Bitcoin Cash is an upgraded version of the Bitcoin Core software. It increased the block size limit to 8mb in order to make transactions faster without needing expensive fees. Bitcoin Cash is both the name of the payment system and of its native cryptocurrency. It appeared on August 1st, 2017.
Bitcoin scalability debate
Bitcoin Cash is the outcome of a long debate over Bitcoin Core’s scalability problem.
On the Bitcoin blockchain, blocks can carry a maximum of 1mb of transaction data. This limit was originally intended to prevent attacks where a massive bundle of transactions might be issued in order to weaken the network under its weight. However, as the number of users on the network grew, the amount of transactions being broadcast to the network did as well, and maximum capacity was hit in 2017 at around 2,500 transactions per block. Since the network could only process 6 blocks per hour and the number of users kept growing, the constraints on block size resulted in delays. Transactions that were broadcast to the network were collected in the mempool, awaiting their turn to be confirmed by miners and placed into a block. This resulted in a transaction fee market; users could pay high fees in order to get their transactions confirmed quicker. This made Bitcoin useless as a payment system for small amounts; a USD$3 transaction (to buy a cup of coffee, for example) might require a USD$15 fee.
Bitcoin Unlimited and SegWit
Two tentative solutions arose from the community: Bitcoin Unlimited and Segregated Witness.
Bitcoin Unlimited would have eliminated block size limits. Detractors of this idea (many core developers among them) claimed this could lead to a centralization of the network by massive mining corporations, since individual miners would not be able to keep up with ever growing blocks. Samson Mow, core developer and chief strategy officer at Blockstream, said that increasing the bock size would “(destroy) the Bitcoin ethos, which is open and permissionless, where nobody is telling you what to do.”
SegWit, on the other hand, would have cut some of the blockchain’s data out and stored it in external files. Detractors thought this option was merely buying time, and not a definite solution. They claimed that without a significant increase in block size, Bitcoin would never be on par with other payment systems like Visa and Paypal.
In order to avoid a fork, the community compromised on a third option: SegWit2x. This would mean storing some data outside the blockchain as well as increasing the block size limit to 2mb.
Birth of Bitcoin Cash
In May of 2017, many large Bitcoin companies agreed to install the SegWit software (created by core developers) in August, and to double the block size in later, in November. After some developers suggested the increase in size would never take place, a group of investors and entrepreneurs based in Asia, among them Roger Ver, announced the creation of a hard fork, called Bitcoin Cash. The name was coined by the Chinese mining pool ViaBTC, whose primary investor was Bitmain, the then largest bitcoin mining operator in the world.
The first implementation of the Bitcoin Cash protocol called Bitcoin ABC was revealed by Amaury “Deadal Nix” Séchet at the Future of Bitcoin conference in Arnhem, Netherlands. The Bitcoin Cash hard fork was announced to take place on August 1, 2017. It would increase the block size to 8mb.
BCH were distributed to all holders of BTC at the time of forking. That is, Bitcoin holders as of block 478558, the last common block (August 1st, 2017 about 13:16 UTC).
Bitcoin Cash was initially traded at 0.5 BTC.
Move of hashpower and change to difficulty
On August 9, it was 30% more profitable to mine on the original chain. Due to the new Emergency Difficulty Adjustment (EDA) algorithm used by Bitcoin Cash, mining difficulty has fluctuated rapidly, and the most profitable chain to mine has thus switched repeatedly between Bitcoin Cash and incumbent bitcoin. As both chains use the same proof-of-work algorithm, miners can easily move their hashpower between the two. around 1,500 more blocks were mined on the Bitcoin Cash chain than on the original one attracted a significant proportion of total processing power.
A fix for these difficulty/hashrate/profitability fluctuations was introduced on November 13, 2:06PM UTC. The EDA algorithm has been replaced with a new difficulty adjustment algorithm (DAA) that hopes to prevent extreme fluctuations in difficulty while still allowing Bitcoin Cash to adapt to hashrate changes faster than incumbent bitcoin.
Since the Bitcoin owners before August 1st, 2017 have automatically become Bitcoin Cash owners, to prevent double expenses, the Bitcoin Cash transactions use a new algorithm of signature hashing, which isn’t valid in the Bitcoin Legacy network. It prevents repeated transactions of Bitcoin Cash in the Bitcoin blockchain and vice versa.
Bitcoin authors state that unlike Bitcoin, Bitcoin Cash doesn’t have a unified team of developers: instead of this, there are several independent groups. Such decentralization creates an additional protection degree. In prospect, the developers consider the possibility to increase the capacity of blocks even more.
Bitcoin Cash aims to “fulfill the original promise of Bitcoin as Peer-to-Peer Electronic Cash” by giving users lower fees, more reliable confirmations and faster transactions.
Market acceptance and naming
Eventually Bitcoin Cash was broadly adopted by digital currency exchanges. Exchanges such as Bitfinex, CEX.IO, ShapeShift and many others use the Bitcoin Cash name and the BCH ticker symbol for the cryptocurrency. Temporarily, Bitstamp and Bitfinex used the name Bcash, but after being criticized, they switched the name back to Bitcoin Cash.
Huobi exchange uses the name Bitcoin Cash and the BCC ticker symbol.
While the alphanumeric address style is the same as the incumbent bitcoin (BTC), that Bitcoin Cash (BCH/BCC) should not be sent to a bitcoin (BTC) address. Like the incumbent bitcoin, Bitcoin Cash addresses can be used more than once, but should not be reused if privacy is a concern. However there are plans to change the address format.
Cryptocurrency wallets such as the Ledger hardware wallet, KeepKey hardware wallet, Electron Cash software wallet, Bitcoin.com software wallet and many others use the name Bitcoin Cash for the cryptocurrency, using either BCH or BCC ticker symbol for it.
Trezor hardware wallet uses both Bitcoin Cash and Bcash cryptocurrency names. Its architect Marek “Slush” Palatinus explained: “The reason we prefer to use ‘Bcash’ is to protect users from using the wrong wallet by accident.”
Attitude of community and perspectives
Initially, Coinbase, one of the largest crypto currency exchanges stated that they are not going to work with Bitcoin Cash, however their opinion was changed later, and they promised to start supporting Bitcoin Cash transactions before January 1st, 2018. The exchanges Kraken, Bitfinex and Poloniex also announced their support of the new crypto currency. At the same time BitMEX, Exodus и Bitstamp spoke against Bitcoint Cash.
In October 2017, Bitmain, the largest manufacturer of mining equipment in China, which supplies about two thirds of the entire hash power in the Bitcoin network, announced that they are going to accept only Bitcoin Cash when selling the newest ASIC-miners. The reason lies in the economy: the transaction fee of Bitcoin Cash is significantly lower than in other crypto currencies.
According to the analysts’ estimations, such decision may lead to the rate growth of the new currency.