time Bitcoin Cash was proposed was 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 Bitcoin Cash proponents like Roger Ver often invoke Nakamoto's original vision of a payment service as a reason to increase block size.
They say the change in bitcoin block size will allow bitcoin to be used as a medium for daily transactions and will help it compete with multinational credit card processing organizations such as Visa, which charges high fees to process international transactions.
Bitcoin Cash also differs from bitcoin in another respect as it does not incorporate Segregated Witness (SegWit), another proposed solution to accommodate more transactions per block. SegWit only retains information or metadata related to a transaction in a block. Typically, all details pertaining 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 consensus (PoW) mechanism to extract 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 amount as Bitcoin. Bitcoin Cash also started out using the same mining difficulty algorithm — technically known as Emergency Difficulty Adjustment (EDA) — which adjusts the difficulty every 2016 block or approximately every two weeks.
Miners took advantage of this similarity by switching their mining activity between Bitcoin and Bitcoin Cash. Although profitable for miners, the practice was detrimental to increasing the supply of Bitcoin Cash in the markets. Consequently, Bitcoin Cash revised its EDA algorithm to make it easier for miners to generate the cryptocurrency.
Bitcoin Cash History
In 2010, the average size of a block in the Bitcoin blockchain was less than 100KB and the average fee per transaction was just a few cents. This made your blockchain vulnerable to attack, consisting entirely of cheap transactions that could harm your system.
To avoid such a situation, the size of a block in the bitcoin blockchain has been limited to 1 MB. Each block is generated every 10 minutes, allowing space and time between successive transactions. Limiting the size and time required to generate a block added another layer of security to the bitcoin blockchain.
But these safeguards proved to be an obstacle as bitcoin gained popular traction due to a greater awareness of its potential and improvements to its platform. The average size of a block increased to 600K in January 2015. The number of transactions using Bitcoin increased, causing an accumulation of uncommitted transactions.
The average time to commit a transaction has also increased. Likewise, the transaction confirmation rate has also increased, weakening bitcoin's argument as a competitor to expensive credit card processing systems. (Rates for transactions on the bitcoin blockchain are user-specified. Miners typically place higher rate transactions at the front of the queue to maximize profits.)
Two solutions were proposed by the developers to solve the problem: increasing the average block size or deleting certain parts of a transaction to fit more data into the blockchain. The Bitcoin Core team, 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 has been created. But the new currency, called Bitcoin Unlimited, was hacked and struggled to gain traction, leading to doubts about its viability as a currency for everyday transactions.
The first proposal also attracted acute and diverse reactions from the bitcoin community. Mining giant Bitmain was hesitant to support the implementation of Segwit in blocks because it would affect sales of its miner AsicBoost. The machine contained a patented mining technology that provided a “shortcut” for miners to generate hashes to encrypt mining using less energy. However, Segwit makes it more expensive to extract Bitcoins using the machine because it makes it difficult to reorder transactions.
Amidst a war of words and position-taking by miners and other stakeholders in the cryptocurrency community, Bitcoin Cash was released in August 2017.
Each Bitcoin holder received an equivalent amount of Bitcoin Cash, thus multiplying the number of existing coins. Bitcoin Cash debuted on cryptocurrency exchanges at an impressive price of $900. Major cryptocurrency exchanges, such as Coinbase and itBit, boycotted Bitcoin Cash and did not list it on their exchanges.
But it received vital support from Bitmain, the world's largest cryptocurrency mining platform. This ensured a supply of currencies for trading on cryptocurrency exchanges when Bitcoin Cash was launched. At the height of the cryptocurrency craze, the price of Bitcoin Cash soared to $4.091 in December 2017.
Paradoxically, Bitcoin Cash itself suffered a fork just over a year later, for the same reason it split from Bitcoin. In November 2018, Bitcoin Cash 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 it has incorporated several changes to its blockchain, such as the Canonical Transaction Ordering Route (CTOR) — which reorganizes transactions into a block for a specific order.
Bitcoin Cash SV is led by Craig Wright, who claims to be the original Nakamoto. He rejected the use of smart contracts in a platform aimed at payment transactions.
The drama before the last difficult bifurcation was similar to the one before Bitcoin Cash bifurcation from Bitcoin in 2017. But the ending was a happy one as more funds flowed into the cryptocurrency ecosystem due to the bifurcation and the number of coins available to investors multiplied . Since launch, both cryptocurrencies have obtained respectable ratings from crypto exchanges.
Concerns About Bitcoin Money
Bitcoin Cash promised several improvements over its predecessor. But it has not yet fulfilled those promises.
The most important is the block size. The average size of blocks extracted in Bitcoin Cash blockchain is much smaller than in Bitcoin blockchain. The smaller block size means that its main thesis of enabling more transactions through larger blocks still needs to be technically tested. Bitcoin transaction fees have also dropped significantly, making it a viable competitor to everyday cash bitcoin.
Other cryptocurrencies that aspire to similar ambitions to become a medium for daily transactions have added another wrinkle to Bitcoin Cash's original ambitions. They established projects and partnerships with organizations and governments, at home and abroad. For example, Litecoin has announced partnerships with event organizers and professional associations, and others, such as Dash, claim to have already gained traction in troubled economies like Venezuela, although such claims are disputed.
While its separation from Bitcoin has been well known, Bitcoin Cash is virtually unknown outside the crypto community and hasn't made any big announcements about its adoption. Based on transaction levels in the blockchain, Bitcoin still has a considerable advantage over the competition.
The second fork in the Bitcoin Cash blockchain also highlights issues with managing its developer pool. It's worrying that a sizable section of the pool thought the Bitcoin money was diluting its original vision, 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 turns to become a platform to incorporate smart contracts for transactions or simply for payment systems.
Bitcoin Cash also lacks a clearly defined governance protocol. While other cryptocurrencies, such as Dash and VeChain, have innovated and devised detailed governance protocols that assign voting rights, the development and design of Bitcoin Cash appears to be centralized in their development teams. As such, it is unclear whether investors without substantial stakes in the cryptocurrency have voting rights or a say in the future direction of the cryptocurrency.