Do you know Bitcoin Cash is the result of the Bitcoin fork that took place last year on 1st August? Bitcoin protocol underwent a hard fork which divided the network in two and as a result, Bitcoin Cash (BCH) came into being.
But now you must be wondering, what caused Bitcoin to split and what are the consequences? Let’s take you a little back and explain to you the reasons behind the split.
Bitcoin Having Scalability Issues
We all know what Bitcoin is – a cryptocurrency; the first decentralized digital currency that works without the involvement of any central authority or banks. Even though Bitcoin went on to become an instant success overnight and has been declared as the one of the most incredible innovations made recently, it also came with some limitations.
Many have criticized Bitcoin for its scalability problem, which is related to the block size. When Bitcoin was first created, the developers set a limit of 1MB to the block size because they wanted to avoid the spam transactions which could clog up the entire Bitcoin network.
Day by day, as the number of transactions increased, the rate at which the blocks filled up with them also increased. People had to actually wait for new blocks to be created so their transactions could easily pass through. This gave rise to a backlog of transactions and the only possible way to get a transaction prioritized was to pay high transaction fee to the miners so they could prioritize your transactions and validated them soon. In other words, people had to attract and incentivize miners to make them validate the transactions soon.
The process of incentivizing the miners introduced the ‘replace-by-fee’ system under which a user had to pay a high transaction fee to the miner for getting the transaction added into the block. While this system is profitable for the miners but it may not be feasible for the users as they have to wait longer and pay a high fee to the miners to get their transactions validated.
The Birth of Bitcoin Cash
Since Bitcoin transactions took much longer to complete and also required fees, which at the end of 2017 reached to $28, it was necessary to come up with an alternate version of cryptocurrency which was faster and cheaper to use compared to Bitcoin. To tackle the Bitcoin’s scalability issue, Bitcoin Cash (BCH) came into being. Apart from that, those who weren’t satisfied with the decision of going ahead with the SegWit update – which would increase the block capacity without changing its size, by altering how the transaction data will be stored – they came up with the idea of launching Bitcoin Cash.
Bitcoin Cash is an alternative Bitcoin, possessing different characteristics. Recently, it’s new version has increased the block size from 1MB to 8MB, meaning it will be able to validate transactions quickly without having to pay high transaction fee. Bitcoin Cash version does not go with the SegWit update.
Another feature that distinguishes Bitcoin Cash protocol from Bitcoin is the difficulty (proof of work) adjustment mechanism. The Bitcoin protocol adjusts the difficulty factor of the mathematical puzzle every 2016 blocks in order to sustain a relatively even flow of blocks in the blockchain. On the other hand, Bitcoin Cash adjusts the puzzle every 600 seconds according to the amount of computing power on the network. The difficulty adjustment in Bitcoin Cash is more agile compared to Bitcoin.
Despite the value of Bitcoin Cash being much lower than Bitcoin at the time of writing, it can still be profitable for the miners because they can effectively process more blocks at a frequent basis and gather more bitcoin cash tokens as a reward.
What’s Next for Bitcoin Cash?
On May 15th 2018, Bitcoin Cash made several upgrades in its protocol via a hard fork, which means the whole network upgraded to a new version to enhance the network’s functionality. Among the most significant changes are the increase of the maximum blocksize from 8MB to 32MB, adding or reactivating numerous Bitcoin script operation codes. Other updates include having a more cultured smart contract capability as well as other features.
As a result of the upgrade, Bitcoin Cash holders are not going to have their coins doubled or receive any other new cryptocurrency. Instead, the value of the old Bitcoin Cash blockchain will become invalid and the token holders would now be able to use their coins on the new blockchain without any problem.
Gradually, Bitcoin Cash has started making its way into the market as some large retailers have also begun accepting payments in this cryptocurrency. Even key industry participants like Circle and Coinbase have been amazed to witness a sudden growth in its demand. There is no doubt that Bitcoin Cash seems to be growing rapidly as it has secured a fourth position on the market cap with price set at $852.88 at the time of writing. However, it still has a long way to go if it intends to reach the place where Bitcoin already is.