Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works without a central bankor single administrator. The network is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain.
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Bitcoin Cash is a cryptocurrency and a decentralised payment system – a peer-to-peer electronic cash for the internet. It was created by the introduction of a fork in Bitcoin Classic in August 2017. It is the result of the division of the Bitcoin blockchain creating two different cryptocurrencies.
The primary motivation of Bitcoin Cash’s existence depends solely on carrying out more transactions. In May 2017, a single BTC transaction could take up to four days to complete. If the users wished to speed up their transactions, they had to pay a fee which at the end of 2017, averaged about $28 per. The delay and the extensive fees made it impractical to make use of BTC in everyday small purchases.
(Caption : Bitcoin Cash) (Source : https://goo.gl/images/uJhUaX )
Even though Bitcoin adopted SegWit, SegWit2x (Segregated Witness) the fundamental problem wasn’t addressed. This concerned may Bitcoin miners and developers with the future of Bitcoin and its scalability. They also believed that this was harming the roots of the cryptocurrency or it did not follow the roadmap laid by Satoshi Nakomoto, apparently making the currency a little less decentralised. Hence, to increase the scope of use and speed of transaction Bitcoin Cash was introduced.
With Bitcoin Classic the block size was increased to 8MB although the supply remained the same as 21 Million. It did not need SegWit, it does not have the feature to replace delay by some extra fee, it has replay and wipeout protection and it offers a way to adjust the proof-of-work difficulty quicker than normal block difficulty adjustment interval found earlier in Bitcoin. The symbol used for Bitcoin Cash is BCH.
Let us have a look at how Bitcoin Cash Came into being.
The history of Bitcoin Cash
The incidents that lead to the development of Bitcoin Cash can be simplified in merely a few words as, the slow speed of transactions affected the scalability hence, a few concerned developers and miners decided to bring a change. And this change was apparently, a new cryptocurrency.
Well, not entirely a new cryptocurrency, more as in “a hard fork”.
What is a hard fork?
In layman terms, an action that produces an irreversible change in the blockchain. Once it is utilised there is absolutely no chance of going back whatsoever. It is basically an upgrade in the protocol software that requires all nodes or users to upgrade to the latest version of the same. It is a permanent divergence and nodes running previous versions won’t be accepted at all. It is called a fork, because it create a fork in the blockchain where one path follows the new upgraded blockchain, and the other one uses the old path.
Bitcoin Cash as a Hard Fork
Bitcoin maintained a common set of rules for the cryptocurrency. On July 20th 2017, Bitcoin Improvement Proposal (BIP) 91 was locked. A BIP is a designed document which introduces various improvements to the network. It was designed to reject blocks created by non-SegWit miners. This disturbed some members of the bitcoin community as they felt adoption of BIP 91 without increasing the blocksize would favour people who treat it as a online investment rather than the basic ideology of treating it as an online currency.
These miners or developers, rather offended people, devised a plan to increase the block size from 1 MB to 8 MB thus increasing the number of transactions this ledger could process. Some users wanted an increase in Bitcoin’s block size limit parameter,
(Caption : Representation of a hard fork) (Source : https://goo.gl/images/g1woiU )
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some unaccepted the proposal of SegWit, and some felt that it is unlikely for SegWit2x to be launched in 2017. Hence, all this acted could have acted as a motivation towards the launch of Bitcoin Cash.
Launch, Development and So on..
It was quite a revolution when Bitcoin Cash was launched on August 1, 2017. Even though Bitcoin Cash inherited the transaction history of Bitcoin, but all later transactions created a complete divide. Bitcoin Cash cryptowallets started rejecting Bitcoin blocks and transactions. The initial price of BCH was around $380 as compared to that of BTC’s $2,718 at the same time. The split ratio of BCH is believed to be around 0.122265.
9th August, 2017 marked the day when mining was more profitable to mine on the bitcoin chain. It was easy for miners to move their hashpower between the two cryptocurrencies as both chains used the same proof-of-work algorithm. As of August 30, 2017 the number of blocks mined on the Bitcoin Cash chain was 1500 more than the number on the original chain, for the month.
How does Bitcoin Cash Work?
BCH works along the proof-of-work algorithm, inherited from Bitcoin. But noting to the difficulty in transactions and the slow mining process, a few algorithmic as well as transactional changes have made it much more profitable. The BCH community has always focused on increasing the scalability of the system, so that more and more miners come in to the system. Yet it faced a lot of difficulties, thanks to the monopoly established by BTC. Yet through transformations and due recognition of its advancements, BCH has managed to establish itself in the market.
The most interesting of these advancements was the new Emergency Difficulty Adjustment (EDA) algorithm was introduced by Bitcoin Cash. It was aimed to reduce the complexities faced by the miners in the system due to the difficulty fluctuation rates. This algorithm states the following rules :
If the Median past time of the current block and the past 6 blocks is greater than 12 hours then, the difficulty reduces by 20%. That means it becomes 20% easier for miners to find newer blocks. This gives the miners the time to adjust difficulty.
Still, the difficulty in mining fluctuated rapidly between the mainline and the new chain. If there are a few miners, then the difficulty rate goes down because the overall hashing power of the system goes down. During the inception period, BCH struggled to get miners and its difficulty dropped down drastically. This attracted a lot of miners who looked forward to capitalising this opportunity. It in fact led to a flooding of miners from BTC so much that the hasing power of the latter halved, decreasing the transaction time and increasing the fees.
However, a fix for this difficulty was introduced on November 12, 2017, that hopes to prevent extreme fluctuations, by adjusting the difficulty after every 2016 blocks while still allowing Bitcoin Cash to adopt to hashrate changes.
Additionally, the transaction signature hashing algorithm was also modified. This provided relay protection for Bitcoin Cash transactions against the original Bitcoin Chain. The Bitcoin Cash network is set to undergo a protocol upgrade on May 15th 2018. They are planning a 32 MB block upgrade. It is expected that could also be several Bitcoin script operation codes being added or reactivated.
One of the best features of Bitcoin Cash is it reduces the chances of replay attack, adding to the security of the post forked system.
What is a replay attack?
It is basically a form of data transmission that is malicious, that means it is repeated or delayed using some malware. As for a blockchain, it is taking a transaction that happens in one blockchain, and is replicated in another blockchain. For example, if A is send 5 BCH to B, they might send B 5 BTC as well even though they never meant to do that. This is prevented using a redefined sighash algorithm. This is only used when the sighash flag has bit 6 set. These transactions are invalid on the non-UAHF (User Activated Hard Fork) chain as the different algorithms will lead into invalid transactions. Also the transactions containing the string “Bitcoin : A peer-to-Peer Electronic Cash System” as data are considered invalid by Bitcoin Cash. This has been till for all blocks after the 530,000th block. Before that block, a person can split their coins by transacting on the non-UAHF chain first with the above string as the return output, and then transacting on the UAHF chain second.
A UAHF is a proposal that enables the construction of a whole new form of Bitcoin and blocks with larger sizes. This chain is not backward compatible with the rest of the blockchain. All nodes that accept these rules will automatically follow this blockchain regardless of the support it gets. This is basically a hard fork that does not require a majority of the hashpower to be enforced. Bitcoin Cash used UAHF to completely separate its transactions from BTC. This was done after various concerns issued about the division in the blockchain, and the possibility of it leading to replay attacks.
Bitcoin Cash for Investors
Bitcoin Cash could prove to be the number 1 pick for the investors in the near future. To support this argument, the following reasons could be used:
- Bitcoin Cash has been adopted by many digital currency exchanges such as Coinbase, CEX.IO, Kraken, ShapeShift, etc. More number of exchanges have agreed to take up BCH. It first started with reluctancy from most exchanges, but now plenty more are accepting it. This is turn, shows the acceptability of the new changed that BCH has brought. Also, exchanges are acknowledging the benefits associated with the cryptocurrency giving a rise to its credibility which increases its value.
- When it comes to buying cryptocurrency, people also look about the aspect of competition with the miners. It must be noted that BCH has proven to be very lucrative for the miners and many of them are coming in. Miners giving their hashing power to BCH means an increase in its value. Plus, the block size is 8 MB which might become 32 MB by the mid of 2018, hence, generating a scope of even more number of transactions.
(Caption : BCH for investors) (Source : Pixabay)
Thus, BCH did prove to be a very interesting experiment that will teach the crypto-community a lot of lessons moving forward. From a cryptocurrency that once faced a non-accepting market, to now become the center of discussion with speculators wondering it could even overtake BTC and become the primary chain.
Improving cryptocurrency as a transaction medium does involve maintaining a high level of security whilst increasing the transaction speeds. It is believed that once BCH’s difficulty is improved it could have transactions process in two and a half minutes.
However, there is no reason for undermining the decentralised nature of the network, which does look an apparent case in the BTC network. So the performance also depends on the miner’s vision for the currency.
By the end of August 2017, Bitcoin Cash became the third largest cryptocurrency in terms of market capitalisation. Currently it is the the fourth largest cryptocurrency valued at $1,396 per token and a market cap of around $ 24 Billion.
It can be predicted that Bitcoin Cash can expect much more interest coming in through its proposed increment in size of blocks. Hence, it could in turn, engage more and more investors flooding in. Therefore, arguably, the price is set to increase much further. It is highly difficult to address the situation until BItcoin Cash has been running for a while. It is also difficult to address the impact of Bitcoin’s segregated technology on BCH and if the size of Bitcoin’s blocks gets doubled. What can be stated for now is that BCH has a very interesting future ahead.
BCH vs Competitors
#1 BTC
The most obvious competitor with comparisons at every stage of development is Bitcoin. The diversion from the native chain has made BCH the competing child, yet a child who was from the beginning a mainstream competition. The value gap may still be large, but with every new step that the BCH community takes, it is arguably possible that they might win the race some day in the near future.
#2 ETH
The second largest cryptocurrency in the world. The level of competition that ETH has with BTC does appear to be the same with BCH. After all, both are the sections of the same native blockchain. The lacks that led to the development of ETH regarding the restricted used of blockchain do occur with BCH as well. Hence, the idea behind the development of Ethereum does envy Bitcoin Cash.
#3 XRP
Ripple has been an outstanding performer when talking about the sudden boom of a cryptocurrency. The increase in its value and the market that it attracts has led to XRP becoming the third largest cryptocurrency in the world. Hence, the competition between XRP and BCH is based on technology use vs forks. Where on one hand Ripple brings in easier ways to send money from one place to another, Bitcoin Cash enables quicker generation of currency through faster speeds and reduced difficulty. Both of them have been forged through the introduction of revolutionary protocols and algorithms in the system. Therefore, it leads to a healthy competition in terms of technology for BCH.