Bitcoin Cash and How it Works

Milko Trajcevski

  • Bitcoin Cash Launched in August of 2017
  • It Increased the Size Limit Per Block From 1MB up to 32MB
  • Bitcoin Cash Had a Hard Fork to Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision)
  • The Project Was Started by Miners and Developers Concerned About the Future of Bitcoin

Bitcoin Cash can be defined as this cryptocurrency created in August of 2017 as a fork of Bitcoin. It increased the size of the blocks, and as such, allowed for a lot more transactions to be processed, which in turned increased the scalability it had.

However, aside from the fact that it allows more transactions to fit into a single block, Bitcoin Cash and Bitcoin share technical similarities, and they have the same consensus mechanism while both of them are capped at 21 million.

The interesting part about Bitcoin Cash is that, over time, it underwent its own fork in November of 2018 where it split into Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision).

Bitcoin Cash ABC, is what we today refer to as Bitcoin Cash.

Fundamentals of Bitcoin Cash’s Existence

Now, to get a better understanding of all of that, a fork can be a soft fork as well as a hard fork. A soft fork is a change to the software protocol where only previously valid transaction blocks are made invalid.

Old nodes are recognized in the new blocks as valid, and as such, soft forks are backward-compatible. However, this kind of fork does require a majority of the miners to upgrade to and even enforce the new rules, unlike the hard fork, which requires all of the nodes to actually upgrade as well as agree on the new version.

Speaking of hard forks, a hard fork Is a radical change in the protocol of a blockchain network that results in two branches. One branch follows the previous protocol, and the other follows a new version of a protocol.

When it comes to hard forks, holders of tokens in the original blockchain are granted tokens in the new fork as well. Miners have to choose which blockchain they want to continue verifying though.

What this means is that Bitcoin Cash ABC and Bitcoin Cash SV are a hard fork for Bitcoin.

Now, another thing we have to discuss is the blocks in the blockchain. A block is this link to the chain, which possesses parts of all of the records of the transactions that were there before it. Keep in mind that the blockchain network itself is compromised of millions of blocks.

Bitcoin miners will solve complex mathematical equations which will award them with BTC for their work in contributing to finding a solution.

The History of Bitcoin Cash

If we want to get a grasp of why Bitcoin Cash exists, and how it came into existence, we’ll have to dive a bit deeper into the history of Bitcoin. To point this out, we will take a trip down memory lane to 2010, where the average block size on the Bitcoin Blockchain was fewer than 100KB in size. Given the value of Bitcoin at this time, it only cost a few cents to make a transaction happen and pay for its fee. As such, the network saw a lot of attacks that were based on cheap transactions, and this had the potential of severely ruining the system itself.

To prevent this, it was limited to 1MB, where each new block is generated every 10 minutes.

The result of this was the fact that it allowed for both space, as well as time between each successive transaction. This limitation essentially added yet another layer of security to the blockchain.

Now, while all of this worked fine throughout the infancy of Blockchain, as it grew in popularity, well, it led to a lot of issues. In 2015, the average size of a block increased to 600KB, and the number of transactions sky-rocketed at this point which caused a buildup of a lot of transactions that were simply not confirmed.

The result of this was an increased waiting time, as well as much larger fees. Obviously, developers tried to solve this issue, and two proposals were initially made:

  1. They increase the average block size
  2. They exclude certain parts of a transaction to fit more data into the blockchain

The Bitcoin Core team did not agree with increasing the block size and blocked it as a result. A new coin was created to remedy this issue and became known as Bitcoin Unlimited. Unfortunately for Bitcoin Unlimited, it was hacked and didn’t really pick p the pace, which led to doubts about using Bitcoin for everyday transactions.

Bitcoin Cash originally launched in August of 2017. Every Bitcoin owner at the time received an equivalent amount of Bitcoin Cash, and as such, this multiplied the number of coins in existence. Its original price, throughout the time of its debut, stood at $900. The issue? Major cryptocurrency exchanges simply did not want to support it or list it for sale.

The main reason it gained traction at this time was due to the fact that it received support from Bitmain, which is known as a huge cryptocurrency mining platform. The highest value Bitcoin Cash ever had was at $4.091 in December of 2017, and at the time of writing, April of 2021, it is at $917.

In November of 2018, Bitcoin Cash underwent its own fork and split into Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision). The reason for this? The proposed protocol updates wanted to incorporate the use of smart contracts into the Bitcoin blockchain and increase the average block size.

Bitcoin ABC – Essentially Bitcoin Cash, as it uses the original client but has implemented Canonical Transaction Ordering Route (CTOR).

Bitcoin Cash SV - Two new pieces of code were added called "OP_CHECKDATASIG" and "OP_CHECKDATASIGVERIFY". This allowed it to read the information that was not part of a cryptocurrency transaction. Think of it as a foundation for smart contracts to let it do more sophisticated things alongside sending and receiving transactions.

Diving Deeper into Bitcoin Cash

To really get a grasp of why this came to be, we need to look at what Bitcoin inevitably became. You see, Bitcoin was originally created by a person or a group of people that went by the name Satoshi Nakamoto. It was intended to be this peer-to-peer cryptocurrency, and the goal was for it to break into the mainstream and be used for transactions on a daily basis. However, given the fact that it gained mainstream attention from the media, celebrities, and even some of the largest corporations in the world such as Tesla and PayPal, it became more of an investment instead of being used as a currency.

Now, while this did stray away from the original vision, another issue it had was its scalability. It simply could not handle the increased number of transactions, and the confirmation time alongside the fees for a transaction on the blockchain sky-rocketed as a result.

To give you a bit more of an understanding as to why this happened, each block is only 1MB in size, which is a huge limitation and bottleneck for the blockchain to handle. The transactions are typically queued up as a result, and wait to be confirmed, due to the fact that the blocks could not handle the increase in size for transactions.

So here we are, the solution, the cure to this issue, Bitcoin Cash, which proposed to solve this by simply increasing the size of the blocks to range from the 8MB range up to the 32MB range. This enables the processing of a lot more transactions per block.

Given the fact that the average amount of transactions per block of the Bitcoin blockchain throughout this time was around 1.500, the number of transactions on the Bitcoin Cash blockchain throughout 2018 surged to 25.000 per block, which was a huge leap.

Another thing you need to keep in mind is the fact that Bitcoin Cash does not incorporate Segregated Witness or SegWit, which was another solution that was intended to accommodate more transactions per block. SegWit actually only retains information or the metadata that relates to a transaction in a block. To give you a bit more context, SegWit is an action pertaining to Bitcoin, which was originally designed to help increase the block size limit on the blockchain. Its term refers to the words segregate, or separate, and to witness, which refers to the transaction signatures.

Summarizing Bitcoin Cash

Bitcoin is limited by the transaction processing time, which serves as its primary bottleneck when it comes to lack of scalability, and this is an issue that has, in turn, caused issues among the mining and development community.

Bitcoin Cash was created as a solution by bitcoin miners as well as developers, which were simply concerned about the future of the cryptocurrency, as well as its ability to scale. This was done through a hard fork, and what essentially happened is the fact that it increased Bitcoin’s 1MB limit per block, up to 32MB per block.

The hard fork essentially created a new cryptocurrency as well, known as BCH.

BCH even had its own blockchain and specifications and is mainly known for its ability to accelerate the verification process with an adjustable level of difficulty, due to the increased block size limit, which ensures that the blockchain can have solid verification speed no matter how many miners are actually supporting it.

Bitcoin Cash is able to process a lot more transactions, a lot quicker than the Bitcoin network. This means that the waiting times are shorter, and the transaction processing fees are lower.