Defining Bitcoin Cash
Bitcoin Cash is a cryptocurrency created in August, 2017 as a fork of Bitcoin on the basis of building towards a more literal interpretation of Bitcoin as a peer-to-peer electronic cash system.
In this way, Bitcoin Cash runs counter to the perception that Bitcoin was a store-of-value or an investment vehicle instead of a currency. This was mainly due to both Bitcoin’s meteoric rise in value and limitations in the network’s inherent transaction throughput.
The main difference between Bitcoin and Bitcoin Cash is more philosophical in nature. The native currency was designed to be spent, rather than held as a store of value like Bitcoin is today. Bitcoin Cash’s technological distinction from Bitcoin is the larger block size of its native blockchain, which makes transactions much faster and cheaper to complete.
A Brief History
The issue some have with Bitcoin as a medium of payment is the relatively slow transaction speed, or TPS. A new block in the Bitcoin network is created every 10 minutes. This equates to a theoretical ceiling of around 7 TPS, while some put the ceiling at about 27 TPS. As a store-of-value, the low transaction throughput is manageable, but for everyday use in transaction speed is critical.
In comparison, Visa has stated, based on testing conducted in August 2010, that they can handle on average 150 million transactions per day, or around 1,736 transactions per second, and a theoretical cap of 24,000 transactions per second.
Scalability With SegWit
One solution to Bitcoin’s scalability issues was the Segregated Witness, or SegWit proposal. SegWit separated the digital signatures of a Bitcoin payment from the transaction itself, freeing up space for more transactions within a 1MB block.
To some, SegWit wasn’t an adequate solution to Bitcoin’s scalability problem. Following a year of intensifying community debate regarding the block size limit, a new proposal for SegWit 2MB was published on March 31, 2017.
Known as SegWit2x, it would implement SegWit and increase the block size limit to 2MB. SegWit2x was backed by over 80% of the network’s hashrate. The majority of the Bitcoin miners, however, chose to support the soft fork to implement SegWit and keep the block size to 1MB.
The implementation of SegWit created a divide within the Bitcoin community. Many dissenters preferred to simply increase the block size to 8MB, as they believed it offered a superior scaling solution.
On August 1, 2017, the community launched a hard fork of Bitcoin called Bitcoin Cash, with 8MB block limits. Bitcoin Cash works similarly to Bitcoin, with the exception of larger block sizes and higher TPS.
How Does Bitcoin Cash Work?
As a fork of Bitcoin, Bitcoin Cash uses a Proof-of-Work (PoW) consensus method. Like Bitcoin, Bitcoin Cash is a distributed, time-stamped ledger of unspent transaction output (UTXO) transfers stored in an append-only chain. Bitcoin Cash, however, uses a larger block size to process transactions more quickly.
Bitcoin Cash (BCH) is used as the native currency within the Bitcoin Cash network. It has no on-chain utility since miner hashing power is used to signal voting. BCH can be used for peer-to-peer payments or as a store-of-value within the Bitcoin Cash network.
Roadmap Of Bitcoin Cash
The development of Bitcoin Cash didn’t end with the dramatic hard fork of Bitcoin back in 2017. Improvements to the network are ongoing, all with the express intent of making Bitcoin Cash a viable electronic payment option.
The Bitcoin Cash network has protocol upgrades twice a year, on May 15th and November 15th. These upgrades are required for all node operators. They are sometimes referred to as "hard fork upgrades,” but the term "scheduled protocol upgrades" is preferred by the team. There have been numerous upgrades that have taken place over the years.
In May 2018, there was an upgrade to further increase the block size from 8MB to 32MB, along with a proposal to implement new functionalities, such as smart contracts and oracles. Some in the community favored the larger block size to keep the network focused on scalability and high throughput, but without the additional functionality.
With this proposal, the original Bitcoin Cash blockchain maintained its 32MB block size, and introduced additional features, such as the Canonical Transaction Ordering Route (CTOR). The CTOR supported greater network efficiency, and script enhancements enabled oracle data to be imported to the blockchain.
Dispute surrounding this upgrade was so heated that it led to another hard fork called Bitcoin SV (BSV). This was led by Craig Wright, who has claimed to be Satoshi Nakamoto. BSV increased the block size limit to 128MB.
This protocol upgrade enabled the following features:
- Schnorr signatures for enhanced privacy and performance on both single-signature and multisig transactions.
- SegWit recovery transactions. With the last protocol upgrade, the enforcement of the CLEANSTACK rule made it impossible to recover funds from SegWit transactions.
This protocol upgrade enabled the following features:
- Schnorr signatures for OP_CHECKMULTISIG(VERIFY). This upgrade enabled all signature checking operations to support Schnorr signatures.
- Enforce MINIMALDATA in script. This removed the final BIP 62 malleability vector, and meant that most of the transactions on the BCH network are now non-malleable.
The May 2020 proposal included some controversial upgrades. The proposal consisted of 3 new features, two of which were implemented:
- Replacement of Bitcoin Cash’s SigOps counting and limiting system with the new SigChecks. This removed enforcement of sigops limits, and implemented limits based on the number of signature checks that are actually executed when running a script.
- New opcode called OP called OP_REVERSEBYTES has been added to the script system. This new opcode reversed the order of bytes in a string and was used to change endianness. This signaled the general advancement toward Bitcoin Cash-related smart contracts.
The most controversial upgrade proposal, which failed to pass, was the enforcement of the Infrastructure Funding Plan proposal. The purpose of the Infrastructure Funding Plan was to provide funding to development projects working on common Bitcoin Cash infrastructure.
If activated, it would have required 5% of the block reward to be sent to one of a set of specified addresses. The beneficiaries included MinerFundDestination, MinerABCDestination, MinerBCHDDestination, and MinerElectronCashDestination. The proposal was rejected, but eventually led to the hard fork event in November 2020.
The proposal for November 2020 had two features.
The feature that was passed was related to Bitcoin Cash’s difficulty adjustment. Specifically, Bitcoin Cash's Difficulty Adjustment Algorithm (DAA) was replaced with a new algorithm called ASERT. Implementation motivation included the following:
- To eliminate periodic oscillations in difficulty and hashrate.
- To reduce the difference in profitability between steady miners and those who switch to mining other blockchains.
- To maintain average block intervals close to the 10 minute target.
- To bring the average transaction confirmation time close to target time.
The controversial feature was the addition of a new Coinbase Rule. After the Infrastructure Funding Plan rejection from the Scheduled Protocol Update of May 2020, this was the second attempt to add the “tax” on the network for funding development resources.
A group of Bitcoin Cash developers led by Amaury Sechet, known as Bitcoin Cash ABC(BCHA), proposed the November 2020 update. It included a controversial new rule that required 8% of mined bitcoin cash to be redistributed to Bitcoin Cash ABC(BCHA) as a means of financing protocol development.
The upgrade was opposed by another group from the Bitcoin Cash community, known as Bitcoin Cash Node (BCHN), who removed this so-called “miner tax” from its source code. Bitcoin Cash experienced another hard fork between BCHA and BCHN.
In the aftermath, most major crypto exchanges supported Bitcoin Cash Node. BCHN inherited the original Bitcoin Cash “BCH'' ticker. Bitcoin Cash Node also took over control of bitcoincash.org, the dominant domain used for Bitcoin Cash. Bitcoin Cash ABC continued under its own native network with the ticker “BCHA'' until it later rebranded to eCash on July 1, 2021.
The following changes to Bitcoin Cash were implemented in May 2021.
- Removal of unconfirmed transaction chain limit. This upgrade allows users to do more than 50 chained unconfirmed transactions at a time.
- Allowance of transactions with multiple OP_RETURN outputs. The feature offers programmers the choice of using this space for different purposes, while minimizing the impact on and risks for nodes and miners.
The Bitcoin Cash we have today is philosophically different from the various incarnations that came out after the split with Bitcoin. It was the most prevalent version before the split with Bitcoin SV due to block limit disputes.
Fundamentally, the community tends to favor the most logical and fair proposals, which is reflected in both community support and price. Bitcoin Cash's BCH ticker is somewhat of an indicator of which chain the public chose as the true version of Bitcoin Cash.