Simply Explained: Bitcoin Cash (BCH)
In 2017, the Bitcoin community was split over concerns about Bitcoin’s scalability. Some believed Bitcoin should continue as intended by Satoshi Nakamoto, and others believed that for Bitcoin to succeed, it needed to resolve some of its glaring scalability issues.
This resulted in something called a hard fork. The technical definition for a hard fork is a radical change to a network's protocol that makes previously invalid blocks and transactions valid, or vice-versa.
A hard fork requires all nodes or users to upgrade to the latest version of the protocol software. To understand it simply, picture a fork in the road. The people who believed that things should change decided to take a turn and move along a different path. This path is what we now call Bitcoin Cash (BCH).
Bitcoin Cash (BCH)
Bitcoin Cash, as a new cryptocurrency, was heralded as the continuation of the Bitcoin project as peer-to-peer electronic cash. The Bitcoin holders at the time of the fork, which happened at block 478,558, automatically became owners of Bitcoin Cash. This peer-to-peer system is attempting to resolve the scalability concerns those early Bitcoin users had experienced. It aims to become sound money used for fast payments whilst having tiny fees, privacy, and high transaction capacity.Just like Bitcoin, Bitcoin Cash requires no trusted third parties and no central bank. It is designed to cut out the middleman. Transactions cannot be censored by governments or other centralized corporations. Funds can’t be seized or frozen by any centralised force because the Bitcoin Cash network is decentralised.
The tokenomics of BCH are also pretty much identical to those of BTC, both sharing the same halving schedule, total max supply, and current circulating supply.
The key differences between Bitcoin and Bitcoin Cash
Most Bitcoin enthusiasts universally accept the idea that Bitcoin's best use case and most attractive value proposition is that it is a store of wealth. This means it is something people hold over time, and it should grow in value. The most common store of value is gold.The thing the “hard-forkers” wanted was to innovate past this and give Bitcoin some utility. They hoped to make bitcoin usable like cash. You can’t go out to a restaurant and tip someone in gold, and it’s not feasible to do so with Bitcoin either. The processing time for transactions and the fees involved made it impractical.
Why does block size matter?
Bitcoin Cash solves this problem. Bitcoin has something called a “block size” of 1 MB. This just refers to the amount of data a block holds. The more data a block can hold, the more transactions it can process.In the same way, your 8 MB PS2 memory card could only store so many safe states, and the 1 MB Bitcoin block size could only process so many transactions.
Bitcoin Cash initially saw a block size increase to 8 MB and now stands at around 32 MB. At its initial point, BCH can process 32 times the number of transactions per second than Bitcoin can. This means you can expect payments to process faster, making it usable for day-to-day payments.
Not only does the block size affect speed, but it also affects affordability. The reason for this is that Bitcoin is more popular. More transactions are requested on the network, fewer transactions can fit on each block, and users are willing to pay more to get their transaction processed. Hence the higher cost.
Think of Bitcoin Cash as a little-known restaurant with lots of seating. Compared to Bitcoin, a small, popular staple, lots of diners are trying to get a table. The more demand, the higher the price.
If Bitcoin Cash has the perks of Bitcoin, plus utility, why isn’t it more popular?
A looming potential issue with the larger block is that security could be compromised more easily compared to the Bitcoin network. The general popularity of Bitcoin also means users of BCH may find liquidity and usability are actually lower than that of Bitcoin.There are also projects built from scratch that are dedicated to doing exactly what BCH is attempting to do but are arguably doing so better. There are projects out there with faster transactions, lower fees, and in terms of day-to-day purchases, there’s a reason we don’t typically buy things with stocks and other volatile assets. If you believe BCH is going to 1X, how can you justify spending $5 of BCH on a carton of milk? You’re basically saying, “I’m willing to spend $50 on that milk carton.”.
We highly encourage you to read our pieces on Litecoin, and stablecoins to understand what alternatives to BCH are out there and how they stand up to one another.
And, for Cryptonary's transparent opinion on BCH, access the Ratings Guide here.
Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.
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