What is Bitcoin Cash?
It's already been ten years since Bitcoin first appeared and at the time of writing, it is still the largest and most well-known cryptocurrency on the market. Bitcoin is doing well indeed, but its protocol is far from perfect. The biggest challenge Bitcoin is facing is its limited network scalability. Its blockchain can currently only process seven transactions per second. This is by no means sufficient for a digital currency operating on the global level.
One of the main reasons behind the limited scalability of Bitcoin is its block size, which is still stuck at its initial 1MB size. There have been fierce discussions within the community about enlarging the block size. Bitcoin Cash (BCH) was a product of this debate. The main difference between Bitcoin and Bitcoin Cash is the latter's block size, which is currently situated at 32MB. This means that the Bitcoin Cash blockchain can currently process 116 transactions per second. It is still not enough, but it is already a notable increase compared to Bitcoin's seven transactions per second. Now, if the solution to the scalability issue is this simple, then why has Bitcoin never enlarged the block size of its blockchain? This discussion — about whether or not to alter the block size — is a fascinating one, and in this article, we try to draw the contours of this debate as clearly as possible.
The primary argument against increasing the block size is that it would only postpone the problem. Due to the increased block size of Bitcoin Cash, its blockchain should — in theory — grow 32 times faster than the regular Bitcoin blockchain, which currently already sits at nearly 200GB. Critics argue that Bitcoin Cash will face a problem when its blockchain becomes too sizeable for the average hard drive. Furthermore, users will eventually still reach the limit of 116 transactions per second, even with the current block size. Opponents are thus convinced that different options need to be explored to solve this issue.
Why do people buy Bitcoin Cash?
Bitcoin Cash is one of the most successful Bitcoin split-offs. Its proponents argue that by increasing the block size, the scalability problem will soon become a relic of the past. And indeed, the increased block capacity has succeeded in keeping transaction costs low, at least for now. The network is also able to process all transactions swiftly. Nevertheless, it will be interesting to see what will happen in the long term when the demand for Bitcoin Cash increases and the blocks need to start making use of their full capacity.
And, will you buy Bitcoin Cash?
Who came up with Bitcoin Cash?
In the summer of 2017, the increased transaction costs of the Bitcoin network caused a rift within the Bitcoin community. A group of users, which included Roger Ver, wanted to split off from Bitcoin. The group argued that the proposals for improving the Bitcoin protocol would cause it to eventually become more of a digital investment than a digital currency. They were not content with the proposal to start implementing SegWit and pushed for a demerger (hard fork), which then led to the creation of Bitcoin Cash. The most important aspect of the split was the increased Bitcoin Cash block size, from 1MB to 8MB.
The history of Bitcoin Cash
Bitcoin Cash emerged as a split-off from Bitcoin, and as such, it is emblematic of the political aspect, which is an integral component of decentralised cryptocurrencies. Cryptocurrencies are open networks, which means that everyone can propose alterations to the protocol. If these amendments are not passed by a majority of the user base, there is always the option of splitting up and continuing the project with like-minded individuals. This is also what the phrase 'cryptocurrencies cause the democratisation of money' alludes to.
Ever since its founding in 2009, the Bitcoin blockchain protocol operated according to a standard ruleset. This ended in the summer of 2017 when part of the Bitcoin community expressed its disapproval of the digital currency's future outlook. The group proposed an alternative track instead. One of the proposed amendments was to increase the block size from 1MB to 8MB. The proposal sparked much resistance within the Bitcoin community, which ultimately led to the faction's split-off from the Bitcoin blockchain.
The first block of the 'breakaway' blockchain was mined on August 1, 2017, marking the birth of Bitcoin Cash. The movement was led by a group of activists, which included investors, entrepreneurs, and developers, as well as miners, most of whom were based in China. The initial plan was to name the coin Bitcoin ABC (short for Adjustable Blocksize Cap). However, in July, the influential mining pool ViaBTC successfully proposed the name 'Bitcoin Cash.' It started trading on August 1, 2017, with an initial market value of about $240. At that time, the original Bitcoin was worth $2700. On December 20, 2017, the Bitcoin Cash price achieved its record high of $4355. Almost exactly a year later, on December 15, 2018, it had dropped to an ultimate low of $75.
In 2018, a dispute arose between two rivalling camps within the Bitcoin Cash community. The two camps disagreed fundamentally on a range of issues, and the proposed alterations to the protocol caused another irreconcilable rift between both versions. This resulted in another split-off, occurring only a year after the foundation of Bitcoin Cash. The cryptocurrency split into two different currencies.
One of these two was named 'Bitcoin ABC.' It was supported by the controversial Roger Ver, as well as by Wu Jihan, who is the co-founder of Bitmain, a manufacturer of mining hardware. The most crucial change in this version of the protocol was the support for a feature called smart contracts, which allowed the tagging of specific conditions for transactions. Bitcoin ABC also aimed to retain its block size at 32MB provisionally. The other version is known as Bitcoin SV, short for Satoshi's Vision. It is headed by Craig Wright, who also claims to be behind the Satoshi Nakamoto pseudonym. Wright believes that Bitcoin Cash should focus on its primary function as a payment method. Therefore, Bitcoin SV does not support smart contracts. Instead, Wright proposed to increase the block size to 128MB per block. On January 3, 2019, Bitcoin SV became the first public blockchain on which a block was mined that was larger than 100MB in size. Ironically, this milestone more or less coincided with the tenth anniversary of the first mining of the Bitcoin blockchain.
How does Bitcoin Cash work?
As discussed above, Bitcoin Cash is a split-off from Bitcoin. The source code of the digital currency is a copy from the Bitcoin source code, with some slight (but very crucial) alterations. The main difference is that the block size of Bitcoin Cash is 32 MB, whereas Bitcoin only supports 1MB. This means that more transactions can be fit within one particular block, which would suggest that the Bitcoin Cash blockchain can process a higher number of transactions each second.
Another interesting difference between the workings of Bitcoin and Bitcoin Cash is the difficulty level of digital mining. The blockchain protocol assesses every 144 blocks how long it took to build these blocks. In theory, it should take exactly 24 hours to build 144 blocks. If it took users less than 24 hours to mine these blocks, the difficulty level goes up and vice versa. On the Bitcoin blockchain, the difficulty level for building new blocks is assessed every two weeks. This means that in the short run, mining Bitcoin Cash is more flexible than mining regular Bitcoin.
Which problem does Bitcoin Cash solve?
Bitcoin Cash was initially envisioned as the only solution for the Bitcoin scalability problem. A majority of users within the Bitcoin community believes that increasing the block size does not offer a long-term solution to the scalability problem. The inventors and investors of Bitcoin Cash fundamentally disagree here: they consider the possibility to increase the block size as an ideal way to scale up, as it allows for more transactions per block. It is an interesting discussion to follow, but depending on the content of the transactions, the Bitcoin Cash blockchain can currently still only process about 130 transactions per second.
What are the pros and cons of Bitcoin Cash?
Bitcoin Cash is designed to be a faster version of Bitcoin, which, according to Roger Ver, who envisioned the project, allows for a better representation of Satoshi Nakamoto's original vision. The main advantage of this coin is that in theory, it should be able to process many more transactions each second than the Bitcoin blockchain. This is the result of the increased transaction processing capacity of each block. A disadvantage is that in theory, this also means that its blockchain will eventually become much more extensive than Bitcoin's. However, in reality, the truth probably lies somewhere in between. Because the Bitcoin Cash blocks do not operate at maximum capacity, its blockchain is smaller than that of Bitcoin. It also features far fewer transactions.
Increasing the block size has its advantages, especially considering that the Bitcoin blockchain usually struggles when many simultaneous transactions take place. When its blocks fill up, both the costs of the transaction and its processing time sharply increases. By increasing the block capacity, it becomes possible to prevent this issue.
However, there are also a few counterarguments to consider. The most important of these is that increasing the block size will eventually lead to network centralisation. If the Bitcoin Cash blocks operated at maximum capacity, its blockchain would grow 32 times faster than the Bitcoin blockchain. The Bitcoin blockchain currently amounts to 250GB; it cannot be downloaded just like that. A 32-time increase would cause the blockchain to become 8TB in size, which is almost impossible to download with an ordinary internet connection. Therefore, Bitcoin Cash opponents argue that increasing block sizes does not provide us with a sustainable solution to the scalability problem. Instead, they argue that the blockchain should just be utilised more efficiently. Proponents, however, think that other solutions to the scalability problem become redundant once the block size is increased.
What makes Bitcoin Cash unique?
Bitcoin Cash is a split-off from Bitcoin, which of course does not speak in favour of its uniqueness. Its protocol, however, contains some crucial differences when compared to Bitcoin, especially regarding its vision on solving the scalability issue. Whereas other cryptocurrencies are primarily concerned with finding ways to make more efficient use of their blockchain, Bitcoin Cash and its supporters are convinced that increasing block sizes will do the trick. Only time will tell which of the two camps will eventually come out on top.