What is Bitcoin Cash?
The rapid increase in demand for Bitcoin in 2017 led to a decrease in processing speed and a significant increase in transaction fees. Sensing that a crisis was on the horizon, a community was formed with the intent of developing Bitcoin Cash.
A hard fork usually refers to an update to the validation rules for a blockchain protocol. If there is a sufficient amount of dissent from developers, the community may split off into separate currencies.
*We refer to the Bitcoin Cash Node (BCHN) chain as Bitcoin Cash (BCH).
Structure of Bitcoin Cash
Similar to Bitcoin, Bitcoin Cash uses Proof of Work (PoW). The upper limit for issuance is set to 21 million and halving occurs once every 4 years. As of May 2020, the current mining reward is set to 12.5 BCH.
A key difference from Bitcoin is the block size. While Bitcoin is currently limited to 1 MB per block, Bitcoin Cash can go up to 32 MB per block. The difference in block size allows Bitcoin Cash to process more transactions in the same period of time.
Impetus behind Bitcoin Cash
Bitcoin transactions do not have a set fee, but the fees generally incurred change dynamically with the volume of transactions occurring at any given time.
With a traditional financial institution, the transaction fees will vary based on the service offered. In the case of Bitcoin, the transaction fees will vary based on the amount of data (transactions) in line to be processed. This means that a transaction for 100 BTC and 0.01 BTC would incur the same fees since they are the same amount of data.
When Bitcoin started in 2009, the transaction fees were effectively negligible. By 2014, the degree of recognition for Bitcoin had increased to the point that users were starting to notice and increase in fees and delays in processing transactions.
The main reason this occurred is because the amount of data that can be processed was limited to 1 MB per block. Since fees are paid as a way to have one’s transaction prioritized, it meant that fees were increasing to ensure that transactions were confirmed.
Since around 2014, the number of transactions to be processed at any given time has often exceeded 1 MB. This effectively means that transactions in excess of 1 MB are queued for a future block.
Since Bitcoin averages 1 block every 10 minutes, this means that one could expect their transaction to take over 10 minutes to process. Anyone wanting to send it faster would try to have their transaction prioritized by choosing to pay a higher fee to jump ahead in the queue. This consistently compounds leading to people choosing to pay higher fees and longer queues for processing for a given fee. This loss of convenience in accordance with an increase in the number of users is referred to as the scalability problem.
The Bitcoin community has been discussing ways to mitigate the scalability problem for some time, but the community as a whole was never able to reach a full consensus on any particular solution.
Bitcoin Cash seeks to return to the level of convenience that Bitcoin used to have. Bitcoin Cash split off as a separate blockchain from Bitcoin through a hard fork in August 2017. At that time, Bitcoin Cash had a maximum block size of 8 MB, which alleviated the fees being faced by Bitcoin. In May 2018, the block size was further increased to a maximum of 32 MB.
Conflict over the return to Bitcoin’s original ideology
By 2017, the scalability problem and loss of liquidity caused Bitcoin to be seen less as a currency and more as an asset for speculators.
Citing the original whitepaper by Satoshi Nakamoto, this was seen as a violation of Bitcoin’s original intent of being used as a currency. This led to groups of developers seeking to solve the scalability problem. However, the core development group of Bitcoin saw this as premature.
Those who felt it was premature stated that the block size limit of 1 MB serves to increase the security of Bitcoin. Therefore, they felt that increasing the block size during a time of a sudden surge in crypto asset posed a security issue.
Beyond the philosophical conflict, it came down to a choice between convenience and security. It ultimately resulted in a hard fork. The two were given the names Bitcoin Cash (BCH) and Bitcoin Core (BTC) in order to differentiate them, but many feel that BCH is the true Bitcoin.
May 2018 hard fork
Bitcoin Cash implemented a hard fork in May 2018 to increase the block size and introduce smart contracts. This hard fork did not create any disruption in the community, so it was seen as an upgrade to Bitcoin Cash.
The block size was increased from 8 MB to 32 MB, which strengthened its scalability.
November 2018 hard fork (hash war)
The Bitcoin Cash community was split during a hard fork in November 2018. The larger group was Bitcoin ABC. The smaller group was Bitcoin SV (Satoshi Vision), which wanted to develop a currency that was more in line with Satoshi Nakamoto’s original plan.
Bitcoin ABC has the backing of Bitmain, a major Chinese mining company, and Roger Ver, a Bitcoin evangelist. Bitcoin ABC also upgraded Bitcoin Cash to allow for building DApps. Those who preferred to stick with what they saw as Satoshi Nakamoto’s original plan separated off into Bitcoin SV.
Since they were unable to reach an agreement, the Bitcoin Cash blockchain diverged into separate blockchains for Bitcoin ABC and Bitcoin SV.
Each one was competing to see which would form a longer chain. This is based on the fact that shorter chains are thrown out and the longer ones are considered to be the official chain. This means there was a need to have more miners to lend their hash power to make more blocks. Hash power refers to the computing power used by miners to create blocks. This kind of a face-off is referred to as a hash war. The hash war never resolved, so they diverged into two separate currencies.
Ultimately, Bitcoin ABC was able to retain the name of Bitcoin Cash. Bitcoin SV took up a name as a new currency (BSV). The version of Bitcoin Cash used on bitFlyer is Bitcoin ABC.
The future of BCH
Bitcoin Cash is being assertively promoted for its convenience and use as a currency. Bitcoin Cash has gained notoriety in Cyprus due to meetings with the president and government officials. The Chinese payment and chat app WeChat added Bitcoin Cash wallet support. Bitcoin Cash is increasing the number of economic zones it is accepted in.