Bitcoin Cash is a fork of Bitcoin that took effect on the 1st of August in 2017 at block height 478559. It was the result of the ongoing disagreement about how to handle the scalability problem faced by bitcoin. The hard fork made one major change to Bitcoin Cash. It changed the block limit from 1MB to 8MB. This means that more transactions can be placed into every block lowering fees and increasing the transaction throughput of the network. These are all desperately needed changes if this POW cryptocurrency is ever going to scale to widespread adoption.
What is Bitcoin Cash?
Since 2012 – 2013, Bitcoin has been struggling with scalability issues. O(n2) describes how the network scales as nodes are added to the network. N-squared scaling is not sustainable; double N (the amount of users) and you need four times the resources to maintain the same functionality. It’s true that this assumes every user runs a full node and downloads a copy of the blockchain, which isn’t the case, but the fact remains that the more people who use Bitcoin the harder it is to scale while remaining decentralized. Satoshi Nakamoto knew about all of this. It was discussed in the initial Bitcoin whitepaper. What he couldn’t have known is that the Bitcoin Core developers would insist on limiting the block size to 1MB. This block limit wasn’t in the original implementation of Bitcoin. It was added by Satoshi over two commits in 2010, but he never intended for it to be there indefinitely. If you were active on forums in the Bitcoin space in 2012 and even 2013, you would have realised that the community consensus was that the block size limit would be raised when the network required it. The plan was to scale on-chain gradually raising this limit as it was required.
It never was and transaction times got longer and longer and fees grew more and more expensive.
The simple way to calculate the number of Transactions Per Second (TPS) Bitcoin can handle is to divide the block size limit by the expected average size of transactions, divided by the average number of seconds between blocks.
Why wasn’t the block size changed? For very human reasons. What should have been a conversation became a debate, and the Bitcoin community divided into two camps. Those entirely for an increase in the block size and those entirely against it. Another concept that you need to understand to hold a nuanced opinion on this contentious issue is that the Bitcoin network doesn’t reward full nodes for participating in the network.
What Is A Full Node?
A full node is a program that fully validates transactions and blocks. Almost all full nodes also help the network by accepting transactions and blocks from other full nodes, validating those transactions and blocks, and then relaying them to further full nodes.
Most full nodes also serve lightweight clients by allowing them to transmit their transactions to the network and by notifying them when a transaction affects their wallet. If not enough nodes perform this function, clients won’t be able to connect through the peer-to-peer network—they’ll have to use centralized services instead. On the Bitcoin network there is no economic incentive for running a full node, but downloading the blockchain takes hours, it will slow your computer down and constantly use your internet connection.
Businesses are slightly incentivised to run full nodes, because they don’t have to share their address like they would if using a light client. It is also possible to trick a light client for a short amount of time especially with off-chain payment processing software that automatically honours payments.
The Bitcoin Cash Bitcoin Debate
Critics were concerned that raising the block size would lead to full node centralization. An 8MB blocksize will quickly lead to a larger chain, so they reason that if the blocksize increases, it will take more computational resources, more hard drive space and ram to become a full node and monitor the network. Hobbyist won’t run nodes, and the architecture will be controlled by businesses and people with the wealth and resources to run these new nodes.
Larger blocks also have a higher risk of becoming stale (orphaned)
These are all valid concerns, but the outrage the debate has sparked is completely out of proportion with the significance of full nodes in the network.
Bitcoin Cash hasn’t experienced any backlash from its larger block size. There are a perfectly acceptable 1284 nodes running Bitcoin ABC
True Bitcoin has 10xs the amount of full nodes, but it also has approximately 10xs the market cap, so this seems reasonable to me. I think that a better way to ensure the network has enough nodes is to propagate it throughout our economic system and society. When businesses depend on Bitcoin Cash for processing payments, they will run nodes. Maintaining the high fees and slow transaction times that are a consequence of not raising the block limit makes it even more unlikely for merchants and businesses to involve themselves in Bitcoin, and they are the most likely to run full nodes. Maybe raising the block size by a factor of 8 is a bit much, but the Bitcoin core developers reluctance to even step it up to 2MB blocks in completely unreasonable.
Events Leading Up To The Hard Fork
Gavin Andersen, sent a message to everyone on the Bitcoin development mailing list in 2014. He was trying to gain support among developers for a hard fork to increase block size. He proposed a 50% increase to 2MB block sizes.
There was a growing reluctance from the core Bitcoin developers to increase the block size which quickly became a Spartan court of opinions. Bitcoin XT was the original Bitcoin fork. It was instantly hated. Mainstream media, wasn’t up to the challenge of accurately reporting on what Bitcoin XT was trying to do. Like all subsequent Bitcoin forks, that have been painted with the same brush, it was the victim of click bait headlines like “bitcoin is facing civil war”The Guardian and “Bitcoin XT represents a technical and philosophical divergence” Reason. This hate intensified on the forums when all mentioned of Bitcoin XT were censored from Bitcoin talk.
Hard fork became a tainted word, and it is a stigma that still persists to this day. Nothing happened for a while, then in February of 2016, Bitcoin industry leaders gathered for a conference in Hong Kong to discuss scalability. Still increasing the block size wasn’t on the agenda, they instead decided to try something called SegWit. SegWit was a process that when implemented would segregate the digital signature from the transactions data. This process is known as Segregated Witness or SegWit. Digital signature accounts for 65% of the space in a given transaction.
It was announced that “We will continue to work with the entire Bitcoin protocol development community to develop, in public, a safe hard-fork based on the improvements in SegWit. The Bitcoin Core contributors present at the Bitcoin Roundtable will have an implementation of such a hard-fork available as a recommendation to Bitcoin Core within three months after the release of SegWit.”
UASF Vs UAHF
The transition to SegWit didn’t go down as smoothly as the core developers had hoped. Large mining pools like Bitmain were singled out and ridiculed in the forums for blocking SegWit. Tensions reached their climax when UASF was announced. User Activated Soft Fork was the ultimatum given to miners. Bitcoin Improvement Proposal (BIP) 148, stated that at block 478,484 all blocks that didn’t support SegWit would be ignored by the full nodes in the network. The idea was that users could force the hand of the miners.
In response to this, Bitmain a large Chinese mining pool, announced they would undergo their own fork as a contingency called UAHF if UASF happened. It was then decided that they would fork Bitcoin anyway regardless if they decided to go ahead with their UAHF, and this fork was called Bitcoin Cash.
Advantages Of Bitcoin Cash Over Bitcoin
Bitcoin Cash is faster and cheaper than Bitcoin. At the time of writing it is approximately 8% more profitable to mine Bitcoin Cash than it is Bitcoin, but this has leveled out recently as miners flock to whichever currency gives them the best returns. Apart from that, there isn’t much difference when it comes to using the two cryptocurrencies. Bitcoin has more widespread adoption, because it is more established, and it is historically tested as a store of value.
Bitcoin Cash’s biggest advantage over Bitcoin is that Bitcoin went first. There are hundreds of tools, apps and programs developed for Bitcoin that are already compatible with Bitcoin Cash. BitPay, for example, is the largest Bitcoin payment processor, and they have already integrated Bitcoin Cash into its Visa debit card. In December 2017 the Dream Market the only worthwhile dark web marketplace allowed vendors to accept Bitcoin Cash for payments. It was easy for popular exchanges like Coinbase to add Bitcoin Cash and popular wallets were forked into their own Bitcoin cash versions.
Should I Invest In Bitcoin Cash?
2 weeks after the Bitcoin Cash fork the new cryptocurrency was worth over 10 billion dollars. A lot of this new money was from miners who capitalised on the varying hashing difficulty of early Bitcoin Cash. Around 30 – 40% all Bitcoin Miners switched over to Bitcoin Cash. There were times when it was 150% more profitable to mine than Bitcoin.
The network has stabilized since then, but I think Bitcoin Cash is still a worthwhile investment vehicle. It has more utility than Bitcoin and it’s following a similar path of adoption. As the Bitcoin network becomes more and more congested, Bitcoin Cash will continue to suck up its market cap. At the end of the day, the only thing merchants care about is the fees they have to pay, and the time it takes for a transaction to clear. In January, there were times when Bitcoin transactions were averaging $40 fees, and it took 6 – 12 hours for a transaction to clear. In this respect, the slow-moving bitcoin core team have deviated from Satoshi’s original vision for a decentralised peer to peer currency, because they insist on maintaining a block size out of fear of something that’s unlikely to happen.
How To Invest In Bitcoin Cash?
Coinlist’s complete investor’s guide to Bitcoin Cash delves deeper into the short and long-term prospects of this altcoin before explaining how and where to buy it. Check out the guide for more information on upcoming milestones, events and other newsworthy events here.