Throughout this series of articles, we examine the major blockchains in crypto to help you understand the alphabet soup of so-called “altcoins” that exists beyond that of Bitcoin’s BTC and ETH. of Ethereum.
We will see what they are, how they work, what they do and their advantages and disadvantages.
You’ll come out of this series not only with a better idea of what cryptocurrency is, but you’ll also understand why how a token works – how its blockchain handles transactions – is key to its success or success. its failure as a digital asset.
To see: PYMNTS Blockchain Series: What is the BNB chain and why is it no longer Binance?
So what is Bitcoin Cash?
It is a true cash replacement cryptocurrency, designed to be what bitcoin was meant to be before it became a speculative investment.
If you are looking for a payment processor that can handle cryptocurrencies or a company that accepts them, chances are you can use Bitcoin Cash there.
It’s one of four that PayPal users can buy and spend on its merchant network of 32 million members. Really, any payment processor that supports at least half a dozen digital assets almost certainly handles Bitcoin Cash, also known as BCH.
The glaring exception is Block’s CashApp, which follows the Bitcoin Maximalist trends of Jack Dorsey, who argues that bitcoin is the only cryptocurrency investors and spenders will ever need and use.
While the advent of decentralized finance, or DeFi, has pushed BCH quite far up the list of top cryptocurrencies by market capitalization – currently around $6 billion, putting it in 28th place – it remains among the major cryptocurrencies designed specifically for payments, alongside bitcoin (BTC) itself and litecoin (LTC). It remains to be seen, however, what stablecoins and central bank digital currencies will do to this.
The big fork
It is common knowledge that bitcoin, despite being designed as a peer-to-peer digital currency, struggles to fulfill this role. Notably because its transaction speed (seven or eight transactions per second, or TSP) is far too slow, its transaction fees are far too high (currently around $1.50 to $3) its time to finalize settlement much too slow (10 minutes to an hour), and far too volatile thanks to its status as the main investment cryptocurrency.
The thing is, bitcoin’s problems in this regard are a slow-motion wreck that was easy to see coming five years ago. Bitcoin Cash, created in August 2017, was the first truly successful attempt to fix bitcoin rather than replacing it with something better like Litecoin, which was developed in 2011.
Bitcoin Cash was a hard fork of the bitcoin blockchain, meaning it was a deliberate attempt to create a new blockchain by separating from bitcoin. There are more details on how to do this in the link below, but suffice it to say that they shared over 475,000 blocks before Bitcoin Cash split.
See also: PYMNTS Crypto Basics Series: What is a consensus mechanism and why is it destroying the planet?
Which means it works exactly like bitcoin proper, except for a few key differences, all related to scalability. However, it uses the same non-eco-friendly proof-of-work consensus mechanism to verify and add transactions to its blockchain, has a maximum possible supply of 21 million to avoid inflation, and it has a block time. of 10 minutes, which means new transactions are only processed that often.
Bitcoin Cash proponents said the best way to handle this was to increase Bitcoin’s 1MB block size, which at the time allowed between 1,500 and 2,000 transactions per block. That is, every 10 minutes.
So that’s what they did, modifying the code to create an 8MB block size, upgraded to 32MB at the end of 2021. This allows the BCH blockchain to handle around 300 TPS. During a stress test in 2018, BCH was able to handle 25,000 transactions per block. And its transaction fee averages $0.005, which is significantly more useful for buying a cup of coffee than bitcoin’s multi-dollar fee.
If all you want to know is how Bitcoin Cash works, you can stop here. But what it is and how it happened is one of the easiest and most direct ways to learn – without any technical details – how the human side of how large public blockchains work are developed and how this affects the way payments are driven by cryptocurrencies are governed.
And that’s relevant if you’re considering using a public cryptocurrency for payments, the same way a basic understanding of how the Federal Reserve works is relevant for cash.
In 2017, a disagreement arose over how to fix these scalability issues, as it was abundantly clear that bitcoin would never be able to accept credit cards at seven GST.
Two camps have sprung up, one calling for increased block size and the other called Segregated Witness (for reasons you’ll never care), usually shortened to SegWit. Essentially, SegWit was about storing less transaction data and improving security.
SegWit passed and was incorporated into the Bitcoin blockchain as a soft fork – meaning a change in code that does not cause a separate chain to be forked, usually because many node operators who keep full copies of the blockchain accept it and implement software update. Nodes are the origin of decentralization, anyone can establish a node, and each node must agree with all the others or they form their own blockchain via hard fork.
However, that wasn’t enough, and SegWit2x was born, which would add a smaller block size upgrade to 2MB (which didn’t happen). The original faction for the increased block size disagreed, having refused to incorporate SegWit and considered 2MB too small.
In a way, it was for ideological reasons – they believed that only a larger bloc would be able to support Satoshi Nakamoto’s vision of a “purely peer-to-peer version of e-money that would allow online payments to be sent directly from one party to another without going through a financial institution.
As their faction was smaller, the SegWit mob kept the bitcoin name and Bitcoin Cash was born. Of course, a year later, a BCH faction wanted another increase to 128MB, which led to another hard fork, this one creating Bitcoin SV – which stands for Satoshi Vision, meaning it was the only way to be faithful to the objectives of the creator of Bitcoin. And this battle, between the factions led by Bitcoin Cash booster Roger Ver and Bitcoin SV founder Craig Wright, was a truly epic battle of personalities, bad feelings, us versus them mentality, and ultimately more than one. small dispute.