What is Bitcoin Cash ?
Bitcoin Cash (BCH) is a clone of an older version of Bitcoin on which the developer team has modified some parameters, including block size. The idea is to be able to accommodate more transactions in the parent blockchain without having to resort to “off-chain” solutions like the Lightning Network deployed on Bitcoin. However, the project lacks traction as most of the Bitcoin community has never supported this vision. Bitcoin Cash is now seen primarily as a tool for market speculation.
Bitcoin Cash, the most famous Bitcoin fork
As a newcomer to the world of crypto-currencies, you may be confused by the existence of several crypto-currencies bearing the name Bitcoin. This article will mainly talk about Bitcoin Cash but many other Bitcoin “clones” exist, like Bitcoin SV. Here we seek to understand the reason for their existence as well as the fundamental differences between these networks in order to give you as much qualitative information as possible and avoid buying “a little bit of everything, just to be safe”.
Bitcoin is an open-source, community-based project. Simply put, the power to make decisions does not rest with any one person or organization, but must be achieved by global consensus. In the active Bitcoin community, there are developers, miners, and users who may have a “network node,” a principle we will explain later.
Thus, when controversial decisions have to be made, some of the community may disagree. This is what happened with Bitcoin Cash. In 2016 and 2017, debates around the methods of scaling the Bitcoin network intensified, with a majority of people opting for “off-chain” scaling with solutions like the Lightning Network and protocol evolutions like SegWit to help implement them, while a tiny portion of the community wanted a more simplistic and less long-term solution of increasing block sizes. These eventually gave birth to the Bitcoin Cash project on August 1, 2017.
Bitcoin Cash supported by influencers
If Bitcoin Cash has had, and still has some success, it is because it has been supported by influential players in the community. For example, Roger Ver, a pioneer in the Bitcoin ecosystem and a major investor who helped publicize Bitcoin in its early years, is a strong advocate of Bitcoin Cash, going so far as to say that it is the real Bitcoin in accordance with the original vision of Satoshi Nakamoto.
Of course, since the real Bitcoin is the one supported by the majority, this argument is not valid. But Roger Ver has considerable resources. He owns bitcoin.com, which can be confusing for newcomers. In addition to Roger Ver, the Chinese mining giant Bitmain, with Jihan Wu at the helm, has long supported Bitcoin Cash. This caused him to lose his position as CEO of the company.
Bitcoin Cash, what are the technical differences with Bitcoin?
The differences between Bitcoin and Bitcoin Cash are minimal. At the time of the fork, it was only an increase in block size from 1 megabyte (MB) to 8MB. Since then, Bitcoin Cash has increased this limit further to 32MB. In principle, Bitcoin Cash can therefore accommodate about 15 times more transactions than Bitcoin, which has a capacity of about 1.8MB, after the implementation of SegWit. However, as the following graph shows, the blocks are empty and struggle to exceed 100KB, which is ten times less than 1MB.
Even if the blocks were full, increasing the block size every time the Bitcoin network reaches saturation is not a long-term solution. If Bitcoin usage explodes, infinitely larger blocks would be needed. This would cause huge problems for the network, as each block would have to be distributed to the different nodes in the network so that everyone would be in sync.
Moreover, the size of the blockchain would be disproportionately large, which would lead to centralization because fewer people would be willing to hold a copy of the blockchain. This would weaken the network. For these reasons, the majority of the Bitcoin community agrees that scaling the Bitcoin network should be done through second-tier solutions like the Lightning Network, which is operational today.
Coinhouse’s opinion on investing in Bitcoin Cash
As mentioned above, we consider Bitcoin Cash to be primarily a speculative investment. We believe that, on the fundamental side, the value proposition of Bitcoin Cash is very weak compared to Bitcoin because it is not the chain supported by the majority of the Bitcoin community, being a consensus network. The Bitcoin Cash network has much less computing power than Bitcoin and fewer users, making it less secure and more prone to attack.
“Bitcoin Cash is primarily a speculative investment and, on the fundamental part, its value proposition is very weak compared to Bitcoin.”
All of this is not to say that Bitcoin Cash cannot increase in value at certain times. Interested investors can approach Coinhouse’s premium service to get a follow-up on buying and selling Bitcoin Cash, and relevant market and project analysis. But this asset is more easily manipulated by unscrupulous investors with large financial resources. This information should be taken into account before investing in Bitcoin Cash and any Bitcoin fork.
Bitcoin Cash, why does it exist?
A consequence of Bitcoin’s open-source nature
Bitcoin is open-source software, available on the github website. It is thus very easy to appropriate the code, to modify characteristics (or not) to create its own project, by giving it the name which one wishes. This is called a “fork” of the software.
In the context of a cryptocurrency, the software is not everything, however. It is also necessary to convince miners to dedicate computing power to the chain in order to secure it, as well as to decide to take back the history of transactions at a certain point or from the beginning.
In general, Bitcoin forks take place on a particular block of the Bitcoin blockchain so that everyone holding Bitcoins at that time automatically gets the same number of “X” Bitcoins on the new chain. This allows for holders of the new cryptocurrency to drive the market from its inception.
A value proposition must be carried and defended by the team behind the new project, which is not necessarily aligned with the overall vision of the Bitcoin community. Indeed, why would anyone use a network that looks like Bitcoin when it already exists?
A consequence of Bitcoin’s governance model
Bitcoin is a community project run by independent people. On this basis, evolving the protocol in one direction or another is not an easy task, as there are different opinions within the community and no one has the authority to impose their decisions.
Since there is no formal mechanism for evolving the protocol, there are various methods for implementing protocol changes, which may include a simple update of the Bitcoin Core software (the most popular and widely used) and possibly a show of support from miners via their computing power, or a show of support from network nodes for decisions that are not unanimously supported.
In any case, anyone can propose a different implementation of the Bitcoin software and try to convince the network nodes to align themselves with it. Similarly, the nodes in the network can put pressure on the team developing the Bitcoin Core implementation, by deciding to go with a new implementation of the Bitcoin software. Thus, although the majority of the network follows the Bitcoin Core implementation and its evolutions, Bitcoin remains a consensus system. The real Bitcoin is the Bitcoin that the majority of the community supports and runs.