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What is Bitcoin Cash?

By Alex Nimoy Oct. 12, 2019, 10:34 a.m.
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Bitcoin Cash is a cryptocurrency that is fork of Bitcoin. Bitcoin Cash is a spin-off or altcoin that was created in 2017.
In 2018 Bitcoin Cash subsequently split into two cryptocurrencies: Bitcoin Cash, and Bitcoin SV.
Bitcoin Cash is sometimes also referred to as Bcash.

History

Rising fees on the Bitcoin network contributed to a push by some in the community to create a hard fork to increase the blocksize. This push came to a head in July 2017 when some members of the bitcoin community including Roger Ver felt that adopting BIP 91 without increasing the block-size limit favored people who wanted to treat bitcoin as a digital investment rather than as a transactional currency. This push by some to increase the block size met a resistance. Since its inception up to July 2017, Bitcoin users had maintained a common set of rules for the cryptocurrency. Eventually, a group of bitcoin activists, investors, entrepreneurs, developers and largely China-based miners were unhappy with Bitcoin's proposed SegWit improvement plans meant to increase capacity and pushed forward alternative plans for a split which created Bitcoin Cash. The proposed split included a plan to increase the number of transactions its ledger can process by increasing the block size limit to eight megabytes.

The would-be hard fork with an expanded block size limit was described by hardware manufacturer Bitmain in June 2017 as a "contingency plan" should the bitcoin community decide to fork; the first implementation of the software was proposed under the name Bitcoin ABC at a conference that month. In July 2017, the Bitcoin Cash name was proposed by mining pool ViaBTC. The change, called a fork, took effect on 1 August 2017. As a result, the bitcoin ledger called the blockchain and the cryptocurrency split in two.

A Hong Kong newspaper likened this to a new version of word processing software saying:

Bitcoin cash is like a new version of Microsoft Word, which generates documents that can no longer be opened via the older versions.

Bryan Kelly, a stock analyst likened it to a software upgrade:

Bitcoin cash is doing a “hard fork” or “effectively a software upgrade,” Kelly said on “Fast Money.” “When you do a software upgrade, everybody usually agrees. But in this particular case, everybody is not agreeing.”

At the time of the software upgrade (also known as a fork) anyone owning bitcoin was also in possession of the same number of Bitcoin Cash units. The technical difference between Bitcoin Cash and Bitcoin is that Bitcoin Cash allows larger blocks in its blockchain than Bitcoin, which in theory allows it to process more transactions per second. Bitcoin Cash was the first of the Bitcoin forks, in which software-development teams modified the original Bitcoin computer code and released coins with “Bitcoin" in their names, with "the goal of creating money out of thin air."In relation to Bitcoin it is characterized variously as a spin-off, a strand, a product of a hard fork, an offshoot, a clone, a second version or an altcoin. On 1 August 2017 Bitcoin Cash began trading at about $240, while bitcoin traded at about $2,700.

In 2018 Bitcoin Core developer Cory Fields found a bug in the Bitcoin ABC software that would have allowed an attacker to create a block causing a chain split. Fields notified the development team about it and the bug was fixed.

2018 split to create Bitcoin SV

On 15 November 2018, a hard-fork chain split of Bitcoin Cash occurred between two rival factions called Bitcoin Cash and Bitcoin SV. On 15 November 2018 Bitcoin Cash ABC traded at about $289 and Bitcoin SV traded at about $96.50, down from $425.01 on 14 November for the un-split Bitcoin Cash.

The split originated from what was described as a "civil war" in two competing bitcoin cash camps. The first camp, supported by entrepreneur Roger Ver and Jihan Wu of Bitmain, promoted the software entitled Bitcoin ABC (short for Adjustable Blocksize Cap) which would maintain the block size at 32MB. The second camp led by Craig Steven Wright and billionaire Calvin Ayre put forth a competing software version Bitcoin SV, short for "Bitcoin Satoshi's Vision," that would increase the block size limit to 128MB.

Controversy

There are two factions of bitcoin supporters, that support large blocks or small blocks. The Bitcoin Cash faction favors the use of its currency as a medium of exchange for commerce while the Bitcoin-supporting faction view bitcoin's primary use as that of a store of value. Some Bitcoin supporters like to call Bitcoin Cash “Bcash,” “Btrash,” or simply a scam, while Bitcoin Cash advocates insist that their implementation is the pure form of Bitcoin.

Samson Mow of Blockstream pointed to Bitcoin Cash's use of the "Bitcoin" name as a source of animosity between the Bitcoin and Bitcoin Cash camps.

Trading and usage

Bitcoin Cash trades on digital currency exchanges including Bitstamp, Coinbase, Gemini, Kraken, Bitfinex, and ShapeShift using the Bitcoin Cash name and the BCH ticker symbol for the cryptocurrency. On 26 March 2018, OKEx removed all Bitcoin Cash trading pairs except for BCH/BTC, BCH/ETH and BCH/USDT due to "inadequate liquidity". As of May 2018, daily transaction numbers for Bitcoin Cash are about one-tenth of those of bitcoin.

By November 2017 the value of Bitcoin Cash, which had been as high as $900, had fallen to around $300, much of that due to people who had originally held Bitcoin selling off the Bitcoin Cash they received at the hard fork. On 20 December 2017 it reached an intraday high of $4,355.62 and then fell 88% to $519.12 on 23 August 2018.

As of August 2018, Bitcoin Cash payments are supported by payment service providers such as BitPay, Coinify and GoCoin.

Difficulty adjustment algorithm

Both Bitcoin as well as Bitcoin Cash use a proof-of-work algorithm to timestamp every new block. The proof of work algorithm used is the same in both cases. It can be described as a partial inversion of a hash function. Additionally, both Bitcoin and Bitcoin Cash target a new block to be generated every ten minutes on average. The time needed to calculate a new block is influenced by a parameter called the mining difficulty. If the total amount of mining power increases, an increase of the mining difficulty can keep the block time roughly constant. Vice versa, if the mining power decreases, a decrease of the mining difficulty can keep the block time roughly constant.

To keep the block generation time equal to ten minutes on average, both Bitcoin and Bitcoin Cash use an algorithm adjusting the mining difficulty parameter. This algorithm is called the difficulty adjustment algorithm (DAA). Originally, both Bitcoin and Bitcoin Cash used the same difficulty adjustment algorithm, adjusting the mining difficulty parameter every 2016 blocks. Since 1 August 2017, Bitcoin Cash also used an addition to the DAA, called an Emergency Difficulty Adjustment (EDA) algorithm. EDA was used alongside the original DAA and it was designed to decrease the mining difficulty of Bitcoin Cash by 20%, if the time difference between 6 successive blocks was greater than 12 hours.

EDA adjustments caused instabilities in mining difficulty of the Bitcoin Cash system, resulting in Bitcoin Cash being thousands of blocks ahead of Bitcoin. To address the problem with stability, a change of the Bitcoin Cash DAA was implemented and the EDA cancelled. The change took effect on 13 November 2017. After the change, the Bitcoin Cash DAA adjusts the mining difficulty after each block. To calculate the difficulty for a new block, the Bitcoin Cash DAA uses a moving window of last 144 blocks.

A group of researchers demonstrated that, as of June 2019, Bitcoin DAA fails to generate new blocks at a constant rate as long as the hash supply is elastic. In contrast to that, the group demonstrated that Bitcoin Cash DAA is stable even when the cryptocurrency price is volatile and the supply of hash power is highly elastic.

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