Bitcoin Cash is a cryptocurrency implemented as a hard fork of Bitcoin in August 2017, aiming to address Bitcoin’s scaling issues through a larger block size.
Bitcoin Cash positions itself as fulfilling Bitcoin’s original promise of a peer-to-peer version of electronic cash. Bitcoin Cash has a current block size of 32MB, compared to Bitcoin’s 1MB, and is intended to resolve what has become both a philosophical and technical debate surrounding Bitcoin’s ability to scale and process higher transaction volumes. Although Bitcoin’s block weight and throughput increased with the softfork activation of segregated witness in August 2017, Bitcoin still has a fixed block size of one megabyte, put in place by its anonymous creator Satoshi Nakamoto with no specific justification given at the time. Bitcoin developers generally agreed the size’s purpose was to prevent spam transactions or denial-of-service attacks. This fixed block size limited the Bitcoin network to less than five transactions per second. As the Bitcoin network became more popular and started approaching the transaction limit, transaction fees increased and users experienced delays in the processing of their transactions. In contrast to what became the consensus view of the Bitcoin community to tackle throughput limitations via efficiency improvements to the base layer and the development of second-layer networks, the Bitcoin Cash community’s response was to scale the network by increasing the base block size. This approach allows more transactions to flow through the network without causing delays or increased transaction fees and contrasts with Bitcoin’s, which aims to enable scalability through the Lightning Network, where transactions can be securely confirmed without being included in the base chain’s blocks. Broadly, this distinction represents a design difference in scaling at the protocol layer vs scaling at layer.
Since it was created as a hard fork of Bitcoin, Bitcoin Cash inherited the transaction history of Bitcoin up to August 1, 2017. Anyone owning Bitcoin on that date had the same amount of Bitcoin Cash as they had Bitcoin. After this contentious hard fork, Bitcoin Cash and Bitcoin became two entirely separate blockchains. The new Bitcoin Cash chain also implements a modification of Bitcoin’s difficulty adjustment algorithm, making it easier for miners to optimize profitability and mitigate hashrate fluctuations. Like Bitcoin, it uses SHA-256 as the PoW consensus mechanism and has an identical block reward (12.5 BCH), target block time (10 minutes), and supply limit (21 million BCH). At the time of the fork, Bitcoin Cash had a block size of 8MB. Bitcoin Cash is supported by early Bitcoin evangelist Roger Ver and his cryptocurrency services company, Bitcoin.com, and by ASIC manufacturer Bitmain. Despite supporting a 32x greater block size and thus the capacity for greater transaction throughput, Bitcoin Cash supported significantly less daily transactions than Bitcoin in its first year of existence.
The Bitcoin Cash network underwent a protocol upgrade on May 15, 2018, that increased the block size from 8 to 32 megabytes, increased the default OP_Return size from 80 bytes to 220 bytes, and re-enabled some OpCodes that were removed from the Bitcoin protocol prior to the Bitcoin Cash hardfork. The increased block size allows for even greater transaction volume on the Bitcoin Cash network. A larger OP_Return size increases the amount of data that can be embedded into the Bitcoin Cash blockchain, potentially enabling applications to be built on top of the Bitcoin Cash blockchain. Re-enabling OP_Codes expands the possibilities for Bitcoin Cash, including binary options contracts.
Subsequent upgrades have included a change in November 2018 from topological transaction ordering to canonical ordering, to speed-up transaction validation, and the implementation of Schnorr signatures in May 2019, which offers small improvements in privacy, and throughput while opening the possibility to layer two networks by reducing transaction malleability. Outwith core protocol updates, Bitcoin Cash developers have added a protocol for issuing tokens, called the Simple Ledger Protocol, and added support for the trustless privacy-enabling mixing service, CashShuffle.
Mining Bitcoin Cash is similar to mining Bitcoin. Like Bitcoin, Bitcoin Cash mining has been dominated by several large mining pools, members of which utilize application-specific integrated circuits (ASICs). Given the similarities between Bitcoin, Bitcoin Cash, and Bitcoin SV miners can switch between the two with relative ease, directing efforts towards the more profitable network.
Bitcoin Cash Mining
Bitcoin Cash uses an identical hash algorithm (SHA-256) and hardware as Bitcoin. Bitcoin’s PoW system was heavily inspired by Hashcash, developed in 1997, and previously used to limit email spam and denial-of-service attacks. The Bitcoin Cash network emerged long after ASICs dominated the market, and it was broadly accepted that Bitmain was a substantial source of BCH’s early hashing power. Today, all miners capable of mining BTC can mine BCH, and smart pools often switch between them based on relative profitability. Innovations in ASIC efficiency are dominated by firms including Bitmain, InnoSillicon, and Canaan, and as of late 2019, mining pools controlled by Bitmain produce over 40% of blocks.
Bitcoin Cash Supply Schedule
The genesis block of Bitcoin Cash occurred after a hard fork from Bitcoin in August 2017; all addresses with BTC were allocated BCH on the new chain at a 1-1 ratio. Otherwise, Bitcoin Cash follows an identical supply schedule. The Bitcoin Cash protocol mints new Bitcoin Cash every block (approximately 10 min) and distributes 100% to miners. There was no genesis supply. The block reward, which started at 12.5 BCH / block at the hard fork, drops in half every 210,000 blocks (approximately 4 years). This yields an eventual total supply of 21 million BCH, with 20,989,800 by 2052.
Much like with Bitcoin, Bitcoin Cash does not have a formal governance structure, but instead relies on the collaboration between different interest groups, principally; developers and client implementations, miners, service providers, and users.
Following disagreements within the community that involved a debate surrounding additional block size increases, a group that included nChain hard forked from the Bitcoin Cash network in November 2018, forming a new blockchain, Bitcoin SV.
Although there are several Bitcoin Cash clients, the majority of nodes follow either Bitcoin ABC or Bitcoin Unlimited implementations. The Bitcoin ABC development team, in coordination with miners from China, recently published a development funding proposal that has led to significant disagreement within the broader community about the optimal route for developer funding while maintaining the ethos of decentralization.