What is Bitcoin Cash?

Bitcoin Cash (BCH) is a cryptocurrency that shares many of the same characteristics as Bitcoin (BTC) yet also integrates a number of changes and features that set it apart. It is considered a 'fork' of Bitcoin, although proponents argue that Bitcoin Cash more closely adheres to the original vision of creating a peer-to-peer electronic cash system as laid out in a 2008 white paper written by the founder of the protocol, a person or group going by the pseudonym Satoshi Nakamoto.

Table of Contents:

• Bitcoin Cash's core features

• What is Bitcoin Cash used for?

• Bitcoin Cash as a Long-term Store of Value

• Bitcoin Cash as a Highly Effective Medium of Exchange

• Bitcoin Cash as a Conduit for Supporting Economic Freedom

• Is Bitcoin Cash different from Bitcoin?

• What is the difference between Bitcoin and Bitcoin Cash?

• Bitcoin Cash's Maximum Block Size

• Smart Contract Support on the Bitcoin Cash Network

• No 'replace-by-fee'

• Schnorr Signatures on Bitcoin Cash

• Bitcoin Cash's Difficulty Adjustment Algorithm

  
  

Bitcoin Cash's core features

Bitcoin Cash is a decentralized peer-to-peer electronic cash system that does not rely on any central authority like a government or financial institution. As such, it represents a fundamental redesign of the very nature of money. The core features of Bitcoin Cash are:

• Open to anyone. Nobody controls or owns Bitcoin Cash. There's no CEO, and you don't need to ask for permission to use it.

  
  

• Pseudonymous. Identities are not tied to transactions. This helps to ensure that Bitcoin Cash remains free to be used by anyone, without censorship.

  
  

• Transparent. All transactions are recorded on a global public ledger called the blockchain. The ledger is updated at regular intervals in blocks that are connected to form a chain. This allows anyone to easily see the full history of ownership, and helps to eliminate the potential for fraud.

  
  

• Distributed. The public ledger (blockchain) is stored voluntarily by a network of participants known as 'nodes.' This helps to ensure the longevity of information.

  
  

• Rules-based. Nodes follow a set of rules (a protocol) to achieve consensus on the state of the ledger. This consensus is what constitutes the 'truth' as to who owns what. The protocol, however, can evolve as participants demand - although there is high-degree of consensus required to make changes. This makes Bitcoin Cash a quasi-political system, with participants forming a kind of social contract.

  
  

• Immutable. The technology deployed means that, once recorded in the blockchain, transactions effectively cannot be altered.

  
  

• Secure. Through a process known as Proof of Work (PoW), 'miners' compete to add new blocks to the chain that constitutes the ledger (again, the blockchain). The hardware and energy costs associated with PoW mining contribute to the security of the network along game-theory driven principles such that attacking the network is both prohibitively expensive and guarantees the attacker cannot profit directly.

  
  

• Fixed supply. Only 21 million coins will ever be created. This makes Bitcoin Cash a hard asset, like land or gold, providing an opportunity for people to store value in the digital realm over long periods of time.

  
  

• Low Fees. Bitcoin Cash enables reliable, fast, and affordable transactions of any value and regardless of location (including cross-border transactions). This makes it an effective alternative to payment networks like Visa and Mastercard.

What is Bitcoin Cash used for?

Bitcoin Cash's above-described core features make it both a long-term store of value and a highly effective medium of exchange. More philosophically, these two use cases combine with the decentralized and open nature of the protocol to make Bitcoin Cash (the network) a method for supporting and enhancing global economic freedom. Let's dive into some of Bitcoin Cash's utilities.

Bitcoin Cash as a Long-term Store of Value

The total supply of Bitcoin Cash will never exceed 21 million coins. This is written into the code that defines the Bitcoin Cash protocol. As a decentralized network, Bitcoin Cash users ultimately decide how the protocol evolves - and since it is not likely to be in the interests of participants to dilute their holdings by changing the protocol, the 21-million-coin limit will almost certainly remain in place forever.

The rate that new coins are added to the circulating supply gradually decreases along a defined schedule that is also built into the code. The issuance rate is cut in half approximately every four years. This makes Bitcoin Cash a 'disinflationary' asset.

In April 2020, the third 'halving' reduced the issuance rate from 12.5 to 6.25 BCH per block. At that point 18,375,000 of the 21 million coins (87.5% of the total) had been distributed. The fourth halving, in 2024, will reduce the issuance to 3.125 BCH, and so on until approximately the year 2136, when the final halving will decrease the block reward to just 0.00000168 BCH.

Bitcoin Cash's 'set-in-stone' supply schedule makes it unique among hard assets. By comparison, the supply of gold, although limited, is nevertheless subject to the forces of supply and demand. As the price of gold rises, more gold miners are incentivized to search for gold. This leads to an increase in the supply of gold, which places downward pressure on the price.

Bitcoin Cash as a Highly Effective Medium of Exchange

Bitcoin Cash enables peer-to-peer payments between individuals - just like cash, but in the digital realm. Critically, fees for sending Bitcoin Cash typically amount to less than a penny per transaction, and settlement occurs near instantly, regardless of the physical location of participants. This makes Bitcoin Cash useful for not only remittances and cross-border trade, but also for daily transactions like buying groceries. Since the fees and transaction times are so low, Bitcoin Cash is also effective for micro-transaction use cases like tipping content creators and rewarding app users.

Bitcoin Cash as a Conduit for Supporting Economic Freedom

Economic freedom is the ability for individuals to freely acquire and use personal resources however they choose, both independently and in cooperation with others. It is a vital component of human dignity and a fundamental human right. Money - as a vehicle that can be used for both storing and exchanging value - is a key tool for enabling economic freedom.

Bitcoin Cash provides, on an opt-in basis, an alternative form of money that supports economic freedom. Unlike national currencies, Bitcoin Cash integrates strong protection against (1) monetary confiscation, (2) censorship, and (3) devaluation through uncapped inflation.

Is Bitcoin Cash different from Bitcoin?

Bitcoin Cash is considered a 'fork' of Bitcoin. It was created on August 1, 2017 after participants in the Bitcoin ecosystem were unable to agree on methods for scaling the cryptocurrency.

The main point of contention was 'block size,' which is relevant for the volume of transactions that can be processed per second (aka the 'throughput') and the cost of transactions. Since transactions consist of data, a larger block size enables more transactions to be included in each block, resulting in a higher throughput and a lower cost per transaction.

The Bitcoin protocol had for years limited the size of each block to 1MB. As the number of Bitcoin users grew, competition for the limited block size gradually led to higher transaction fees and prolonged settlement times. Under these conditions, while Bitcoin retained its utility for settling high-value transactions and/or transactions where speed is less relevant, it lost much of its utility as a medium of exchange for small-value purchases where fees and settlement time are important. In other words, it became less useful as 'cash.'

Bitcoin is not a static protocol. Integrating changes - or the 'governance' of Bitcoin - is a quasi-political process based on deliberation, persuasion, and volition. In other words, peopledecide what Bitcoin is.

Faced with the challenge of scaling Bitcoin, one side felt the need to maintain 1MB block sizes. They contended that it was better to scale Bitcoin 'off chain,' ie. on a second-layer solution, leaving the 'on-chain' base settlement layer for larger transactions only. The other side wanted to increase the block size, allowing for more transactions per block. This instant upgrade was seen as a simple and effective method to keep transactions fast and reliable, and fees low.

Since the Bitcoin community was unable to agree on the change, the result was a 'hard fork,' or a point in time where two versions of Bitcoin diverged. The version that included the block size upgrade was eventually given the name Bitcoin Cash (BCH), while the unchanged version retained the name Bitcoin (BTC).

What is the difference between Bitcoin and Bitcoin Cash?

Since forking in 2017, the multiple independent teams of developers working on the Bitcoin Cash protocol have brought a number of innovations aimed at improving the usability of Bitcoin Cash as a peer-to-peer electronic cash system that supports economic freedom. These innovations, which set Bitcoin Cash apart from Bitcoin, are summarized below:

Bitcoin Cash's Maximum Block Size

Bitcoin Cash has a larger maximum block size (32MB) than Bitcoin (1MB). The larger block size increases the volume of transactions that the Bitcoin Cash network can process on chain. While Bitcoin typically processes between 3-7 transactions per second, Bitcoin Cash has the capacity to process as many as 200 transactions per second. This helps to reduce the cost per transaction while increasing transaction speed and reliability. Bitcoin Cash transactions typically cost less than a penny. By comparison, the **median all-time Bitcoin (BTC) transaction fee**is $0.75 and the average all-time transaction fee is $1.99.

Note that one trade off of Bitcoin Cash's larger block size is that the Bitcoin Cash blockchain is 'heavier' (consists of more data). This means Bitcoin Cash full nodes need more storage capacity in order to sync the chain. Critics argue this may have implications for the decentralization of the network since the requirement for higher storage capacity may reduce the number of people who are willing/able to run a full node.

Smart Contract Support on the Bitcoin Cash Network

Bitcoin Cash developers can use smart contract languages like Cashscript to enable more complex functions than the basic transactions that are possible on Bitcoin. This creates the possibility of 'decentralized finance' applications like synthetic derivates trading. Other use cases include private payments with tools such as CashShuffle and CashFusion.

No 'replace-by-fee'

Replace-by-fee on Bitcoin (BTC) allows for transactions to be cancelled/double-spent while unconfirmed. The lack of replace-by-fee in the Bitcoin Cash (BCH) protocol makes Bitcoin Cash more secure, as unconfirmed transactions are effectively irreversible. It also enables near-instant transactions of small amounts. With the May 2021 Bitcoin Cash protocol upgrade, the unconfirmed chained transaction limit (which was previously set at 50) was removed and double-spend tests were introduced. This further enhanced Bitcoin Cash's utility as a payment solution where a high volume of small-value transactions must be processed in a short time.

• Note that technically it is still possible to double spend a Bitcoin Cash transaction. However, to do so would require collusion with miners and/or bribing miners to accept a second transaction over the first by attaching a very high transaction fee. For this reason, when receiving a large amount of BCH, it's advisable to wait until the transaction has been confirmed on the blockchain. Read more about double spends on the Bitcoin Cash network here.

Schnorr Signatures on Bitcoin Cash

This is a digital signature scheme that allows for more complex signing capabilities. Transactions that adopt Schnorr signatures consume less space, making them less expensive. Although currently supported by the Bitcoin Cash protocol, Schnorr signatures have yet to be widely adopted by wallet providers. When adoption of Schnorr signatures is widespread, it has the potential to enhance the network's privacy by improving the fungibility of tokens (effectively making all transactions appear to third-party observers to be more similar to each other).

Bitcoin Cash's Difficulty Adjustment Algorithm

Bitcoin Cash deploys an exponential moving target difficulty adjustment algorithm called aserti3-2d. For every two days that blocks are behind schedule, the difficulty is cut in half, while for every two days blocks are ahead of schedule, the difficulty doubles. This difficulty adjustment algorithm helps to ensure new blocks are generated at a stable rate (every 10 minutes) even if there is high price volatility and hash power elasticity. For example, in the event that SHA256 miners move their hashing power from BTC to BCH and back, Bitcoin Cash's difficulty adjustment algorithm ensures blocks continue to be produced at the desired consistent rate.