If you have just recently jumped into the cryptocurrency wagon ride, you might be unfamiliar with Bitcoin Cash. You’re not the only one – trust me! It’s hard to know what has happened, how Bitcoin Cash was born, and the difference between Bitcoin and Bitcoin Cash, without a background knowledge. This is exactly why we are writing this article. From here, you’ll know exactly what Bitcoin Cash is, how it was born, and its main differences as compared to Bitcoin and other altcoins.
Bitcoin Cash is not an altcoin (a name usually given to alternative cryptocurrencies to Bitcoin). Bitcoin Cash is a hard fork of the Bitcoin network. In order to understand the difference between an altcoin and a hard fork, you need to roughly understand how Bitcoin works.
Hard fork explained
Bitcoin is essentially a ledger. A ledger is a record of all transactions that ever happened. In the Bitcoin network, the ledger, is made up of a chain of blocks – hence the name, blockchain. These blocks contain records of transactions that have happened on the network. Hence, all the transactions that ever took place in the Bitcoin network are traceable from the time they occurred. In order to generate a new block, “miners” have to compete to solve and submit the answer to a hard-computational problem to the network. The mathematical problem in each block is extremely difficult to solve, but once solved, it is easy for the rest of the network to confirm the answer.
There are certain rules that a miner must follow to create a valid block in the Bitcoin network.
What happens when a miner generates a block that others consider invalid? Short answer: other miners will ignore it, continuing to generate new blocks without appending the invalid block onto the chain.
Given this example, if Miner A continues to generate blocks on top of the invalid block, a new chain is created. Both chains are identical up to the last valid block (block 87 from the given example), but from there on, Miner A is mining on a different chain. Any transaction that happens on Miner A’s chain from block 88 onwards will not be reflected on the main chain and vice versa; Miner A has thus created a new cryptocurrency. In order for this chain – or cryptocurrency – to have any value, Miner A has to get enough user base transacting with this new cryptocurrency.
This is essentially what happened with Bitcoin Cash. A big enough minority of the Bitcoin community – including miners – who wanted to mine blocks with different rules, in this case larger blocks.
At one point in time, these miners started mining blocks with a different set of rules; this is commonly called a “fork”. As previously mentioned the Bitcoin and Bitcoin Cash networks are essentially identical, before the Bitcoin Cash community forked. If you have coins in the Bitcoin network before the fork, you will thus have the same amount of coins on the Bitcoin Cash network once it is created. What happens from there on, though, is entirely separate. Thus, whenever you spend your Bitcoins on the Bitcoin blockchain, your Bitcoins on the Bitcoin Cash chain will still be there and vice versa.
Hard fork analogy
If this all sounds too confusing, think of it this way, two friends are riding on a road together, every memory the make, they both share, however they come to a fork at one point of the road, one way leads to the sea the other leads to the mountains, with different opinions on where to go they decide to go their separate ways, from this point onwards any memory they make is their own and is not shared with the other.
The Bitcoin Cash community did exactly this, after years of debate and some unfulfilled agreements, they decide to go their own way. The main difference between Bitcoin and Bitcoin Cash are bigger blocks, Bitcoin has a maximum block size of 1MB (with segwit this may reach a block size of 1.7MB) and Bitcoin Cash has a maximum size of 8MB, easily increased to 32MB since the 8MB limit is enforced only at the miner level.
Why was a bigger block needed?
As Bitcoin grew, more users joined the network and started to transact on it. As can be seen in the graph below, the number of transactions and the block size steadily went up the maximum block size.
Graph 1: Bitcoin Block Size.
Source: Blockchain.com (https://blockchain.info/charts/avg-block-size?timespan=all)
Note: Bitcoin blocks have gone over 1MB from July 2017 onwards, with the activation of SegWit. However, this solution is something the Bitcoin Cash community considers inadequate, as in their view it does not solve the transaction bottleneck longterm.
When the maximum block size was hit, space in the blocks started to become scarce, increasing the network fees, since there was more demand and not enough offer.
Graph 2: Pending Transaction Fee in BTC.
Graph 3: Bitcoin Unconfirmed Transaction Count (Mempool).
The Bitcoin community believes that scaling should happen mainly by use of the so called layer 2 solutions, and Bitcoin should become a settlement layer. While the Bitcoin Cash comunity believes that Bitcoin was intended, as the whitepaper states, to be P2P electronic cash. As such scaling should happen on chain, meaning every transaction should be recorded on the blockchain, and the fees for such use case should remain low, to allow access to everyone.
As you can clearly see in the graph that shows the average transaction fee of Bitcoin and Bitcoin Cash below, Bitcoin Cash transaction fee is much cheaper.
Graph 4: Average amount of fees per block in USD (BTC and BCH).
Bitcoin or Bitcoin Cash?
This question highly polarizes the Bitcoin community. We believe that the value of a cryptocurrency is based on its utility. If you are here to stay, you have to decide whether the utility is to become a more accessible and cheap to use currency, a settlement layer, or a digital gold.
Here at Cryptartica, we have made our choice, should you wish to purchase something from our store, you will have to use Bitcoin Cash. If you are just starting, get to https://bitcoincash.org to set up your Bitcoin Cash wallet. We recommend a mobile wallet if you want to experiment with lower value transactions as a start. Welcome aboard, and enjoy the journey!
You can find a more in dept explanation as to why we use Bitcoin Cash in our blog post, Bitcoin Cash for a Global Business.
*Note: This article is not intended as technical explanation, but simply as easy way for beginners to understand Bitcoin vs Bitcoin Cash.