History
On August 1, 2017, Bitcoin Cash came into existence through a hard fork of the original Bitcoin blockchain. It was created by a group of developers and miners who were concerned about Bitcoin’s slow transaction speeds and high fees.
What is it
Bitcoin cash is a decentralized, peer-to-peer digital currency that utilizes a proof-of-work consensus algorithm, similar to Bitcoin, to validate transactions and add new blocks to its blockchain. The main difference between Bitcoin and Bitcoin cash lies in the larger block size limit of Bitcoin cash, enabling it to handle a higher number of transactions per second.
Bitcoin cash vs Bitcoin
| Feature | Bitcoin cash (BCH) | Bitcoin (BTC) |
|---|---|---|
| Date of creation | August 1, 2017 | January 3, 2009 |
| Block size limit | 32 MB1 | 1 MB2 |
| Hash algorithm | SHA-256 | SHA-256 |
| Proof of work algorithm | SHA-256 | SHA-256 |
| Market capitalization | $2,121,233,1443 | $390,873,424,6134 |
| Transaction fees | Lower fees | Higher fees |
| Transaction confirmation time | Faster confirmation time | Slower confirmation time |
| Main focus | Usability as currency | Digital gold/store of value |
| Notable supporters | Roger Ver, Bitmain | Jack Dorsey, Elon Musk |
| Supply cap | 21 million BCH | 21 million BTC |
| Pros | • Larger block size allows for faster and cheaper transactions • Strong focus on usability as a currency | • More established and widely accepted • Considered a safe-haven asset and store of value |
| Cons | • Lower market capitalization and adoption compared to BTC | • High transaction fees and slower confirmation times due to limited block size |
How it works
1. Create a Bitcoin Cash wallet
Select a suitable digital wallet (such as desktop, mobile, or hardware) to securely store your Bitcoin Cash coins based on your requirements and preferences.
2. Purchase Bitcoin Cash
Acquire Bitcoin Cash from a cryptocurrency exchange or through peer-to-peer transactions with other Bitcoin Cash users. Mining is also an option, but it requires technical knowledge and expensive equipment.
3. Send and receive Bitcoin Cash
Obtain the recipient’s Bitcoin Cash address, a unique string of characters similar to an email address, to send or receive Bitcoin Cash. Simply provide your address to receive Bitcoin Cash from others.
4. Verify transactions
When you send Bitcoin Cash, the transaction is broadcasted to the Bitcoin Cash network and validated by miners. Miners solve complex mathematical problems using powerful computers to verify transactions. Once verified, the transaction is added to the blockchain, a public ledger recording all Bitcoin Cash transactions.
5. Transaction fees
To incentivize miners, a modest transaction fee is required when sending Bitcoin Cash. The fee is usually lower than traditional payment methods like credit cards or wire transfers. The fee is deducted from the total amount sent, and the remaining balance is transferred to the recipient’s wallet.
6. Security
Cryptographic techniques secure Bitcoin Cash transactions, allowing only the sender to access and spend their funds. Safeguard your private keys, which grant access to your wallet, to prevent theft or loss of your Bitcoin Cash.
How does the network work
1. Transaction initiation
The process begins when a user initiates a transfer of Bitcoin Cash from their wallet to another wallet address. The transaction can be for any amount, and the user must pay a transaction fee for processing.
2. Broadcasting the transaction
The initiated transaction is broadcasted to the full Bitcoin Cash network of nodes. These nodes receive, validate, and propagate the transaction to other nodes in the network.
3. Transaction validation
Network nodes validate the transaction by checking if the sender has sufficient funds and ensuring it has not been double-spent. If the transaction passes validation, it joins a pool of unconfirmed transactions awaiting inclusion in the next block.
4. Mining
Miners, special network nodes, compete to add the next block of transactions to the blockchain. They solve complex mathematical problems that require significant processing power. The first miner to solve the problem adds the next block and receives a block reward of newly minted Bitcoin Cash and transaction fees.
5. Block confirmation
Once a block is added to the blockchain, the transactions within it are confirmed and become unchangeable. This confirmation step ensures the security and immutability of the transactions.
6. Blockchain update
The newly added block is propagated to all nodes in the network, ensuring that every node has the most up-to-date version of the blockchain.
7. Transaction completion
After validation and inclusion in a block, the recipient can access and spend the received Bitcoin Cash coins from their wallet.
Usage
1. Peer-to-peer transactions
Bitcoin Cash enables direct peer-to-peer transactions, enabling users to send and receive money without intermediaries. For instance, if Alice owes Bob money, she can simply send Bitcoin Cash to Bob’s wallet address, and the transaction will be validated on the blockchain within a few minutes.
2. Online purchases
Many online merchants and businesses accept Bitcoin Cash as a form of payment. For instance, Microsoft allows customers to add Bitcoin Cash to their Microsoft account balance, which can then be used to purchase games, movies, and apps from the Microsoft Store.
3. International remittances
Bitcoin Cash provides a convenient option for international remittances, enabling users to send money to other countries quickly and at a lower cost compared to traditional remittance providers. This can help reduce fees and delays associated with cross-border transfers.
4. Investment
An individual can acquire Bitcoin Cash from a cryptocurrency exchange and hold it for an extended period, anticipating its value to increase over time. If the value of Bitcoin Cash rises, the investor can profit by selling their coins.
Also, Bitcoin Cash is suitable for making small online transactions known as micropayments. For instance, individuals can pay a minimal amount in Bitcoin Cash to access an article on a website or download a digital file. This flexibility allows for quick and convenient transactions for small-scale purchases.
Problem solving
1. Low transaction fees
Traditional payment systems often impose significant fees, making it challenging for consumers to send money to others. Bitcoin Cash tackles this issue by charging minimal transaction fees, facilitating easier money transfers.
For instance, when Alice wants to send $10 to Bob, traditional methods may incur a fee of $2 or more, while Bitcoin Cash transactions may only have fees of a few cents.
2. Fast transaction times
Traditional payment systems can be slow, resulting in delays for users. Bitcoin Cash addresses this concern by enabling faster transaction times, enhancing the speed of money transfers.
For instance, if Alice wishes to transfer $10 to Bob, traditional methods may take a significant amount of time, whereas Bitcoin Cash allows for quicker processing.
3. Decentralization
Many existing payment systems rely on centralization, which means they are controlled by a single entity or a group of entities. Bitcoin Cash overcomes this limitation through decentralization, meaning it is not controlled by a central authority. This decentralization enhances transparency and makes the system more resistant to censorship.
For instance, if a government attempts to prohibit a transaction, it cannot do so with Bitcoin Cash because the network operates independently of a central authority.
Pros and Cons
Pros
- Decentralization: Bitcoin Cash operates in a decentralized manner, offering increased resistance to censorship and providing individuals with greater control over their money.
- Reduced transaction fees: Compared to traditional payment methods, Bitcoin Cash imposes minimal transaction fees, making it a cost-effective option for sending and receiving money.
- Quick transactions: Transactions on the Bitcoin Cash network are typically confirmed within a few minutes, ensuring fast and efficient transfer of funds.
- Accessibility: Bitcoin Cash can be utilized by anyone with an internet connection, irrespective of their location or access to banking services.
Cons
- Volatility: The value of Bitcoin Cash is subject to significant fluctuations, which can make it a risky investment choice due to the potential rapid and unexpected price movements.
- Lack of general adoption: While Bitcoin Cash is gaining popularity, its acceptance as a widely recognized means of payment is still limited, which restricts its overall utility.
- Regulatory uncertainty: The regulatory framework surrounding cryptocurrencies like Bitcoin Cash remains uncertain in many jurisdictions, leading to concerns among users and investors.
- Restricted scalability: The current infrastructure of the Bitcoin Cash network has limitations in processing a large volume of transactions, potentially causing delays and increased fees during periods of high demand.
Security
The security of the Bitcoin Cash network is established through the utilization of blockchain, a distributed ledger technology. Each transaction within the network is recorded on the blockchain, which serves as a decentralized and transparent ledger accessible to all participants. The validation and addition of transactions to the blockchain are ensured through mining, involving the solving of complex mathematical problems. This mining process strengthens the security of transactions.
Over time, the Bitcoin Cash network has demonstrated resilience, as there have been no major security breaches or attacks reported. However, it is essential to acknowledge that, like any technology, the Bitcoin Cash network remains susceptible to potential vulnerabilities or attacks. Users should prioritize safeguarding their funds, such as storing them in secure wallets and implementing additional security measures like two-factor authentication.
Real world adoption
For instance, Bitcoin Cash can serve as a cost-effective and efficient alternative to conventional payment systems, especially for cross-border transactions. It also holds the potential to provide financial services to individuals who lack access to traditional banking services, such as those residing in underdeveloped regions or remote areas.
Additionally, its decentralized and transparent nature can contribute to combating fraud and corruption in industries like supply chain management and voting.
Can it replace Bitcoin?
Bitcoin Cash has the potential to take some of Bitcoin’s market share, owing to its emphasis on currency usage, as well as its faster transaction speeds and reduced costs. However, it is unlikely for Bitcoin Cash to completely replace Bitcoin in the cryptocurrency market. Bitcoin is a more established and widely acknowledged cryptocurrency, and its position as the first and largest cryptocurrency by market capitalization provides it a significant advantage.
Moreover, Bitcoin benefits from a large and engaged community of developers, investors, and users who are consistently driving innovation and enhancements to the network. On the other hand, Bitcoin Cash is relatively new in the cryptocurrency market, and its future adoption and success will depend on various factors, including its ability to address challenges like scalability, security, and user acceptance.