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Bitcoin Cash Explained

Bitcoin (BTC) was the world’s first cryptocurrency, and it sits at the top of the cryptocurrency ladder as the largest digital asset by market cap. But did you know there are different variations of Bitcoin?

Programmers and developers tweak Bitcoin’s source code all the time, leading to new iterations of BTC, each to improve upon Bitcoin’s shortcomings. One such variation is Bitcoin Cash (BCH). Although thus far not as successful as Bitcoin, Bitcoin Cash stands firm in its mission to achieve Bitcoin’s original vision and enhance its scalability.

But what’s the philosophy behind Bitcoin Cash? And has Bitcoin Cash achieved what it set out to do? We’ll answer all these questions and more. Read on to find out all about the ins and outs of Bitcoin Cash.

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What is Bitcoin Cash?

Bitcoin Cash (BCH) is a cryptocurrency similar to BTC in many respects and shares many underlying features. However, BCH incorporates several unique characteristics and modifications as a standalone cryptocurrency.

BCH is a “fork” of BTC. Cryptocurrencies like BTC and Ethereum (ETH) exist on decentralized digital ledgers called blockchains. They’re decentralized because a central authority doesn’t regulate them, and they’re called blockchains because they consist of a long string of “blocks” of data. This data is open-sourced, which means it’s publicly available for all to see. As a result, users can access the data and follow the string of blocks to locate the very first blockchain transaction.

Some consider BCH to be BTC’s successor—for reasons we’ll discuss in a bit—but BCH hasn’t quite lived up to the hype. To understand why, we must look at BCH’s features, how it compares to BTC, and why it fell short.

Bitcoin Cash’s main features

In 2008, Satoshi Nakamoto, BTC’s pseudonymous creator, released a whitepaper titled "Bitcoin: A Peer-to-Peer Electronic Cash System." Nakamoto aimed to create an alternative currency and payment system via BTC to challenge traditional fiat currencies like the U.S. dollar (USD) or the Great British pound (GBP) and circumvent the obstacles caused by conventional financial instruments.

Nakamoto intended BTC to be a currency used for everyday transactions. However, with time, BTC went from being a cryptocurrency to a significant investment avenue as it gained popularity and its value skyrocketed. As a result, BTC’s blockchain experienced scalability issues due to the rising transaction volume and the fact it can only process a certain amount of transactions per second.

BCH’s supporters claim BCH follows BTC's whitepaper more strictly, arguing that BCH's design allows it to increase scalability by supporting bigger blocks. This enabled BCH to process more transactions and register a more significant growth rate than BTC.

BCH offered users more affordable transaction fees and enabled smart contract functionality, allowing creators to develop different types of crypto like NFTs (non-fungible tokens) and other utility tokens. Smart contracts enable two parties to create a digital document that automatically activates when both parties meet its predetermined conditions. Smart contracts remove the need for an intermediary, making transactions purely peer-to-peer (P2P).

BCH also processed transactions faster. A stress test in September 2018 saw BCH process 25,000 transactions per block, far beyond BTC's average of 2,759.12. The stress test aimed to prove BCH’s capability to scale, which ultimately saw 2.1 million transactions take place in 24 hours without transaction fees rising.

BCH aimed to improve in areas where BTC fell short, although straying from BTC’s philosophy brought its own obstacles.

Bitcoin vs. Bitcoin Cash

Remember, blocks in a blockchain are strings of data in a long, continuous chain. In the formative years of cryptocurrency, blocks could store up to 36 megabytes (MB) of transaction data. However, Nakamoto decreased the capacity and allowed blocks to store 1 MB of data. They did this to minimize cyber threats and spam.

The 1 MB cap is still in effect today. However, with increased trading volume, BTC blocks quickly fill the 1 MB limit. The growing number of transactions increases the burden on BTC miners, who are incentivized to generate new blocks irrespective of the data limit.

On the other hand, BCH maintains a 32 MB data transaction limit to enable more transactions per second. This allows BCH to be faster, making it a more viable option for daily transactions. However, increasing the block size and capacity brings problems of its own, such as the network becoming more centralized and security issues.

Larger blocks are quicker, but they compromise decentralization as fewer nodes can handle the number of transactions flowing through the blockchain. Smaller blocks with lower limits aren't as fast, but they allow more nodes to participate and maintain the blockchain's decentralization and security. Fewer nodes increase the risk of centralized parties gaining control of the system and compromising its integrity. This is a threat to the philosophy of crypto and bitcoin itself. . 

In short, decentralization and speed in this case are inversely correlated. The block is faster but less decentralized.

Is Bitcoin Cash Bitcoin’s replacement? 

BCH and BTC may share a similar name; however, the former isn’t the latter’s replacement. BCH proponents claim it’s more in line with Nakamoto’s original philosophy on the whitepaper. Still, in reality, it hasn’t been able to capture enough market share to have a significant impact. Nonetheless, both cryptocurrencies have different features and come in handy for different use cases.

BCH’s higher transaction data limit facilitates bigger blocks and faster processing speeds, making it more convenient for smaller, everyday transactions. However, BTC may be the more suitable option for those looking to make larger purchases or hold onto it due to its store of value over a more extended period.

Not all digital currencies hold consistent value for long-term investments or work like card transactions for on-the-go purchases. As a result, it's logical to use different cryptocurrencies for different purposes. You wouldn’t use your debit card to buy a car or make a bank transfer at the local coffee shop.

In short, BCH hasn't gained much traction.

Forking of the fork

A fork materializes when a developer (or developers) modifies the blockchain’s algorithm or source code. When this occurs, the chain splits, creating a second sequence of blocks containing a replica of the first chain's data, but moving in a different direction.

BCH is a fork of BTC. However, it also underwent a forking of its own when it split into two forks: Bitcoin Cash ABC and Bitcoin Cash Satoshi Vision (Bitcoin SV) in November 2018.

Bitcoin Cash ABC

Bitcoin Cash ABC uses BCH's original client and has undergone various blockchain iterations, including Canonical Transaction Ordering Route (CTOR), which aims to improve on the existing Topological Transaction Ordering (TTOR) by reordering transactions and placing them in a specific sequence to make Bitcoin mining more convenient for block rewards.

Bitcoin Cash Satoshi Vision

Bitcoin Cash Satoshi Vision (Bitcoin SV) is a fork created by Craig Wright, one of the personalities claiming to be the individual behind the original Bitcoin creator. Wright sees Bitcoin SV as a platform exclusively for financial transactions and is opposed to using smart contracts on Bitcoin SV’s blockchain. With the native currency of BSV, Bitcoin SV aims to maintain the stability and scalability potential of BTC’s original algorithm. Craig Wright is viewed by many in the crypto community as a charlatan who’s attempting to capitalize on Satoshi’s pseudonymity for money and power.

How to use Bitcoin Cash

BCH is a listed crypto asset that can be bought, sold, and traded on several well-known cryptocurrency exchanges like Binance (BNB) or Coinbase. To buy Bitcoin Cash, users must create an account on a crypto exchange, which is a straightforward process. However, maintaining anonymity might not be feasible as many crypto exchanges require identification for Know Your Customer (KYC) and Anti-Money Laundering purposes, and in certain cases, residence and salary proof.

One can also look for cryptocurrency ATMs in their local area that dispense BCH. Some countries also support BCH through PayPal.

Using BCH is fairly simple. Once you've signed up to a crypto exchange, you can create a crypto wallet or use Bitcoin.com’s native wallet and then transfer your BCH there.

Many businesses accept BCH and other cryptocurrencies as a form of payment. You'll find various merchants in e-commerce, art, travel, products and services, and more. However, it's important to remember that BCH isn’t as widely accepted as BTC. It falls behind in terms of market share, which is why more businesses accept BTC than BCH.

Wrapping up

BCH is one of many cryptocurrencies striving to improve the crypto ecosystem by offering faster transactions, higher data limits, and cheaper processing costs. However, it’s not the only alternative cryptocurrency.

Introducing Worldcoin, a cryptocurrency that doesn’t just make things cheaper but eliminates costs altogether! At Worldcoin, we aim to contribute to the growing digital economy by increasing participation in the world of crypto, giving every human on the planet a free share of our cryptocurrency. We aim to preserve our users’ privacy and maintain their anonymity.

Stay up-to-date on the latest trends with Worldcoin by subscribing to our blog.

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