Bitcoin Cash: Peer-to-Peer Electronic Cash
Updated: Aug 23, 2019
Name: Bitcoin Cash
Consensus algorithm: Proof of work (POW)
Native blockchain: Bitcoin Cash blockchain
Release date: 1 August 2017
Supply: 21 million (the max supply to be reached by c. 2140)
Official website: https://www.bitcoincash.org/
What is Bitcoin Cash?
Bitcoin Cash is the first hard fork in the history of Bitcoin, the world’s first and largest decentralized digital currency. Just as with Bitcoin, BCH can be sent through the peer-to-peer Bitcoin Cash network directly.
Transactions of Bitcoin Cash are verified by network nodes via cryptography, then recorded in a blockchain, a ledger that it’s distributed publicly and acts as a verification for all transactions. They work on exactly the same principles as Bitcoin. As with Bitcoin, Bitcoin Cash is also created as a reward for a process known as mining.
Mining involves using the computer to verify new transactions, gathering them in a transaction block. It helps towards the verification process that the blockchain network provides, while rewarding those who do it with Bitcoin Cash as a result. Mining does take time, effort, a lot of computing power and networking expertise, however more commonly, Bitcoin Cash users tend to buy it, using it for transactions, and some, such as BTC Direct employees, are paid part of their salary directly in Bitcoin Cash.
Bitcoin Cash was founded by a group of Bitcoin users known as Bitcoin Unlimited. The growth of Bitcoin resulted in some problems, including rising fees for those who were part of the network. Some members of the community, including investors, entrepreneurs and developers were unhappy with Bitcoin’s plans to address these issues and, as such, proposed and implemented the split, or hard fork” into Bitcoin Cash.
The Bitcoin Cash Blockchain
The Bitcoin Cash blockchain works on the same fundamental principles as Bitcoin’s.
It is a public ledger containing a continuously growing record of transactions of the currency. It’s used a chain of blocks, each containing a hash of the previous block, going back to the very first. As such, the transactional history of each Bitcoin Cash can be fully tracked. The miners who mine Bitcoin Cash support the network of communicating nodes that maintains the Blockchain.
Bitcoin Cash applications
Since Bitcoin Cash is, effectively, an alternative version of Bitcoin, with a different way of tackling the saleability problem that has faced both currencies, it’s used in mostly the same ways.
The ability to carry out transactions of Bitcoin Cash from person A to person B without needing an intermediary, also known as peer-to-peer, is a crucial characteristic of the currency. With no need for banks or other third parties, it can be sent more freely with smaller transaction fees. Similarly, a bank does not hold your Bitcoin Cash, but rather you manage it yourself with something known as a “wallet.”
The wallet is effectively your proof that the Bitcoin Cash on the network that you own is, in fact, yours. It holds the private keys that are used to gain access to your coins. If these private keys are lost, then the Bitcoin Cash becomes effectively worthless. It doesn’t hold the Bitcoin Cash itself, but it is used to access, manage, send, and receive coins.
Wallets can be downloaded and used in a variety of ways, on desktop computers, mobile devices, on hardware, or with paper wallets that allow them to be gifted physically or stored in the long-term. Most wallets are free to use, but some, such as hardware and paper wallets, may have to be purchased.
Bitcoin Cash Mining & Proof-of-Work
Outside of purchasing Bitcoin Cash or accepting transactions with Bitcoin Cash, mining is the primary way to gain the currency. It’s a record-keeping service that is done to manage the Blockchain network, using computer processing power. Miners group new transactions into blocks and communicate it to the rest of the Bitcoin Network. Because different miners are constantly recording new transactions, the blocks in each chain verify one another, ensuring that the blockchain stays consistent and unalterable.
New blocks must contain what is called a proof-of-work, or POW, before they are accepted by the rest of the network. Miners have to find a number called nonce, which is effectively a process of completing complicated mathematical puzzles. This proof-of-work system, as well as consistent verification of blocks throughout the chain, means that modifying the blockchain is extremely difficult. Every block in the chain must be modified for one to be modified. The difficulty to mining a block increases with each block added to the chain increases as well.
Miners can mine on their own and gain a reward of 12.5 BCH for every block they successfully mine, but this takes a lot of computing power, as well as a significant amount of electricity. More often, groups of Bitcoin Cash miners form mining pools to put their computing power together to mine blocks as a collective and split the rewards.
On 15 November 2018, a hard fork of Bitcoin Cash was created, splitting it into two factions, Bitcoin ABC (which manages the original Bitcoin Cash) and Bitcoin SV. Bitcoin SV further increased the block size limit to 128MB, while Bitcoin Cash maintains its block size limit of 32MB.
Bitcoin Cash's Future
Faster Transactions and Lower Fees - Bitcoin Cash is commonly described as being better for day-to-day transactions, rather than as an investment that gains value. Some would say that Bitcoin is being managed towards the latter goal, as it costs around $30 for every Bitcoin transaction and takes two hours to process it. Bitcoin Cash’s current transaction fees are nearly 100 times lower and takes 30 minutes on average to clear.
Larger block sizes - the reason for the split between Bitcoin and Bitcoin Cash, to begin with. Bitcoin Cash has nearly double the blocksize of Bitcoin, meaning that it’s more scalable and many more blocks will be able to be mined more quickly.
Centralisation - there are some concerns that Bitcoin Cash is all largely controlled by one governing body. Over 50% of nodes on the network are stored on virtual servers owned by Alibaba, a company that is based in China and supported by the government. As such, China effectively has potential control over half of all Bitcoin Cash and, should they cut off access to the network, the value of the coin would crash as a whole.
Few trading pairs - Altcoin, Ethereum and Bitcoin trades can be found on a lot of exchanges, but few trading pairs can be found for Bitcoin Cash, at the moment. As such, there aren’t as many investors buying into Bitcoin Cash, which could slow its value growth.
Bitcoin's shadow - Bitcoin Cash does have a dedicated community supporting it. However, the split to Bitcoin SV has reduced this community further and a lack of publicity since the initial hard fork from Bitcoin means that there aren’t as many new users. More people are familiar with currencies like Bitcoin and Ethereum, so if they’re going to start using a cryptocurrency, that’s where they’re likely to start.
Bitcoin Cash as a currency - Bitcoin Cash usage has risen sharply in 2019 despite the misgivings of many, outperforming the growth of Bitcoin and doubling in price over the past year. As a currency, its more purpose built that Bitcoin due to the ease of transaction, while the original is used more as an investment tool by many, to gain value alone.
Bitcoin Cash’s future depends on it being adopted by a wider base of users. The lower price sets a lower barrier of entry, too, but time will tell whether or not Bitcoin Cash has the potential for the wider appeal and cult-like status that Bitcoin enjoys today.