Bitcoin Cash
Bitcoin Cash (BCH) is a proof-of-work blockchain network and cryptocurrency created as a hard fork of Bitcoin in 2017. It is designed to have faster and more cost-effective transactions than Bitcoin, offering lower fees of about $0.01 and faster confirmation times. It is a peer-to-peer electronic cash system that removes regulatory authorities and other third parties from financial transactions. [1][2]
Bitcoin Cash was created and is maintained by a community of developers who see Bitcoin Cash as a payment system alternative to Bitcoin. Bitcoin Cash operates on Bitcoin Cash Node, which is an ecosystem that enables users to transact in Bitcoin Cash. Bitcoin Cash Node is the blockchain for Bitcoin Cash, and can be thought of as the virtual machine that runs the network, powering transactions. [1]
History
Discussions around 'block size' began as early as 2010, shortly after Satoshi Nakamoto implemented a block limit into Bitcoin. However, these discussions around the block limit largely stayed in the background until 2017 when tensions within the Bitcoin community rose over rising transaction fees and increasingly divergent opinions on scaling Bitcoin. Supporters of bigger blocks believed that for Bitcoin to fulfill the vision of a peer-to-peer electronic currency as outlined in the original whitepaper[19], it was necessary to raise the block limit in order to increase transaction capacity. [3]
Bitcoin Cash proponents pushed for a system that could scale to VISA-level transaction throughput without second layers while maintaining affordable transaction fees. It rejected the philosophy of Bitcoin Core that Bitcoin's central value proposition is censorship resistance and trust minimization, and that Bitcoin full nodes needed to be maximally decentralized to achieve this. Instead of envisioning Bitcoin as a settlement layer or a digital Gold, Bitcoin Cash envisions Bitcoin as a peer-to-peer electronic cash system, emphasizing Bitcoin's utility as a medium of exchange. [3]
In June 2017, at the Consensus conference amidst rising transaction fees on Bitcoin and increasingly tense debate around the Bitcoin block limit, a meeting with miners and Core Developers took place in what is referred to as the “New York Agreement”, where an agreement was reached to support SegWit (Segregated Witness) and a 2MB hard fork. Known as SegWit2x, this proposal was backed by over 80% of the network’s hash rate. Despite the desires of miners, users wanted to activate SegWit without the block size increase. [3]
They set a date (August 1, 2017) when Bitcoin would soft fork to support SegWit and keep the 1MB block size. Enough nodes signaled support for it that they forced miners to accept or have their blocks rejected by the network.
A faction of the bigger blocks camp, rejected SegWit altogether, citing frustrations with the prioritization of SegWit over bigger blocks, and on August 1, 2017, they launched a hard fork of Bitcoin called Bitcoin Cash, with 8MB block limits. In relation to Bitcoin, Bitcoin Cash is characterized as a spin-off, a strand, a product of a hard fork, an offshoot, a clone, a second version, or an altcoin. [4][5][3]
The 8MB block limit was later increased to 32MB in 2018 after another contentious hard fork regarding a minority faction's desire to raise the block limit to 128MB. This hard fork resulted in the creation of Bitcoin SV, a fork of Bitcoin Cash. [3]
2018 split to create Bitcoin SV
On 15 November 2018, a hard fork chain split of Bitcoin Cash occurred between two rival factions; Bitcoin Cash and Bitcoin SV. Bitcoin Cash traded at about $289, and Bitcoin SV traded at about $96.50, down from $425.01 on 14 November for the un-split Bitcoin Cash. [11]
The split originated from what was described as a "civil war" in two competing bitcoin cash camps. The first camp, supported by entrepreneur Roger Ver[6] and Jihan Wu[7] of Bitmain, promoted the software entitled Bitcoin ABC (short for Adjustable Blocksize Cap), which would maintain the block size at 32 MB. The second camp led by Craig Steven Wright[9] and billionaire Calvin Ayre[10] put forth a competing software version Bitcoin SV, short for "Bitcoin Satoshi Vision", which would increase the block size limit to 128 MB. [8][11]
Technology
The protocol for Bitcoin Cash is a distributed, time-stamped ledger of unspent transaction output (UTXO) transfers stored in an append-only chain of 32MB data blocks. A network of mining and economic nodes maintains this blockchain by validating, propagating, and competing to include pending transactions (mempool) in new blocks.
Economic nodes (i.e. "full nodes") receive transactions from other network participants, validate them against network consensus rules and double-spend vectors, and propagate the transactions to other full nodes that also validate and propagate. Valid transactions are sent to the network's mempool waiting for mining nodes to confirm them via inclusion in the next block.
Mining nodes work to empty the mempool usually in a highest-to-lowest fee order by picking transactions to include in the next block and racing against each other to generate a hash less than the target number set by Bitcoin Cash's difficulty adjustment algorithm.
Bitcoin Cash uses a Proof-of-Work (PoW) consensus mechanism to establish the chain of blocks with the most accumulated “work” (i.e., energy spent on solved hashes) as the valid chain. [12]
The technical difference between Bitcoin Cash and Bitcoin is that Bitcoin Cash allows larger blocks in its blockchain than Bitcoin which, in theory, allows it to process more transactions per second. [13]
Tokenomics
BCH (Bitcoin Cash) coins are created through mining and the maximum supply of BCH that can exist is set to 21 million coins. Bitcoin Cash was distributed via a Bitcoin hard fork whereby new BCH were distributed to current Bitcoin private key holders by inheriting the new chain the existing Bitcoin UTXO (unspent transaction output) sets prior to the fork. [16]
Roughly 16.5 million BCH were distributed on August 1, 2017 (block 478559) at which point Bitcoin Cash broke out of Bitcoin's consensus rules, making transactions incompatible. [15]
Governance
Bitcoin Cash development is open to the open-source community. Protocol development is governed by a proposal process whereby anyone in the open-source Bitcoin Cash community can submit draft proposals. After debate by the community, the client implementation editors accept or reject the proposals. Decisions from the process are written into the Bitcoin Cash specification, as well as the software that runs the network.
Finally, protocol changes are “ratified” on-chain when the majority of the network adopts the upgrade and doesn’t break consensus. Although very similar to Bitcoin overall, as opposed to users signaling support of upgrades, Bitcoin Cash tends to use hash power signaling to indicate support of network upgrades. Bitcoin Cash implements planned upgrades on a bi-annual basis as part of its more progressive network upgrade philosophy. [18]
Utility
Long-term store of value
The total supply of Bitcoin Cash will not 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 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 which makes Bitcoin Cash a 'disinflationary' asset [14]
In April 2020, the 3rd 'halving' reduced the issuance rate from 12.5 to 6.25 BCH per block. 18,375,000 of the 21 million coins (87.5% of the total) had been distributed at that point. The 4th 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. [14]
Medium of exchange
Bitcoin Cash enables peer-to-peer payments between individuals - just like cash, but digitally. Fees for sending Bitcoin Cash typically amount to less than a penny per transaction, and settlement occurs almost 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. [14]
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 monetary confiscation, censorship, and devaluation through uncapped inflation. [17][14]
Bitcoin Cash Upgrade 2023
On November 15, 2022, Jason Dreyzehner[23] announced that the May 2023 upgrade to Bitcoin Cash (BCH) is now active on the test network. With the activation, developers would consider migrating to Chipnet[22] as the primary test network for Bitcoin Cash. [21]
Chipnet[22] is tuned to remain lightweight, easy to mine, and 6 months ahead: Chipnet deploys network upgrades in November, giving developers months to build with new upgrades before they're active on the main network. The Bitcoin Cash network is upgraded every year on May 15th with no centralized foundation or organization managing this upgrade: it's an informal convention maintained by the many development teams, businesses, and organizations making up the Bitcoin Cash ecosystem. [20]
The 4 supporting CHIPs (Cash Improvement Proposals) for lock-in include:
CHIP 2021-01 Restrict Transaction Version
CHIP 2021-01 Restrict transaction version is a proposal by Tom Zander, Jonathan Silverblood, and bitcoincashautist to restrict the transaction version field to the available versions (1 or 2). This CHIP paves the way for future transaction version upgrades that could save significant network bandwidth and blockchain storage space. [20]
CHIP 2021-01 Minimum Transaction Size
CHIP 2021-01 Allow transactions to be smaller in size is a proposal by Tom Zander to lower the minimum transaction size from 100 bytes to 65 bytes. The 100-byte minimum was added to prevent an obscure type of payment fraud that is possible with a 64-byte transaction. However, a 100-byte limit is overly restrictive: useful transactions can be created in the range between 65 and 100 bytes. [20]
CHIP 2022-02 CashTokens
CHIP-2022-02-CashTokens is a proposal by Jason Dreyzehner to enable two new primitives on Bitcoin Cash: fungible tokens and non-fungible tokens. Beyond simply being able to represent other assets on Bitcoin Cash, CashTokens also enable decentralized applications on Bitcoin Cash comparable to Ethereum (ETH) contract functionality, while retaining Bitcoin Cash's >1000x efficiency advantage in transaction and block validation. [24][20]
CHIP 2022-05 P2SH32
CHIP-2022-05-P2SH32 is a proposal by bitcoincashautist to enable 32-byte, Pay-to-Script-Hash (P2SH) outputs. This solves a long-standing, expensive-but-serious vulnerability in certain types of contracts. [20]
