Since the inception of Bitcoin, there have been questions about the coin’s ability to scale effectively.
As Bitcoin grew in popularity, the industry felt the need to solve the scaling issue. With the increased number of Bitcoin owners, the limited size of 1 Mb blocks within the blockchain became full, which slowed down the time it took to process each transaction. It also made the cost of transaction expensive for the sender.
To improve the efficiency of transactions, a digital currency called Bitcoin Cash (BCH) was created. Though it was released in August 2017, BCH has managed to become a top 5 cryptocurrency.
In this blog post, we’ll tell you all that you need to know about Bitcoin Cash, how it works, and the reasons that led to its creation. Once you understand the basic, we will explain the recent developments in BCH and how it differs from Bitcoin.
Without further ado, let’s begin.
The official Bitcoin Cash website defines BTC as;
“Bitcoin Cash is peer-to-peer electronic cash for the Internet. It’s a permissionless, decentralized cryptocurrency that requires no trusted third parties and no central bank.”
Properties of Bitcoin Cash:
BTC is built on the Bitcoin model with the following features.
- Pee-to-Peer: Any person can send BTC to another person anywhere around the globe without the need of an intermediary.
- Open: All the BTC transactions are logged on a publicly accessible blockchain available for anyone to view and verify.
- Decentralized: The BTC network is spread across computers all over the world.
- Secure: BTC uses strong encryption to prevent hacking and cyberattacks.
History of Bitcoin Cash:
The average block size on Bitcoin’s blockchain was less than 100 KB back in 2010. The average transaction fee around the same time amounted to a couple of cents. The cheap transactions on the Bitcoin blockchain made it vulnerable to attacks that could potentially cripple the system. The size of a block on the blockchain was limited to 1 Mb, which adds another layer of security. With this size, it took 10 minutes to process a transaction and generate a new block.
But these safeguards proved to be a hindrance after Bitcoin became mainstream gained enough traction. The number of Bitcoin transactions surged, causing a buildup of unconfirmed transactions. This also increased the time and fee to confirm a transaction, making it slow when compared to the credit card transactions that Bitcoin wants to replace. Visa, for instance, processes 150 million transactions per day while the company’s capability surpasses 24,000 transactions every second.
For Bitcoin to go mainstream, the transaction had to be fast, reliable, and allow people to pay for goods and services using Bitcoins, although you could still buy a car using bitcoin but for it to become a global payment method, the scalability issues needed to be resolved.
Solving the scalability issue:
This problem led to a rift in the Bitcoin community and divided the community into two different camps with conflicting views.
Proponents of the big block:
This group was led by the crypto giant Bitmain and Roger Ver, who is an early Bitcoin investor and was involved with several startups when Bitcoin was gaining initial adoption. This group feared that the long confirmation times and high fees would prevent people from using Bitcoin for day to day transactions; hence, preventing it from becoming a peer-to-peer payment system as intended by the Bitcoin’s inventor.
The group came up with a simple solution of increasing the block size. Proponents of the big block argued that if the block size is increased to 8 Mb, we will be able to confirm as much as 8 times the number of transactions every second. The increase in the size of blocks will reduce network congestion and significantly improve the efficiency of the system.
Proponents of the small block:
The supporters of this group, which consisted primarily of developers from the Blockstream company, wanted to maintain the 1 Mb block size and work on off-chain settlement layers. They rooted in solutions like Segregated Witness to optimize transaction size and handling. Segregated Witness or Segwit is an upgrade to the Bitcoin protocol, which reduces the transaction size to 75 percent. This group also proposed the development of Lightning Network, which allows for instant and feeless transactions.
Arriving at a solution:
The first proposal drew sharp reactions from the bitcoin community. Experts believed that it would hurt Bitcoin’s decentralization and functionality in the long run. They argued that an 8 Mb block takes more time to travel through the network than a 1 Mb block. Also, all the transactions inside a block need to be verified once the block reaches a computer on the network.
Since the blocks are too big, the computers might not finish verifying the entire block before a new block arrives within 10 minutes. This will result in network lag and create disputes. Additionally, the oversized transactions will also reduce the number of computers that can store the Blockchain, which will diminish the network’s decentralization.
The second proposal also drew criticism. Mining giant Bitmain didn’t support Segwit implementation in blocks as it would affect sales for its AsicBoost miner. Segwit makes Bitcoin mining with the machine more expensive because it makes reordering of the transactions difficult.
Amidst the war of words within the cryptocurrency community, BCH was launched in July 2017. Bitcoin Cash debuted on digital currency exchanges for $900. Users who held Bitcoins received an equivalent amount of BCH, thus increasing the number of coins in existence. Cryptocurrency exchanges like Itbit and Coinbase boycotted BCH; however, it received support from the global leader of cryptocurrency mining, Bitmain. There support ensured the availability of BCH on cryptocurrency exchanges when it was launched.
In November 2018, BTC itself split into Bitcoin Cash SV (Satoshi Vision) and Bitcoin Cash ABC. The split occurred due to a disagreement with proposed protocol updates, which increased the average block size and incorporated the use of smart contracts on BTC’s blockchain.
Bitcoin Cash ABC has introduced several changes to the Bitcoin blockchain, including the CTOR, which arranges transactions in a block. It also maintained the maximum block size of 32 Mb, which increased to 128 Mb for Bitcoin Cash SV.
Supporters of Bitcoin Cash SV rejected the use of smart contracts because they believe that the platform was only meant for payment transactions. Paradoxically, the situation prior to the split of BTC was similar to the one before forking BCH from Bitcoin in 2017. But it has been resolved swiftly and happily as more coins have flowed into the cryptocurrency ecosystem since then.
What is next for BTC?
The value of Bitcoin Cash has grown substantially, despite the challenges and uncertainties faced by it. The future for BTC is unclear, but as it moves to implement solutions to the scalability issues, we will get a much clear picture of how BCH will develop into the future.
Evie harrison is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences and express herself through her blogs. Find her on Twitter:@iamevieharrison