What is Bitcoin Cash?
Bitcoin Cash is a clone of an older version of Bitcoin on which the team of developers modified some parameters, including the block size. The idea is to be able to allow more transactions to go through on the blockchain without using off-chain solutions such as the Lightning Network deployed on Bitcoin. However, the project lacks traction because the majority of the Bitcoin community has never supported this vision. Bitcoin Cash is nowadays mainly seen as a simple tool for speculation on the crypto market.
Bitcoin Cash, the most famous Bitcoin fork
As a newcomer in the crypto world, you may be confused by the existence of several cryptocurrencies called Bitcoin. This article will mainly talk about Bitcoin Cash but many other “clones” of Bitcoin exist, such as Bitcoin SV. We seek here to understand the reason for their existence and the fundamental differences between these networks before you get lost in a mass of contradictory information on the web and make the decision to buy “a little of everything, just to be sure”.
Bitcoin is an open-source and community-driven project. In a nutshell, the power to make decisions does not rest with one person or organization but must be achieved through global consensus. In the active Bitcoin community, there are developers, miners, and users who may be running a “Bitcoin node”, a principle that we will explain later.
But when controversial decisions have to be made, part of the community may disagree. That’s what happened with Bitcoin Cash. In 2016 and 2017, debates about how to scale up the Bitcoin network intensified, with a majority of people opting for off-chain scaling with solutions such as the Lightning Network and protocol evolutions such as SegWit to help implement them, while a small part of the community wanted a more simplistic and short-term solution consisting of increasing block size. The latter eventually gave birth to the Bitcoin Cash project on August 1, 2017.
Bitcoin Cash is supported by key influencers
If Bitcoin Cash has had, and still has, some success, it is because it has been supported by important actors in the community. Roger Ver, a pioneer in the Bitcoin ecosystem and a major investor who helped to advertise and promote Bitcoin in its early years, is a strong supporter of Bitcoin Cash, even saying that it is the real Bitcoin in accordance with Satoshi Nakamoto’s original vision.
Of course, since the real Bitcoin is the one supported by the majority, this argument is not valid, but Roger Ver has considerable resources. In particular, he owns the bitcoin.com site, which can be confusing for newcomers. In addition to Roger Ver, the Chinese mining giant Bitmain, with Jihan Wu at the lead, has been supporting Bitcoin Cash. This led to Wu’s loss of his position as the CEO of the company.
Bitcoin Cash, what 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 further increased this limit to 32MB. In principle, Bitcoin Cash can therefore accommodate approximately 15 times more transactions than Bitcoin, which has a capacity of around 1.8MB after the implementation of SegWit. However, as shown in the following graph, the blocks are empty and struggle to exceed 100KB, ten times less than 1MB.
Bitcoin-cash-block-size – 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 MB to 8MB
Even if the blocks were full, increasing the size of the blocks each time the Bitcoin network would reach saturation is not a long-term solution. If the use of Bitcoin explodes, infinitely larger blocks would be needed. This would cause huge problems on the network because each block must be broadcast to the different nodes of the network so that everyone is synchronised.
In addition, the size of the blockchain would be disproportionate, leading to centralisation as 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 the scale-up of the Bitcoin network must involve second-level solutions such as the Lightning Network, which is currently operational but still needs improvements for a seamless use.
Coinhouse’s opinion on an investment in Bitcoin Cash
As mentioned above, we consider Bitcoin Cash primarily as a speculative investment. We believe that, on the fundamental part, Bitcoin Cash’s value proposition is very weak compared to Bitcoin because it is not the chain supported by the majority of the Bitcoin community, which is a consensus network. The Bitcoin Cash network has much lower computing power than the Bitcoin’s one as well as fewer users, making it less secure and more sensible to attacks.
Bitcoin Cash stays a speculative investment. On the fundamental aspect, Bitcoin Cash’s value proposition is very weak compared to Bitcoin
All of this does not mean that Bitcoin Cash cannot increase in value at certain times, but this asset is more easily manipulated by unscrupulous investors with significant financial resources. This information should be taken into account before investing in Bitcoin Cash and any Bitcoin fork.
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Why does Bitcoin Cash exist?
A result of Bitcoin’s open-source character
Bitcoin is an open-source software, available in the dedicated directory on the github website. It is therefore very easy to appropriate the code and launch your own iteration of the Bitcoin software by giving it the name that you want. This is referred to as a “fork” of the software.
However, in the context of a cryptocurrency, the software does not do everything. 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 resume the transaction history at a certain point or to start from scratch. In general, Bitcoin forks decide to also fork the chain at a given block of the Bitcoin blockchain so that each person holding bitcoins at that block number automatically benefits from the same number of bitcoins X on the new chain. This makes it possible to acquire users from the very beginning.
A value proposition has to be supported and defended by the team, which is not aligned with the overall vision of the Bitcoin community. Indeed, why would anyone come to use this network, which looks like two drops of water with Bitcoin when it already exists?
A result of Bitcoin’s governance model
Bitcoin is a community project led by a community of independent actors. As such, moving the protocol one way or the other is not an easy task because there are different opinions within the community and no one at the top of the pyramid to impose a decision.
Without a formal mechanism to evolve the protocol, there are different methods to apply protocol evolutions, which can be as simple as updating the Bitcoin Core software (the most popular and used implementation) and possibly as an expression of support from miners via their computing power, or as an expression of support from nodes of the network nodes for decisions that are not unanimously agreed upon.
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. In the same way, network nodes can exert pressure on the team developing the Bitcoin Core implementation, by deciding to focus on a new implementation of the Bitcoin software. Although the majority of the network follows the Bitcoin Core implementation and its evolution, Bitcoin remains a consensus system. The real Bitcoin is the Bitcoin that the majority of the community supports and runs.