Bitcoin Cash (BCH): Your Daily Transaction Companion
Bitcoin Cash (BCH), sharing foundational elements with Bitcoin (BTC), is a unique cryptocurrency that distinguishes itself through several features and changes. It's a 'fork' of Bitcoin, believed by many to better align with the original vision of a peer-to-peer electronic cash system as conceptualized by Satoshi Nakamoto in the 2008 white paper. Bitcoin Cash is crafted to function as a transactional currency, an electronic cash payment system for everyday use. Its primary goal is to overcome the scalability challenges observed in Bitcoin, making it more practical for daily transactions. The key difference between Bitcoin Cash and Bitcoin lies in BCH's larger block size, which ensures faster and more cost-effective transactions, emphasizing its utility in regular financial activities and marking it as a currency designed for spending rather than just holding as a store of value.
What Is Bitcoin Cash?
The genesis block of Bitcoin, the pioneering cryptocurrency, was mined on January 3, 2009, marking a significant moment in digital finance. Despite its growing prominence in popular culture, Bitcoin has faced challenges like scalability issues and lengthy transaction times. To address these limitations, Bitcoin Cash emerged in 2017 as a critical modification.
Bitcoin Cash, a hard fork of Bitcoin, originated from a network division at block 478,558. This fork introduced a major protocol change, rendering prior blocks obsolete and necessitating an update to the new chain for continued use. This fork represented a substantial software evolution, with Bitcoin continuing on one path and Bitcoin Cash forging another.
The fork was initiated by a group of Bitcoin miners and developers aiming to transcend Bitcoin's constraints. They focused on enhancing Bitcoin’s utility for digital transactions rather than merely as a store of value. The speed and cost of Bitcoin transactions were central concerns, as mainstream adoption requires efficiency and affordability.
However, the hard fork wasn't universally accepted. Critics pointed out that Bitcoin Cash's larger block size could complicate mining, potentially centralizing control among well-resourced miners like large corporations. This raised concerns about the decentralization principle of cryptocurrencies.
At the time of the fork, Bitcoin holders received an equivalent amount of Bitcoin Cash, a common practice in hard forks but one criticized by some as opportunistic.
Among the advocates of Bitcoin Cash is Roger Ver, an early Bitcoin investor and a major proponent of cryptocurrencies. His company, MemoryDealers, was an early adopter of Bitcoin payments. Ver, often called “Bitcoin Jesus”, champions Bitcoin Cash for its larger transaction capacity, arguing it makes the cryptocurrency more practical for everyday use. He has invested in various crypto projects, promoting Bitcoin Cash as a superior technological advancement over Bitcoin.
Bitcoin Cash itself has undergone forks, leading to the creation of Bitcoin Cash ABC (BCHA) and Bitcoin SV (BSV). BCHA, retaining close resemblance to Bitcoin Cash, allocates a portion of block rewards for network innovation and developer support, contrasting with Bitcoin Cash’s reliance on donations. Bitcoin SV, embodying the “Satoshi Vision”, emphasizes even larger block sizes, aiming to adhere more closely to the original Bitcoin whitepaper's vision, which didn't advocate for off-chain solutions like the Lightning Network.
Craig Wright, an Australian scientist who claims to be Bitcoin's pseudonymous founder, Satoshi Nakamoto, spearheads the Bitcoin SV movement. Despite controversies surrounding its value and leadership, the Bitcoin Cash network has achieved significant milestones, such as processing over 9,000 transactions per second and testing the capacity for millions of transactions in a single block on its scaling testnet in early 2021.
Bitcoin Cash's core features
Bitcoin Cash operates as a decentralized electronic cash system, functioning without the oversight of any central authority, such as governments or financial institutions. It represents a transformative approach to the concept of money. The key attributes of Bitcoin Cash include:
- Universal Access: Bitcoin Cash is an open network with no central ownership or control. It lacks a CEO and requires no permission for usage, making it accessible to anyone.
- Pseudonymity: Transactions on the Bitcoin Cash network are not directly linked to personal identities, promoting freedom of use and resistance to censorship.
- Transparency: The network records all transactions on a publicly accessible ledger known as the blockchain. This ledger, comprising interconnected blocks, is routinely updated, allowing transparent tracking of the entire transaction history and reducing the risk of fraud.
- Decentralized Storage: The blockchain ledger is maintained by a distributed network of participants, or 'nodes.' This decentralized approach safeguards the persistence and accessibility of information.
- Consensus-driven Rules: Nodes adhere to a specific protocol to maintain consensus on the ledger's state, determining the ownership of assets. The protocol can evolve based on participant consensus, creating a quasi-political system where users engage in a sort of social contract.
- Immutability: Once transactions are recorded on the blockchain, they become virtually unchangeable, enhancing the integrity of the ledger.
- Security: The network employs Proof of Work (PoW), where miners compete to add new blocks to the blockchain. The significant costs associated with PoW mining, in terms of hardware and energy, fortify the network's security based on game-theoretical principles, making attacks prohibitively expensive and unprofitable.
- Limited Supply: Bitcoin Cash has a capped supply of 21 million coins, akin to hard assets like land or gold. This limitation offers a digital means for long-term value storage.
- Affordable Transactions: The network facilitates quick, reliable, and cost-effective transactions, regardless of the amount or geographical boundaries, offering a viable alternative to traditional payment systems like Visa and Mastercard.
How Does Bitcoin Cash Work?
Bitcoin Cash, known for its larger block size compared to Bitcoin, provides an efficient solution for processing transactions swiftly. Initially expanding the block size to 8 MB and later to 32 MB, Bitcoin Cash facilitates processing over 100 transactions per second, a significant improvement over Bitcoin's 1 MB block limit that allows for about seven transactions per second. This enhancement makes Bitcoin Cash especially suitable for smaller, everyday purchases like a coffee, while larger transactions might still favor the slower, more secure Bitcoin.
At its core, Bitcoin Cash operates similarly to Bitcoin, sharing the same hard cap of 21 million assets, validating transactions through nodes, and employing a Proof of Work (PoW) consensus algorithm. Miners contribute their computing power to validate transactions and are rewarded in BCH. However, the increased block size of BCH grants it faster transaction times and lower fees, enhancing its suitability for smaller, more frequent transactions.
Bitcoin Cash also supports advanced features like smart contracts and applications such as CashShuffle and CashFusion. CashShuffle allows BCH holders to mix their coins with others before a transaction, enhancing privacy on the public ledger. Although this mixing process enhances transaction anonymity, it does require trusting a third-party service and may incur a fee. Conversely, CashFusion combines user transactions into a single large transaction, which is then redistributed, making individual transactions difficult to trace. These features, among others, contribute to an evolving Bitcoin Cash ecosystem that extends its functionality and accessibility.
What's the difference between Bitcoin and Bitcoin Cash?
Since its inception in 2017, Bitcoin Cash has seen significant development from multiple independent teams, focusing on enhancing its functionality as a peer-to-peer electronic cash system that champions economic freedom. Key innovations that differentiate Bitcoin Cash from Bitcoin include:
- Enhanced Block Size: Bitcoin Cash boasts a maximum block size of 32MB, much larger than Bitcoin's 1MB. This increase allows for a higher transaction volume, enabling Bitcoin Cash to process up to 200 transactions per second compared to Bitcoin's 3-7. This scalability results in faster transactions and lower costs, with Bitcoin Cash transactions often costing less than a penny, in contrast to Bitcoin's higher median and average fees.
- Storage Considerations: The larger block size of Bitcoin Cash means its blockchain contains more data, requiring more storage for full nodes. This could impact network decentralization, as the need for increased storage might deter individuals from running full nodes.
- Smart Contract Capabilities: Bitcoin Cash supports complex functions beyond basic transactions through smart contract languages like Cashscript. This opens the door to decentralized finance applications and private payment tools like CashShuffle and CashFusion.
- Transaction Irreversibility and Security: Unlike Bitcoin, Bitcoin Cash does not have 'replace-by-fee', which makes unconfirmed transactions more secure and nearly irreversible, supporting instant transactions of small amounts. With protocol upgrades like removing the unconfirmed chained transaction limit and introducing double-spend tests, Bitcoin Cash has enhanced its utility for processing numerous small-value transactions swiftly.
- Schnorr Signatures: This advanced digital signature scheme, though not yet broadly adopted by wallets, is supported by Bitcoin Cash. It optimizes transaction space and cost and can enhance network privacy by making transactions appear more uniform to external observers.
- Adaptive Difficulty Adjustment: Bitcoin Cash uses the aserti3-2d algorithm for adjusting mining difficulty. This system dynamically adjusts the difficulty to maintain a consistent block generation rate (every 10 minutes), even amid significant price swings and shifts in hash power between BCH and BTC. This ensures stability in block production, vital for transaction processing continuity.
Disadvantages of Bitcoin Cash
Challenges in User Adoption: The success of any network, currency, or technology hinges on its user base. Bitcoin Cash, with a smaller user base compared to Bitcoin, faces challenges in gaining traction as a widely accepted investment or transaction medium.
Compromised Security: Bitcoin Cash's ability to process transactions rapidly and cheaply stems from its lower mining power requirement for verifying new blocks. However, this efficiency comes at the cost of reduced security compared to Bitcoin.
Branding Difficulties: Post-fork, there was a competition for dominance between Bitcoin and Bitcoin Cash. Bitcoin has emerged as the more popular choice, making it challenging for Bitcoin Cash to establish a distinct identity, particularly due to their similar nomenclature.
Environmental Concerns: Despite consuming less electricity than Bitcoin, Bitcoin Cash's reliance on a proof of work blockchain system, where mining involves solving cryptographic problems, still results in significant energy usage. This aspect of the system incurs a considerable environmental cost, which remains a point of concern.
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