What is Bitcoin Cash?
Cryptocurrencies are currently mushrooming and their “inventors” are promising themselves big money driven by the huge Bitcoin hype. With more and more capital in circulation, a battle for the “best” digital currencies has long since broken out. In the process, concepts like that of bitcoin are increasingly reaching their limits due to the enormous growth alone, which necessitates certain changes in the rules and regulations or in the underlying software.
For example, the blockchain technology, which is elementary for counterfeit protection and in which all confirmed transactions are stored chronologically in blocks, is increasingly becoming a kind of bottleneck, as the further development to Bitcoin Cash shows.
Where to buy Bitcoin Cash (BHC)?
You can buy it from major cryptocurrency exchanges like Binance and Coinbase.
Scaling problems lead to the spin-off of Bitcoin Cash
Since the decentrally organized Bitcoin community could not agree on a common approach to the necessary modifications, the new independent offshoot Bitcoin Cash (BCC or BCH) was created on August 1, 2017, through an incompatible fork from the Bitcoin parent. The background was a dispute about the scalability or the change of the mining algorithm.
Because due to the strong increase in payment transactions, the transactions with the original currency became slower and slower and thus more expensive.
The Bitcoin Cash is supposed to solve this problem, in that on the basis of the already existing Bitcoin blockchain up to eight times larger blocks of a maximum of eight megabytes can be written and a simplification in the registration of the transactions takes place. This should also eliminate the increasing bottleneck in Bitcoin trading.
Bitcoin Cash takes off like “phoenix from the ashes”
Specifically, the spin-off was similar to a stock split or the issuance of free shares by splitting into old and new currency units in a value-neutral manner, with the “cloning” of the original Bitcoin blockchain creating an equal number of units of the new Bitcoin Cash currency unit at the outset.
Bitcoin holders who used their own “wallet” or stored their virtual money with an online exchange that supported both types of Bitcoin could therefore automatically access the same number of old and new digital coins after the split.
On the other hand, those who kept their securities accounts with providers that boycotted the new currency initially had to rely on their concession when posting the new money.
The first hard fork quickly paid off for Bitcoin owners, as the Bitcoin Cash price quickly increased in value after its launch. The surprising cancellation of the second Bitcoin split “Segwit2x” planned by the old Bitcoin community for November 2017 also gave the new sister currency wings again recently and made it rise to the third largest cryptocurrency behind Ethereum within seconds.
Different focus for both Bitcoin currencies
How the two still very young Bitcoin currencies will develop further or which one will ultimately prevail remains to be seen.
Analysts primarily point to their different priorities. The Bitcoin pioneer continues to focus on maintaining decentralization in order to keep the Bitcoin network “public, permission-free and censorship-resistant” in the spirit of the Internet, while Bitcoin Cash focuses primarily on speed and low fees.
In doing so, however, the new offshoot also finds itself in a direct competitive situation with already established and inexpensive payment systems such as PayPal, for example, which, due to their centralized orientation, have to expend considerably less effort from a technical point of view.
Thus, even Bitcoin Cash could once again reach its limits despite an increase in block size and no longer be as interesting for “miners”. The distribution of transactions to fewer and fewer nodes and thus the step away from the original decentralization could be the logical consequence.
What are the reasons for the Bitcoin split?
While the majority of the Bitcoin community (over 95%) wants to solve the current problems with slow transactions on the Bitcoin network with SegWit or SegWit2x, mining equipment provider Bitmain, Bitcoin advocate Roger Ver, and Chinese trading site ViaBTC want to go a different way and solve this problem by increasing the block size to 8 megabytes.
To this end, investors need to know that hardware manufacturer Bitmain, which distributes the popular ASIC miner Antminer, among others, profited from the original Bitcoin without SegWit. The reason: Bitmain holds a patent on AsicBoost, a method whereby Bitcoins can be “mined” 20% to 30% more effectively. If Segregated Wittness (SegWit) comes into effect, Bitmain will lose this advantage.
Bitcoin vs Bitcoin Cash – What are the differences?
The difference between Bitcoin (abbreviation: BTC) and Bitcoin Cash (abbreviation: BCH) is not only in the name, there are also differences in the technical specifications.
- Block size increases to 8 megabytes: Bitcoin Cash will increase the block size to 8 megabytes, which means that significantly more transactions can be accommodated in one block. Until now, the block size for Bitcoin has been limited to 1 megabyte. The increase is expected to lead to faster confirmations of transactions.
- Other philosophy: The Bitcoin Cash camp is of the opinion that Bitcoin should be further developed on the blockchain (on-chain scaling) and not off the blockchain (off-chain scaling).
- Abandonment of SegWit: This means that there will be no outsourcing of the signature from the block (SegWit) with Bitcoin Cash.
- At the same time, Bitcoin Cash will have so-called replay and wipeout protection. This is to prevent the two separate Bitcoin blockchains from communicating with each other and transactions from appearing twice. This should ultimately ensure a secure co-existence of the two different blockchains.
- New Transaction Type: As part of the Replay Protection technique, Bitcoin Cash will introduce a new transaction type that should bring improved security for hardware wallets while eliminating hashing issues.
What are Bitcoin’s plans for the future?
The majority developer community behind Bitcoin, on the other hand, wants to further develop the world’s largest cryptocurrency outside the blockchain (off-chain scaling).
-Activation of SegWit: When SegWit is activated, the signature is first removed from the block, freeing up capacity in the main block. This should allow approximately twice as many transactions to be accommodated in one block.
Activation of SegWit2x: Three months later, the next step is to follow with SegWit2x, whereby the block size is to increase to 2 megabytes.
Activation of the Lightning Network: With SegWit2x, the Lightning Network is then also to be activated, whereby transactions are to be possible alongside the actual blockchain. This is supposed to accelerate transactions significantly once again.
Conclusion for Bitcoin Cash
Since Bitcoin Cash was spun off from the current Bitcoin blockchain, the initial value and thus the status quo of the previous Bitcoin blockchain is taken over.
This means: for Bitcoin owners the Bitcoin split is positive, investors get so the stock on each individual Bitcoin address on August 1 the same stock of Bitcoin Cash in addition. So investors who have held 10 Bitcoins will get another 10 Bitcoin Cash on a separate blockchain in addition.
Bitcoin investors can therefore already enjoy a “gift”, because Bitcoin Cash was recently traded at around US$250 on various Bitcoin exchanges, while the price of Bitcoin has recently even risen above the US$3,000 mark. Bitcoin Cash is also the fourth largest cryptocurrency with a market capitalization of around US$3.5 billion.
However, it should also be noted that the original Bitcoin with SegWit has significantly more supporters than the new cryptocurrency Bitcoin Cash. Thus, it remains to be seen whether Bitcoin Cash can hold its own in the long run.
The bottom line is that the scaling debate is likely to be settled only temporarily, because Bitcoin transactions still take too long compared to the classic monetary system.
