A Beginner’s Guide To Bitcoin Cash
Bitcoin Cash improves Bitcoin’s original system by incorporating three main changes: 1. increasing the blockchain size limit to 8 MB, 2. adjusting the difficulty more quickly, and 3. providing replay and wipeout protection with a new way to sign transactions.
BITCOIN CASH WAS CREATED BECAUSE THERE WAS DISAGREEMENT SURROUNDING THE INCORPORATION OF SEGWIT
There are hundreds of cryptocurrencies currently in existence. Most of them aim to solve some of Bitcoin’s inherent technical problems. In spite of being cornered from every imaginable angle from a sea of altcoins, Bitcoin has nevertheless managed to maintain its number one position in terms of market capitalization.
WHAT ARE BITCOIN’S PROBLEMS?
So what are Bitcoins inherent problems? There’s been quite a lot of debate when it comes to answering this question, and a lot of controversy is generated around this topic. Changes in Bitcoin’s core system are extremely calculated and researched. Being the most popular cryptocurrency right now means having to please the public, and therefore changes have to be approved by the community. As a result of these debates and due to an inability of the community to come to an agreement, Bitcoin Cash was born.
THE HISTORY OF BITCOIN CASH
Bitcoin Cash was created when the Bitcoin blockchain as we know it split into two: one continued as Bitcoin, and the other became Bitcoin Cash, a brand new cryptocurrency. This process is called a “fork”, and we’ve seen it happen before.
Ethereum went through a hard fork when the network had disagreements on what to do after the vulnerability exploitation that happened with The DAO project. Ethereum decided to delete The DAO completely and refund all the coins, while some other members of the community were not happy with this decision.
At this point, those who disagreed decided to continue the Ethereum blockchain unchanged, arguing that the nature of the blockchain is to be immutable, and called this branch Ethereum Classic. Ethereum, on the other hand, performed the changes. The two blockchains are the same up until the point of the split, and after that, there are two different chains.
The same thing happened with Bitcoin on the first of August 2017, when a group of people were not happy with the upcoming changes that were going to be performed to the network. These changes focused on the blockchain size limit, and they lead to integrating the SegWit method to the blockchain.
This method, which was already tested on Litecoin, means that each block would have a second block attached to it, like an appendix. This second block contains all the code behind every transaction, while the primary block only publishes to the blockchain the receiver of the transaction. This is done to reduce significantly the content of every block so that the 1 MB can hold a lot more transactions.
The implementation of SegWit to the Bitcoin network was a long way coming. This was a somewhat controversial decision, as it was proposed back in 2015, and it hasn’t been officially implemented until now. All of the debate around this decision comes from the fact that it disrupts the nature of the blockchain, the base of what Bitcoin is. So, the decision to finally incorporate SegWit into Bitcoin provoked disagreement in the community.
A group of people that were not happy with this change, and thought they could solve the problem of the block size limit a different way, performed a fork of Bitcoin Core, introducing Bitcoin Cash to the world.
People who had bitcoin on private wallets at the time of the fork, now have the same amount in Bitcoin Cash’s currency, the BCH. This is not the case for people who had their bitcoins in an exchange, as it depends on the service provider whether or not to follow the new blockchain. As of right now, the exchanges that support Bitcoin Cash include Kraken, CoinOne, and Korbit.
THE MAIN CHANGES AND FEATURES IT OFFERS
Bitcoin Cash improves Bitcoin’s original system by incorporating mainly three changes: 1. increasing the blockchain size limit to 8 MB, 2. adjusting the difficulty more quickly, and 3. providing replay and wipeout protection with a new way to sign transactions.
The primary reason this forked occurred in the first place was due to the disagreement surrounding the incorporation of Segwit. As this method tackled the block size limit problem, it would be logical that Bitcoin Cash would have a different solution to this. They managed to have a block size limit of 8 MB, instead of the 1 MB of Bitcoin.
Right now Bitcoin’s difficulty adjusts every 2016 transactions. This makes it harder for the difficulty to be lower when there aren’t transactions happening. Bitcoin Cash makes adjustments every couple of transactions so that when people aren’t buying BTC, the difficulty reduces.
When forks happen, there’s a high risk of two types of attack: 1. replay attacks, where transactions made on one blockchain are replayed into the other, and 2. wipeout attacks, where transactions made on one blockchain can be eliminated through the other. Bitcoin Cash prevented this by implementing SigHash, a way to sign transactions different from the way people sign on Bitcoin.
WHY IS THIS FORK SO POPULAR?
By now, there are a number of cryptocurrencies that were created as a result of forking Bitcoin core. For example, Litecoin is a fork of the bitcoin core. So why is Bitcoin Cash any different from any of these other alt coins? One reason is due to the fact that the changes it implemeneted seem to be incredibly popular. Within a very short period of time Bitcoin Cash quickly secured position number three on Coin Market Cap, with a capitalization of more than $10 billion. Not a shabby launch for a new alt coin.
However, the reasons for success cannot be fully attributed to the fact that people flocked to the new features of Bitcoin Cash. There are other considerations as well. As we mentioned before, people with bitcoins to their name in private wallets received the same amount of BCH. This gave Bitcoin Cash a lot of attention, referring to this outcome of the fork as receiving “free money”.
Secondly, the timing of the hard fork can be an influence on its popularity. Bitcoin Cash was launched at the same time Bitcoin activated what they called the BIP 148, which was a highly publicized event. This improvement came after a long period of negotiation and included the incorporation of the popular SegWit program. By synchronizing these two events, the launch of Bitcoin Cash gained popularity. There is nothing wrong with marketing done right, but this undoubtedly helped Bitcoin Cash gain a foothold.
OTHER BITCOIN FORKS DON’T TRY TO SO CLOSELY ASSOCIATE THEMSELVES WITH THEIR PARENT
Whatever the reason for Bitcoin Cash’s popularity and market capitalization, the real question should be if this is enough to hold its place. If the success of this Bitcoin fork depends on marketing strategies, maybe we’ll see Bitcoin Cash dropping on the Market Cap, and even stepping out of the top-5 amongst other alt coins who are also bitcoin forks but with names that don’t so closely associate themselves to their parent. Time will tell.
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