What Is Bitcoin Cash? Introduction to BCH
What is Bitcoin Cash, and why does the argument about it rage throughout the crypto community? In most respects, BCH (the symbol for Bitcoin Cash) is a cryptocurrency exactly like Bitcoin. You can use it to buy and sell things, it works in much the same way, and it even has the same history – until August 2017.
It uses the same hashing algorithm and up until August, 2017, has exactly the same transaction history represented in its blockchain. There are some very important differences, though.
- Each block in the Bitcoin Cash chain is eight times the size of blocks on the Bitcoin chain. In the future these blocks will be even bigger, as needed. This means that it should be faster.
- After the initial forked version, it moved to its own address format.
- To date it has held a lower value on the fiat exchanges.
- Due to the lower value and the increased block real estate, Bitcoin Cash transaction fees are normally lower than Bitcoin’s.
- An entirely different team of developers supports it.
Of Big Blocks, Small Blocks, and Lightning
Holders of Bitcoin were rewarded with a cost-free asset on a new blockchain, called Bitcoin Cash.
Wait… what? Free money? Yes – that’s exactly right. Bitcoin Cash was simply created out of thin air, and dropped into the wallets of people holding Bitcoin. Which means that there was suddenly a lot more “money” in the cryptocurrency world… and which could have had a major impact on the dramatic rise in the total market cap for the entire industry.
In fact, the token – even today on March 16th, 2018, is valued at $1,000 on CoinMarketCap following a drop from a peak of around $4,000 – so it is still worth a total of $17 billion!
The reason for this happy event for BTC holders is that Bitcoin Cash forked the existing Bitcoin blockchain, including all previous transactions in its entire history, and so anyone with an existing Bitcoin private key now had a mirrored private key on the Bitcoin Cash blockchain.
An answer to the long-standing scalability problem, Bitcoin Cash came to life after Bitcoin Improvement Proposal #91, the expulsion of blocks generated by miners not supporting Segregated Witness, was implemented without a coinciding increase to the maximum size of Bitcoin blocks.
Segregated Witness and Lightning Network are also answers to the scalability problem, but not everyone agreed they were the superior solution, and so Bitcoin Cash uses neither.
Bitcoin Cash enjoys the wide support of developers and community members who believed that a simple increase to the size of Bitcoin blocks was the best path forward, including Bitcoin.com owner Roger Ver and Jihan Wu, co-founder of BITMAIN, which produces mining equipment. It is traded on most of the same exchanges as Bitcoin, accepted at many of the same retailers, and consistently retains its own market value and network effect.
A primary argument against increases in block size is that it will increase the amount of resources required to run a full node, which, it is argued, will limit the effective amount of network decentralization.
Bitcoin Cash proponents believe that full nodes should be left to the enterprise side of the economy, such as exchanges, miners, merchants, and other parties with a direct financial interest in keeping the network running smoothly. Everyday users should use lightweight clients such as Electron Cash (the Bitcoin Cash version of Electrum), which do not require a full copy of the blockchain to operate, in their view.
Craig S. Wright
Important to understanding the subject, it should be noted that Dr. Craig S. Wright, who has claimed to be Satoshi Nakamoto, is a proponent of Bitcoin Cash. He is on record as saying,
Bitcoin is a P2P cash system, a payment system. It will be valued more when it is used by many more. That is what we will grow in BCH and this is a long term position, not week by week.
Market Performance of Bitcoin Cash
Bitcoin Cash began trading in the late summer of 2017 at over $500. Like Bitcoin and most cryptocurrencies, it has seen its share of volatility, with an all-time-high of more than $4,000 per BCH having been achieved in December of 2017.
Bitcoin Cash has the limited supply feature that makes Bitcoin a solid investment. It has a growing network of market participants and requisite support from miners. As such, a basic assumption is that its value will steadily incline in the same way that Bitcoin’s has done.
Benefits of Bitcoin Cash
Lower Transaction Fees
More block space means the market price of a transaction will tend to be lower. While transactions on the Bitcoin blockchain are also cheapened by the scaling solutions being implemented there, at time of writing the average cost of a transaction for Bitcoin was over 1000% higher than Bitcoin Cash.
Relatively Faster Transactions
For the same reason that transactions cost less to send, transactions also are likely to happen faster, depending on the stability of the Bitcoin Cash network.
Due to having the same algorithm as Bitcoin as well as having a relatively high value, Bitcoin Cash has a much higher hashrate than many other alternatives to Bitcoin. The higher a hashrate is, the more difficult and expensive it is for an attacker to compromise a blockchain.
Easy to Adopt
Again because of its similarity to Bitcoin, adoption or lack thereof is not a technically difficult feat for merchants, exchanges, and other participants. Adoption of Bitcoin Cash benefits from advances made by Bitcoin in ways that other alternatives to Bitcoin simply can’t: the infrastructure and changes needed to accept Bitcoin, in general, pave the way to also easily accept Bitcoin Cash.
Problems With Bitcoin Cash
To Date, Has Only One Defining Feature
Bitcoin Cash will need to distinguish itself in more ways than simply having larger blocks if it is going to be a unique and valuable offering into the future. As scaling solutions in Bitcoin are tested and perfected, the need for a “second Bitcoin” might diminish. While plenty of people have chosen Bitcoin Cash over Bitcoin for philosophical reasons, long-term broad support is required for the network to function, especially when mining rewards eventually diminish and transaction fees are the primary source of miner income.
Smaller Development Community
While Bitcoin Cash is backed by a competent open source development team, there is no understating the largeness of the brain pool working instead on Bitcoin. There is simply more economic incentive to build brilliant Bitcoin innovations, and more moneyed interests sponsoring developers to do so. Less development has a number of implications, including in security.
Drama Surrounds It
It’s no secret that the long philosophical and technical scaling debate which led to the creation of Bitcoin Cash brought out the worst in many people on both sides. Roger Ver, Jihan Wu, and Craig Wright have all frequently engaged in loud, sometimes incredibly divisive, arguments which are bound to have a negative and overshadowing effect on the adoption and confidence of Bitcoin Cash.
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