What is bitcoin cash?

Bitcoin cash (BCH) is both a cryptocurrency and payment network. It was created as a result of a hard fork with bitcoin in December 2017, with the aim of increasing the number of transactions that could be processed.

The official bitcoin cash website describes the cryptocurrency as a “peer-to-peer electronic cash for the internet. It is fully decentralised, with no central bank and requires no trusted third parties to operate.”

Forks within bitcoin and other cryptocurrencies are not uncommon, however, a common consensus will usually be reached over which blockchain to use. Where no consensus is reached and both blockchains remain, a new token or coin is created. In this case it was bitcoin cash.

The hard fork occurred because there was a disagreement around how best to increase the block size limit. One group of influential miners, developers and investors favoured a protocol called SegWit2x, which was due to be implemented to the bitcoin network in August 2017. Those who disagreed with this protocol were involved in the creation of bitcoin cash. Advocates of bitcoin cash believed it more closely resembled the original vision of Satoshi Nakamoto, the unknown person or persons who created bitcoin, and who it’s thought implemented a 1MB limit in secret. However, Nakamoto also said “we can phase in a change later if we get closer to needing it”, as he (or they) predicted that with increased internet speeds and decreased storage costs, blockchains could be increased in size without adversely affecting the concept of a decentralised currency.

Since its launch, bitcoin cash has become one of the most successful bitcoin offshoots. Roger Ver, a prominent investor and early bitcoin adopter, is an advocator of bitcoin cash, previously describing it as ‘the real bitcoin’. Commonly referred to as the ‘bitcoin Jesus’, Ver was a prominent supporter of bitcoin as early as 2011, as a means of promoting economic freedom. He has since moved to support bitcoin cash, favouring its lower transaction costs and times.

What are the differences between bitcoin and bitcoin cash?

As we have seen, bitcoin cash was created as a result of a hard fork with bitcoin. This means that while there are similarities, there are also some key differences between the cryptocurrencies.

BLOCK SIZE

One of the problems with bitcoin was that as it became more popular, transactions were processed more and more slowly. This was a result of a 1MB limit for the size of every block. The SegWit2x protocol was intended to increase the block size limit to 2MB. Comparatively, bitcoin cash does not have a SegWit, and originally had a block size limit of 8MB in 2017, allowing it to process transactions much faster. This limit increased as of May 2018 to 32MB, and could increase further if cash blocks near capacity.

Interestingly, the much anticipated Segwit2x was not implemented on bitcoin as planned, which led to a significant rally in bitcoin cash at the expense of bitcoin.

ALGORITHM

Bitcoin cash has a different hash algorithm to bitcoin. This means that replay between the two blockchains is no longer possible. If bitcoin cash splits in future, there is a replay and wipe-out protection plan in place. With this, it’s thought that if a fork occurs, both chains could coexist with minimum disruption to all involved.

EMERGENCY DIFFICULTY ADJUSTMENT (EDA)

Bitcoin cash uses a new algorithm which helps to ensure the blockchain functions as normal should the number of miners change dramatically. It helps to provide an additional stability to the cryptocurrency.

How to trade bitcoin cash

When you buy bitcoin cash on an exchange, the price is usually quoted against the US dollar (USD). In other words, you are selling USD in order to buy one unit of bitcoin cash. If the price of bitcoin cash rises, you will be able to sell for a profit, because it is now worth more USD than when you bought it. If the price falls and you decide to sell, then you would make a loss.