WHAT IS BITCOIN CASH (BCH) – EVERYTHING YOU NEED TO KNOW
Bitcoin Cash
I am sure if you are reading this, you might know about the current Bitcoin scaling issue. This issue is not new, but it seems like it is about to reach its climax.
Multiple users, miners, and developers are clinging to multiple solutions to solve the overarching Bitcoin scaling debate. And everyone is deciding which side to join in the chaotic situation of this upcoming Bitcoin fork.
Best Bitcoin Cash Wallets (BCH): Free Money For Every Bitcoiner! WooHoo!
Where To Sell Bitcoin Cash (BCH) [Full list of Best BCH exchanges]
Which side are you joining?
If you don’t understand what I am talking about, check out the scaling debate and the fork issue here.
So here are some technical jargons you may have seen:
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UAHF-User activated hard fork
The New York Agreement
SegWit
SegWit2x
BIP 141
BIP 91
BIP 148
These don’t help normal users and do little good. In my opinion, this has only led to a lot of the present day’s FUD (fear, uncertainty, and doubt) in every Bitcoiner’s mind who doesn’t understand these jargons.
So I thought of covering the latest on this Bitcoin drama without getting deep into these technical jargons for now. (Soon, I will publish a separate guide on all these jargons related to the BTC fork…)
For now, you should just know that our original dearest- Bitcoin (BTC), which Satoshi Nakamoto created, is likely going to split on August 1, 2017.
The new split of Bitcoin will be called Bitcoin Cash.
Read: How To Get Your Free Bitcoin Cash on Ledger Nano S Wallet
Wondering what that is?
All you need to know about Bitcoin Cash (BCH)
What is Bitcoin Cash?
Bitcoin Cash is a new cryptocurrency denoted, as of now, as BCH.
A group of influential miners, developers, investors, and users who are against the agreed consensus (aka BIP-91 or SegWit2x) have decided to fork the original Bitcoin blockchain and create a new version called “Bitcoin Cash”.
The official Bitcoin Cash’s website defines itself as:
Bitcoin Cash is peer-to-peer electronic cash for the Internet. It is fully decentralized, with no central bank and requires no trusted third parties to operate.
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The official date and time for the fork is:
For your information, it will be a miner activated hard fork (aka MAHF) that will happen without the agreement of a majority of miners or hash power.
Benefits & Features of Bitcoin Cash
Bitcoin Cash will be a fork of the original Bitcoin blockchain with some changes and additional features here and there.
Mind you, these changes might look small and insignificant, but in reality, these small things have been the reason for a massive debate on Bitcoin scaling for many years.
1. New Name – With a new name to Bitcoin’s offspring, i.e. Bitcoin Cash, it seems to appeal to a stratum of users who believe that Bitcoin should be a cash-like thing that’s easy to exchange with minimal or no fees. Suffixing ‘Cash’ to Bitcoin encourages this usage.
2. Block Size Limit Increase – A certain group of users, miners, and developers have always advocated for a bigger block size in BTC. Now with Bitcoin Cash, they will start off with an immediate increase of the block size limit to 8MB.
3. Replay and Wipeout Protection – If and when BCH splits, they have a well thought out replay and wipeout protection plan for both chains. With this, everyone involved will have minimum disruptions and both the chains can peacefully coexistence from there.
4. New Transaction Type – As part of the replay protection technology, Bitcoin Cash has introduced a new transaction type with additional benefits such as input value signing for improved hardware wallet security, and elimination of the quadratic hashing problem.
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Websites from where you can buy Bitcoin Cash:
Changelly
CEX
Bitfinex
Binance
Why Bitcoin Cash Is Not Bitcoin [BTC vs. BCH – Differences That You Should Know]
BTC vs BCH - Bitcoin vs Bitcoin Cash
The crypto-sphere is heating up and simultaneously becoming more confusing as it evolves.
I am sad to see how the viruses of confusion and myth are purposely injected into the ecosystem and how the whole system is manipulated as well as hijacked on a regular basis.
Specifically, I am talking about the recent insane price spike of Bitcoin Cash and the doomed price fall of Bitcoin in just a matter of hours.
Some of you who are old players of the crypto-sphere must have benefitted from this sudden rise and fall, but I think it’s not good for newcomers, and it’s not healthy for Bitcoin in the long term.
That’s why in this write-up I wish to convey some of my thoughts on how Bitcoin Cash is not Bitcoin. And I also want to clarify why the newcomers should not fall prey to the Bitcoin Cash PR campaign.
For the latecomers, I want to first explain what Bitcoin Cash is and show you some facts. Then, I’ll explain Bitcoin and leave it to you to decide for yourself.
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Who/What is Bitcoin Cash?
Bitcoin Cash is a Bitcoin fork which was created this year on the 1st of August by a minority group of influential miners, developers, investors, and users who were against the agreed consensus of SegWit implementation to scale Bitcoin.
Namely, there are three main players in the Bitcoin Cash community – Roger Ver, Jihan Wu, and Deadal Nix.
They decided to fork the original Bitcoin blockchain and create a new version called “Bitcoin Cash” (aka BCH) with an adjustable block size up to 8 MB blocks.
Some of the benefits & features of Bitcoin Cash…
This on-chain increase in the ability of Bitcoin Cash provides several benefits to its users against ‘Bitcoin’, but these benefits come at a huge price that its users have to pay. (I will explain this ‘huge price’ further in the article.)
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Bitcoin-Cash-Features
Some more benefits…
On-chain scalability
New transaction signatures
Emergency Difficulty Adjustment (EDA)
Decentralized development
For more details, read our extensive guide on Bitcoin Cash:
Bitcoin Cash (BCH): Everything You Need To Know
Price One Needs To Pay To Enjoy BCH Benefits
Ignoring the fact that many of you would have made a good amount of money in the recent Bitcoin Cash rally, one needs to pay a huge cost for using Bitcoin Cash.
This cost cannot be measured in dollars, euros, or yens, but instead, it is a cost that you pay by compromising the original dream of Satoshi Nakamoto – to make an uncensorable alternative monetary system which isn’t controlled by an individual or a group of people.
Some of you might say that I am incorrect because Bitcoin Cash’s official site claims that they are carrying forward Satoshi’s Vision by stating:
Some of the developers {of couse the Bitcoin Core Devs} did not understand and agree with the original vision of peer-to-peer electronic cash that Satoshi Nakamoto had created.
Bitcoin Cash is the continuation of the Bitcoin project as peer-to-peer digital cash.
But actually speaking, they are not even close to Satoshi’s original vision of decentralized and uncensored money.
Bitcoin Cash is extremely censored.
Wait! Some of you might say that I am biased and I am just a Bitcoin fan, but I have facts!
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Want To Know The Facts?
1. A decentralized cryptocurrency having a CEO? Really?!?!
Do you really need a CEO for a currency? If you do, then what’s the difference between a business and a crypto?
An official statement from the CEO of Bitcoin Cash: how we resolve...
Posted in r/btc by u/Falkvinge • 282 points and 204 comments
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2. Centralized mining
Bitcoin Cash mining is highly centralized. If you look at the above image, you will certainly be able to put in perspective what I am talking about.
This is the hash power distribution for Bitcoin Cash mining for the last 144 blocks mined.
If we combine the hash power of Antpool, ViaBTC, and BTC.com, which makes more than 50% hash power, this is detrimental for any coin. To make a 51% attack on Bitcoin Cash would be a decision of three mining parties coming together.
Given all that, the only possible outcome is that one coin will go to $0 in the long term. My bet is obviously on Bitcoin. All the short term price movement doesn't really matter. I'm not trading it.
The argument is that Bitcoin also had such hashrate distribution in its early days; but don’t forget that Bitcoin was trading in pennies at that time. Anyone attacking BTC at that time had no incentive in doing so because it was almost worthless.
But now that Bitcoin Cash is trading well above $1000, it’s very susceptible to 51% attacks, which is not good. Read more about 51% attacks here.
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3. Total full nodes are fewer than Bitcoin
Bitcoin has more than 10,000 active full nodes running, which is one of the most important factors of a truly decentralized currency. This means that anyone attacking Bitcoin would need to have the ability to hijack more than 50% of the 10,000 nodes that are running across the globe.
On the other hand, Bitcoin Cash only has around 1200 nodes as per Coin.Dance’s node summary.
Bitcoin-Cash-Nodes
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4. Hard forks without polls
Who does hard forks or upgrades in the currency protocols without polls?
Well, Bitcoin Cash does.
Bitcoin Cash had their hard fork (or protocol upgrade) on 13th November 2017.
The upgrade/fork was done to change the underlying mining algorithm to make it more competitive against Bitcoin and to prevent it from miners’ abuse in the event of reduced or increased difficulty. Read more about the Bitcoin Cash fork here.
Well, I am not against Bitcoin Cash changing something and trying to be competitive, but they should not try being competitive in this way – by doing things without polling the community.
If something is getting upgraded in the protocol, then it has to happen with proper polling and agreements. But this official write-up shows that they didn’t have any such polls.
Also, this write-up gives a hint that there is actually no need for polling because their community is so small and censored. In reality, there are only three individuals who made the decision. (Their names aren’t there but everyone knows who these three were – Roger Ver, Jihan Wu, and Deadal Nix.)
You can see how easy it is to upgrade Bitcoin Cash. Their community is comprised of 3 people. They are the miners, the developers, and the users. Funny!!
Now Let’s See… Who/What is Bitcoin?
Bitcoin is the DADDY of cryptocurrencies. Some of the facts that make Bitcoin truly decentralized and much better than Bitcoin Cash are:
It is truly decentralized with its hash power widely distributed when compared to Bitcoin Cash. See here for the hash power distribution of Bitcoin which makes it quite difficult for a single mining rig to overpower others with a 51% rate.
It has (by far) the most number of full nodes in this crypto-sphere which makes it difficult to be attacked by governments or centralized organizations.
Bitcoin continues to live on Satoshi’s original code of 1 MB blocks and simultaneously keeps exploring new avenues for off-chain scalability solutions.
Bitcoin is not a company, and hence, no CEO or a certain group of people control it.
Bitcoin upgrades or forks happen due to pollings and BIP proposals which are transparent for all to see. Track the polls here.
Additionally, Bitcoin has no direct ties to Roger Ver or some other human, unlike Bitcoin Cash. Of course, Satoshi Nakamoto was there in the beginning, but he/she did the smart thing by not revealing his/her identity because he/she well understood how important it is for a nationless currency to not to have any strings attached to any single entity.
I know that some of you might be thinking that I am a huge Bitcoin fan and that’s why I am biased towards Bitcoin Cash, but I want you to make one thing clear: I am not really that biased.
I certainly think that Bitcoin Cash has a future, but if it is trying to be ‘Bitcoin’ and continue down this same path that it’s on now, it’s not going to end well.
If you are a Bitcoin Cash fan, then you should try to convince the community that BCH is BCH… it can’t be Bitcoin. And if Bitcoin Cash continues to be an altcoin and not attack Bitcoin, then I don’t think there are any problems.
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Even Andreas suggested this to both communities.
Bitcoin and Bitcoin Cash will coexist and serve different use cases, just like Bitcoin and Ethereum. Its not a zero sum game. Work on building your project, not on destroying the other
On the other hand, I am not naive or ignorant about current challenges that Bitcoin is facing in terms of scalability (despite SegWit implementation).
I am also aware that a huge number of Bitcoin txs are stuck in the mempool.
But let’s remember that it wasn’t always so easy to send emails in the early days of the internet. Similarly, Bitcoin will scale with the much-anticipated Lightning networks or sidechains in the future. And yes, those scaling solutions need to happen soon, otherwise, there will be more drama like this for ages to come.
Also for the newcomers: Stay away from Roger Ver’s owned domain Bitcoin.com that is trying spread this FUD and exclaiming that ‘Bitcoin Cash is Bitcoin‘.
So that’s all from my side in this article.
If you are with me and understand Bitcoin’s true nature, then do retweet/share this write-up with the Bitcoin community, and join hands in finding permanent solutions to Bitcoin’s scalability.
Is Anyone Supporting BCH?
You may think that no one would support this new kid in the crypto market. But that’s not true!
BCH is getting enough support from users, miners, and developers. And in reality, to start with, you only need support from these key players.
Moreover, it wouldn’t be fair to dismiss a currency which has not yet been born and has yet to be traded in the market.
For your information, CoinMarketCap lists the futures options of Bitcoin Cash.
Notable Supporters (Exchanges, Mining Pools, and Wallets)
Bitmain – This is the Chinese miner manufacturing company which owns AntPool, the world’s largest mining pool with 23% hash power. They have also announced that they will be supporting BCH mining.
Bitcoin.com (Roger Ver’s Pool) – They operate a small mining pool and have announced that they are open to supporting Bitcoin Cash in the case the user demand surges.
Together, these four pools in total make 30% of the entire hash power, which is not small. So far, there is no official confirmation that they will be giving all of their hash power to BCH mining. But if that happens, BCH is here to stay.
Best Bitcoin Cash Wallets (BCH): Free Money For Every Bitcoiner! WooHoo!
Where To Sell Bitcoin Cash (BCH) [Full list of supported BCH exchanges]
What does it mean for Bitcoin (BTC) holders?
As the official website of Bitcoin Cash states:
All current Bitcoin holders will automatically own Bitcoin Cash. The existing ledger at the time of the split is preserved, thus users retain any balances they had before the split.
So it means that if you hold Bitcoins, after the split/fork, you will have both BTC and BCH balances; in other words, your coin holdings will double.
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Wowowow… double!!
You may think this is a good thing as your value will also double.
Note: Doubling of coins does not mean doubling of value. The value of both BTC and BCH will be determined after the split based on demand/supply in the market and on user sentiments.
What can happen and what do you need to do?
You do not need to do much, but you need to be updated and agile about all of this. If you want access to your BCH coins, you will require your private keys.
And here’s the important part: Both of your coins (BTC and BCH) will have the same private keys.
Moreover, due to this fork/split, another problem called Replay Attacks can happen.
Though, in their FAQ section, Bitcoin Cash says that they have replay protection in place, but we are not sure how effective it is as it is still not been tested in live.
How is transaction replay being handled between the new and the old blockchain?
Bitcoin Cash transactions use a new flag SIGHASH_FORKID, which is non standard to the legacy blockchain. This prevents Bitcoin Cash transactions from being replayed on the Bitcoin blockchain and vice versa.
So to avoid replay attacks and access your BCH coins, we suggest you take care of the following things:
Avoid transactions for some days till the dust settles to avoid replay attacks.
Keep your Bitcoin private keys with you, not in a third party exchange like Coinbase.
Use hardware wallets like Ledger Nano S and Trezor if you can, to access your Bitcoin Cash ( aka BCH coins). Both wallet providers have said that they would support BCH in case there is user demand. Read Ledger Nano S guide and BCH guide here.
If you don’t have a hardware wallet, use software wallets like Jaxx or Exodus to control your private keys.
You can also use a paper wallet or brain wallet.
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If you hold your keys in a paper wallet or software wallet, wait for instructions from them on how to access your BCH coins. Order Ledger Nano S | Order Trezor from the official site
Future of Bitcoin Cash
Predicting or commenting on the future of Bitcoin Cash is impossible.
The only certain future prediction as of now is that if you owned any Bitcoin before the fork on 2017-08-01 12:20 p.m. UTC, then you will surely have the same amount of BTC and BCH after the fork.
For more details on how you will be able to access BCH, keep an eye on our blog.
Note: This last part of the article is for advanced users who are aware of Bitcoin’s fork-ology terms. For non-technical users, I will be explaining terms such as Segwit2x, UASF, UAHF, etc. in an another article. For now, I have shared with you actionable things to avoid any loss in case a fork happens. So if you wish, you may skip this part.
Continuing forward …..on how we reached here!
Some of you who are aware of some dynamics of the BTC fork might be thinking why I am talking about this fork now. Well, we heard a few days back the news that BTC isn’t splitting due to BIP 91 or SegWit2x or BIP 141 or whatever.
Well, that was true, and it is still sort of true. But, there was another proposal on how to scale Bitcoin called BIP 148 (aka UASF) which intended to activate SegWit on August 1, 2017, without seeking the majority of miners by updating their full node software.
In response, Bitmain (and others) came up with a contingency plan to save some miners and users who otherwise would have gotten wiped out in case BIP 148 was activated. They called this plan a UAHF (user-activated hard fork). That means they will be supporting and implementing BCH.
But, as BIP 91 (the first part of SegWit2x) is already locked in and on the path of activation, it means that there would be no need for Bitman’s contingency plan because BIP 148 won’t be activated now. On the other hand, BIP 148’s original aim is already being achieved by the activation of BIP 91 (or BIP 141 or SegWit2x), so there is no point, it seems, in activating it.
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However, now it appears that this plan will still be carried out on August 1, 2017, because this group is fundamentally against the idea of SegWit (or SegWit2x) and sees a block size increase as the only option.
The only ray of hope to stop this fork seems to be that Bitcoin core developers, miners, users, etc. who voted in favor of BIP 91 need to suddenly agree on August 1 to reject SegWit and accept the increasing of block size to 8 MB. And believe me, this is very unlikely.
August 1st will be a historic day in the lifetime of Bitcoin and its users. If people find BCH more profitable and appealing, it could take off, or if it turns out to not offer anything useful to the world, it could just die an unnamed death.
But no one knows…
So until that time, stay tuned at CoinSutra to keep with the Bitcoin revolution!
Bitcoin vs. Bitcoin Cash: An Overview
Since its inception, there have been questions surrounding bitcoin’s ability to scale effectively. Bitcoin is a cryptocurrency that exists within a network of computers, within the blockchain. This is revolutionary ledger-recording technology. It makes ledgers far more difficult to manipulate for a couple of reasons: The reality of what has transpired is verified by majority rule, not by an individual actor. And this network is decentralized; it exists on computers all over the world.
The problem with this technology is that it’s slow. Like, really slow, especially in comparison to banks that deal with credit card transactions. Visa processes 150 million transactions per day, averaging roughly 1,700 transactions per second. And their capability far surpasses that, at 24,000 transactions per second.
How many transactions can the bitcoin network process per second? Seven. Transactions take about 10 minutes to process. And as the network of bitcoin users grows, waiting times will get longer, because there are more transactions to process without a change in the underlying technology that processes them.
Ongoing debates around bitcoin’s technology have been concerned with this central problem of scaling and increasing the speed of the transaction verification process. There are two major solutions to this problem, either to make the amount of data that need to be verified in each block smaller, making transactions faster and cheaper or to make the blocks of data bigger, so that more information can be processed at one time.
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Bitcoin
In mid-July 2017, mining pools and companies representing roughly 80% to 90% of bitcoin computing power voted to incorporate a technology known as a segregated witness, called SegWit2x. SegWit2x makes the amount of data that needs to be verified in each block smaller, by removing signature data from the block of data that needs to be processed in each transaction and having it attached in an extended block. Signature data has been estimated to account for up to 65% of data processed in each block, so this is not an insignificant technological shift. Talk of doubling the size of blocks from 1mb to 2mb ramped up in 2017 and 2018, and as of February 2019, the average block size of Bitcoin increased to 1.305mb, surpassing previous records. The larger block size helps in terms of improving bitcoin’s scalability. In September 2017, research released by cryptocurrency exchange BitMex showed that SegWit implementation had helped increase the block size, amid a steady adoption rate for the technology.
In late 2017, Bitcoin scientists from Bitcoin Unlimited revealed they had mined the world's first 1GB block, 1,000 times bigger than the normal size.
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Bitcoin Cash
Bitcoin cash is a different story. Bitcoin cash was started by bitcoin miners and developers equally concerned with the future of the cryptocurrency, and its ability to scale effectively. These individuals had their reservations about the adoption of a segregated witness technology, though. They felt as though SegWit2x did not address the fundamental problem of scalability in a meaningful way, nor did it follow the roadmap initially outlined by Satoshi Nakamoto, the anonymous party that first proposed the blockchain technology behind cryptocurrency. Furthermore, the process of introducing SegWit2x as the road forward was anything but transparent, and there were concerns that its introduction undermined the decentralization and democratization of the currency.
In August of 2017, some miners and developers initiated what is known as a hard fork, effectively creating a new currency: Bitcoin cash. Bitcoin cash has implemented an increased block size of 8mb, to accelerate the verification process, with an adjustable level of difficulty to ensure the chain’s survival and transaction verification speed, regardless of the number of miners supporting it. This has raised concerns about the security of Bitcoin Cash.
Special Considerations
This development could mean any number of things for the future of cryptocurrency. The situation is very fluid, and market valuations are both constantly calibrating and volatile. It’s going to be difficult to get a clear picture until bitcoin cash has been running for a while (or fails), the impact of bitcoin's segregated witness technology is assessed, and the size of Bitcoin's blocks reach 2mb.
Improving cryptocurrency as a transaction medium will depend on maintaining the high level of security that bitcoin has always ensured, while also improving transaction speeds. Bitcoin will continue to be highly secure, but how much its transaction speeds will improve is unclear. Bitcoin cash could ultimately have transactions processing in two minutes and 30 seconds. The security of the Bitcoin cash blockchain, though, is unclear.
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It will also depend on miners’ and users’ vision for the currency. If bitcoin really does undermine the decentralized nature of the network, and the democratic possibilities of the blockchain technology, people may look elsewhere for a cryptocurrency with more exciting potential.
Key Takeaways
Bitcoin is a cryptocurrency that exists within a network of computers, within the blockchain. Bitcoin cash was started by bitcoin miners and developers concerned about the future of the Bitcoin cryptocurrency, and its ability to scale effectively.
What is Bitcoin Cash? A Basic Beginners Guide
BitcoinBlockchain for Intermediate
Bitcoin is, without a doubt, one of the most incredible innovations in the recent past. However, it has also come under a lot of criticism for its scalability issues which has given rise to a lot of debates which are politically as well as ideologically motivated. Finally, on August 1, 2017, bitcoin went through a hard fork which gave birth to Bitcoin Cash. We are not going to be telling you which side is right and which side is wrong, that is totally up to you. In this guide, we are going to be telling you about all the incidents that have led up to the creation of Bitcoin Cash. This is purely for educational purposes.
How do bitcoin transactions work?
Bitcoin was introduced by an unknown man/woman/group going by the pseudonym, Satoshi Nakamoto in their, now legendary, research paper “Bitcoin: A Peer-to-Peer Electronic Cash System”. What bitcoin provided was a peer-to-peer decentralized, digital currency system. The entire system of bitcoin functions due to the work done by a group of people called “miners”.
So what do these miners do? The two biggest activities that they do are:
Mining for blocks.
Adding transactions to the blocks.
All the miners use their computing power to look for new blocks to add to the blockchain. The process follows the “proof of work” protocol and once a new block has been discovered, the miners responsible for the discovery get a reward, currently set at 12.5 bitcoins (it is halved after every 210,000 blocks), however, this isn’t the only incentive that the miners have.
Adding transactions to the blocks
When a group of miners discover and mine a new a new block, they become temporary dictators of that block. Suppose Alice has to send 5 bitcoins to Bob, she isn’t physically sending him any money, the miners have to actually add this transaction to the blocks in the chain and only then is this transaction deemed complete. In order to add these transactions to the blocks, the miners can charge a fee. If you want your transaction to be added quickly to these blocks, then you can give the miners a higher fee to “cut in line” so to speak.
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For a transaction to be valid, it must be added to a block in the chain. However, this is when a problem arises, a block in the chain has a size limit of 1 mb and there are only so many transactions that can go at once. This was manageable before, but then something happened which made this a huge problem, bitcoin became famous!
The bitcoin scalability problem aka does size matter?
Yes, bitcoin became popular and with that came its own series of problems. In this graph you can see the number of transactions happening per month:
What is Bitcoin Cash? A Basic Beginners Guide
As you can see, the number of monthly transactions is only increasing and with the current 1mb block size limit, bitcoin can only handle 4.4 transactions per second. When bitcoin was first created, the developers put the 1mb size limit by design because they wanted to cut down on the spam transactions which may clog up the entire bitcoin network.
However, as the number of transactions increased by leaps and bounds, the rate at which the blocks filled up were increasing as well. More often than not, people actually had to wait till new blocks were created so that their transactions would go through. This created a backlog of transactions, in fact the only way to get your transactions prioritized is to pay a high enough transaction fee to attract and incentivize the miners to prioritize your transactions.
This introduced the “replace-by-fee” system. Basically, this is how it works. Suppose Alice is sending 5 bitcoins to Bob, but the transaction is not going through because of a backlog. She can’t “delete” the transaction because bitcoins once spent can never come back. However, she can do another transaction of 5 bitcoins with Bob but this time with transaction fees which are high enough to incentivize the miners. As the miners put her transaction in the block, it will also overwrite the previous transaction and make it null and void.
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While the “replace-by-fee” system is profitable for the miners, it is pretty inconvenient for users who may not be that well to do. In fact, here is a graph of the waiting time that a user will have to go through if they paid the minimum possible transaction fees:
What is Bitcoin Cash? A Basic Beginners Guide
If you pay the lowest possible transaction fees, then you will have to wait for a median time of 13 mins for your transaction to go through.
To repair this inconvenience, it was suggested that the block size should be increased from 1mb to 2mb. As simple as that suggestion sounds, it is not that easy to implement, and this has given rise to numerous debates and conflicts with team 1mb and team 2mb ready to go at each other with pitchforks. As already mentioned, we want to take a neutral stance in this whole debate and we would like to present the arguments made by both sides.
Arguments against block size increase
Miners will lose incentive because transaction fees will decrease: Since the block sizes will increase transactions will be easily inserted, which will significantly lower the transaction fees. There are fears that this may deincentivize the miners and they may move on to greener pastures. If the number of miners decrease then this will decrease the overall hashrate of bitcoin.
Bitcoins shouldn’t be used for everyday purposes: Some members of the community don’t want bitcoin to be used for regular everyday transactions. These people feel that bitcoins have a higher purpose than just being regular everyday currency.
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It will split the community: A block size increase will inevitably cause a fork in the system which will make two parallel bitcoins and hence split the community in the process. This may destroy the harmony in the community.
It will cause increased centralization: Since the network size will increase, the amount of processing power required to mine will increase as well. This will take out all the small mining pools and give mining powers exclusively to the large scale pools. This will in turn increase centralization which goes against the very essence of bitcoins.
Arguments for the block size increase
Block size increase actually works to the miner’s benefit: Increased block size will mean increase transactions per block which will in turn increase the amount of transaction fees that a miner may make from mining a block.
Bitcoin needs to grow more and be more accessible for the “common man”. If the block size doesn’t change then there is a very real possibility that the transactions fees will go higher and higher. When that happens, the common man will never be able to use it and it will be used exclusively only by the rich and big corporations. That has never been the purpose of bitcoin.
The changes won’t happen all at once, they will gradually happen over time. The biggest fear that people have when it comes to the block size change is that too many things are going to be affected at the same time and that will cause major disruption. However, people who are “pro block size increase” think that that’s an unfounded fear as most of the changes will be dealt with over a period of time.
There is a lot of support for block size increase already and people who don’t get with the times may get left behind.
In order to solve the scalability issues there were two suggestions made:
A soft fork.
A hard fork.
Before we go into any of them however, let’s understand the fundamental difference between a soft fork and a hard fork. A fork is a condition whereby the state of the blockchain diverges into chains where a part of the network has a different perspective on the history of transactions than a different part of the network. That is basically what a fork is, it is a divergence in the perspective of the state of the blockchain.
What Is A Soft Fork?
Whenever a chain needs to be updated there are two ways of doing that: a soft fork or a hard fork. Think of soft fork as an update in the software which is backwards compatible. What does that mean? Suppose you are running MS Excel 2005 in your laptop and you want to open a spreadsheet built in MS Excel 2015, you can still open it because MS Excel 2015 is backwards compatible.
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BUT, having said that there is a difference. All the updates that you can enjoy in the newer version won’t be visible to you in the older version. Going back to our MS excel analogy again, suppose there is a feature which allows to put in GIFs in the spreadsheet in the 2015 version, you won’t see those GIFs in the 2005 version. So basically, you will see all text but won’t see the GIF.
What Is A Hard Fork?
The primary difference between a soft fork and hard fork is that it is not backwards compatible. Once it is utilized there is absolutely no going back whatsoever. If you do not join the upgraded version of the blockchain then you do not get access to any of the new updates or interact with users of the new system whatsoever. Think Playstation 3 and Playstation 4. You can’t play PS3 games in PS4 and you can’t play PS4 games in PS3.
What is Bitcoin Cash?
Andreas Antonopoulos describes the difference between hard and soft fork like this: If a vegetarian restaurant would choose to add pork to their menu it would be considered to be a hard fork. if they would decide to add vegan dishes, everyone who is vegetarian could still eat vegan, you don’t have to be vegan to eat there, you could still be vegetarian to eat there and meat eaters could eat there too so that’s a soft fork.
However, for any major changes to happen in bitcoin, the system needs to come to a consensus. So, how does a decentralized economy come to an agreement upon anything? Right now the two biggest ways that is achieved are:
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Miner Activated: Basically changes that are voted on by miners.
User Activated.: Changes that are voted on by people with active nodes.
Before we go on any further, we need to understand what Segwit is.
What is segwit?
We won’t go very deep into what segwit is but in order to get why bitcoin cash came about, it is important to have an idea of what it is. Just to reiterate what we have mentioned before, we won’t be taking any side in this debate, we will simply be educating you about it.
When you closely examine a block, this is what it looks like:
Segwit
There is the block header of course which has 6 elements in it, namely:
Version.
Previous block hash.
Transaction merkle roots.
Epoch time stamp.
Difficulty target.
Nonce.
And along with the block header there is the body, and the body is full of transactions details. So, what does a bitcoin transaction consist of? Any transaction consists of 3 elements:
The sender details which is the input.
The receiver details i.e. the output.
The digital signature.
The digital signature is extremely important because it is what verifies whether the sender actually has the required amount of funds needed to get the transaction done or not. As you can see in the diagram above, it is part of the input data. Now, while this is all very important data there is a big big problem with it. It takes up way too much space. Space that already is in limited availability thanks to the 1 mb block size. In fact, the signature accounts for nearly 65% of the space taken by a transaction!
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Dr. Peter Wuille has come up with a solution for this, he calls it Segregated Witness aka Segwit. This is what will happen once segwit is activated, all the sender and receiver details will go inside the main block, however, the signatures will go into a new block called the “Extended Block”.
Extended Block
So what this will do is that it will create more space in the blocks for more transactions. Now that you have a very basic understanding of what segwit is, let’s checkout its pros and cons.
What are the pros and cons of segwit?
Pros of segwit:
Increases the amount of transactions that a block can take.
Decreases transaction fees.
Reduces the size of each individual transaction.
Transactions can now be confirmed faster because the waiting time will decrease.
Helps in the scalability of bitcoin.
Since the number of transactions in each block will increase, it may increase the total overall fees that a miner may collect.
Cons of segwit:
Miners will now get lesser transaction fees for each individual transaction.
The implementation is complex and all the wallets will need to implement segwit themselves. There is a big chance that they may not get it right the first time.
It will significantly increase the usage of resources since the capacity, transactions, bandwidth everything will increase.
When the developers built SegWit they added a special clause to it. It can only be activated when it has 95% approval from the miners. After all, it is a huge change in the system and they figured that getting a super majority was the way to go. However, this caused a disruption in the system. Most miners don’t want segwit to be activated. They are afraid that since the available block space will increase, it will drastically reduce the transaction fees that they can get. As a result, they stalled segwit which in turn infuriated the users and businesses who desperately want segwit to be activated.
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Eventually, they came up with the idea of a UASF aka User Activated Soft Fork called BIP 148.
What is a BIP?
BIPs or Bitcoin Improvement Proposals is a design document which introduces various designs and improvements to the bitcoin network. There are three kinds of BIPs:
Standards Track BIPs: Changes to network protocol, transaction and blocks.
Informational BIPs: Dealing with design issues and general guidelines.
Process BIPs: Changes to the process.
So what is BIP 148?
The BIP 148 is a user activated soft fork i.e. a soft fork that has been activated by the users. What it states is that all the full nodes in the bitcoin networks will reject any and all blocks that are being created without segwit ingrained in it. The idea is to motivate the miners to put segwit activation in the blocks that they mine for it to be part of the system.
It is hoped that by encouraging more and more miners to come over to the BIP 148 side, eventually the 95% threshold limit will be crossed and segwit will be activated. There are legit fears of a chain split happening but that can be easily avoided if just 51% of the miners come over to the BIP 148 side. Have more than half of the miners to the other side will greatly reduce the hash rate of the legacy chain i.e. the original chain.
Going by the co-ordination game-theory, the miners will be compelled to come over to the other side with the majority. This however raised a serious concern. What if the changeover doesn’t happen smoothly and what if it does cause a legitimate chain split? This could spell disaster and this is the exact issue raised by the mining company Bitmain. So, as a contingency plan for BIP 148, Bitmain proposed a UAHF aka User Activated Hard Fork.
What is the UAHF?
The User Activated Hard Fork is a proposal by Bitmain which will enable the construction of a whole new form of bitcoin and blocks with larger sizes.. Since this is a hard fork, the chain will not be backwards compatible with the rest of the bitcoin blockchain. The biggest reason why this looks so appealing is because the hard fork does not require a majority of hashpower to be enforced. All nodes who accept these rule set changes will automatically follow this blockchain regardless of the support it gets. At the same time, many people just weren’t happy with the idea of signatures being kept separate from the rest of the transaction data, they considered it to be a hack.
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Bitmain visualizes this as a voluntary escape for everyone who is not interested in following up with the BIP 148 proposal. If you don’t like it then jump ship and you can be a part of this new chain. At the “Future of Bitcoin” conference a developer named Amaury Séchet revealed the Bitcoin ABC (Adjustable Blocksize Cap) project and announced the upcoming hardfork. Following the announcement, and after Bitcoin ABC’s first client release, the project “Bitcoin Cash” (BCC) was announced which came into full effect on August 1.
What is Bitcoin Cash?
This is how Bitcoin Cash project website is defining itself: “Bitcoin Cash is peer-to-peer electronic cash for the Internet. It is fully decentralized, with no central bank and requires no trusted third parties to operate.” Did you notice the emphasis on the words “peer-to-peer electronic cash”? It is done by design because the primary motivation of bitcoin cash’s existence depends solely on carrying out more transactions as Jimmy Song points out in his Medium article.
Bitcoin Cash (BCH) is a lot like Bitcoin but has some very noticeable differences:
The blocksize is 8 mb.
It won’t have segwit.
It won’t have the “replace by fee” feature.
It will have replay and wipeout protection.
It offers a way to adjust the proof-of-work difficulty quicker than the normal 2016 block difficulty adjustment interval found in Bitcoin.
Since BCH is a result of a hardfork, anyone who possessed BTC got the equal amount of coins in BCH PROVIDED they didn’t have their BTC in exchanges and were in possession of their private keys at the time of the hardfork. So now let’s go through certain interesting features of Bitcoin Cash.
How Bitcoin Cash prevents replay attacks?
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One of the best features of Bitcoin Cash is how it circumnavigates one of the biggest problems that any cryptocurrency can face post-forking, the replay attack.
What is a replay attack?
A replay attack is data transmission that is maliciously repeated or delayed. In the context of a blockchain, it is taking a transaction that happens in one blockchain and maliciously repeating it in another blockchain. Eg. Alice is sending 5 BTC to Bob, under a replay attack she will send him 5 BCH as well, even though she never meant to do that.
So, how does bitcoin cash prevent replay attacks? (data taken from Andre Chow’s answer in stack exchange)
Using a redefined sighash algorithm. This sighash algorithm is only used when the sighash flag has bit 6 set. These transactions would be invalid on the non-UAHF chain as the different sighashing algorithm will result in invalid transactions.
Using OP_RETURN output which has the string “Bitcoin: A Peer-to-Peer Electronic Cash System” as data. Any transaction which contains this string will be considered invalid by bitcoin cash nodes until the 530,000th block. Basically, before that block you can split your coins by transacting on the non-UAHF chain first with the OP_RETURN output, and then transacting on the UAHF chain second.
How does Bitcoin Cash attract miners?
Any cryptocurrency depends heavily on its miners to run smoothly. Lately, bitcoin cash has attracted a lot of miners which has significantly improved its hash rate. Here is how they did that. For this, we will take the brilliant Jimmy Song’s help again.
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Bitcoin cash has a set rule as to when it decreases its difficulty. Before we see the rule it is important to understand what Median Time Past (MTP) is. It is the median of the last 11 blocks that have been mined in a blockchain. Basically, line up the last 11 blocks one after another and the time at which the middle block is mined is the median time past of the set. The MTP helps us determine the time at which future blocks can be mined as well. Here is a chart of the MTP of various blocks:
So, this is the rule for difficulty adjustment in bitcoin cash: If the Median Time Past of the current block and the Median Time Past of 6 blocks before is greater than 12 hours then the difficulty reduces by 20% i.e. it becomes 20% easier for miners to find newer blocks. This gives the miners some power to adjust difficulty, eg. checkout the 13-hour gap between blocks 478570 and 478571. The miners may have simply been doing this to make the blocks easier to mine.
Another interesting thing to note is how and when the difficulty rate can adjust in a cryptocurrency. This is a graph which tracks the difficulty rate of BCH:
The difficulty rate adjusts according to the amount of miners in the system. If there are less miners, then the difficulty rate goes down because the overall hashing power of the system goes down. When bitcoin cash first started it was struggling a bit to get miners, as a result its difficulty dropped down drastically. This in turn attracted a lot of miners who found the opportunity to be very lucrative. This caused an exodus of miners from BTC so much so that the hashing power of BTC halved, decreasing the transaction time and increasing the fees. Reports on social media stated that BTC transaction were taking hours and even days to complete. Here is the graph that shows the drop in hash rate of BTC:
What is the Hash War?
As of right now, there is a war taking place inside the Bitcoin Cash community. This war has been dubbed the “Hash War” and it may have single handedly plunged the entire market.
The hash war is basically a civil war between two rival factions within the Bitcoin Cash community:
Bitcoin ABC: Bitcoin Adjustable Blocksize Cap is the camp that’s being led Roger Ver and Bitmain CEO Jihan Wu
Bitcoin SV: Bitcoin Satoshi’s Vision is led by Craig Wright (who claims to be Satoshi Nakamoto) and billionaire Calvin Ayre, the owner of the largest BCH pool, CoinGeek.
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On November 2018, Bitcoin Cash went through a hard-fork and split into Bitcoin Cash ABC and Bitcoin Cash SV.
Both these chains are utilizing there hash power to mine the longest chain. Whoever has the longest and more efficient chain, becomes the dominant Bitcoin Cash chain.
So, this brings us to the obvious question.
Why is the hash war happening? Why are Roger Ver and Craig Wright at each other’s throats?
Well, there are two reasons:
Block size (surprise surprise!)
Changes to the Bitcoin Script
Block Size
Bitcoin ABC wants a block limit of 32 mb while Bitcoin SV wants a block limit of 128 mb, i.e. nearly 4 times that of the upgraded Bitcoin ABC block size.
Changes to the Script
As you may already know, Bitcoin transactions are coded by using “Script” We have a detailed two-part guide which will help you understand how script works.
One thing that you need to remember here, script is a purposefully simple and non-versatile language. It is not a highly-functional, Turing-Complete language like solidity which is used to create smart contracts. Script’s only purpose is to give form to Bitcoin transactions.
In August 2018, Bitcoin ABC introduced two new opcodes in the Bitcoin Cash script, with a hardfork. Those opcodes being:
These opcodes basically brought in “smart contract-like” functionality into Bitcoin Cash by allowing the transactions to check and validate the signature on an external message, coming from a trusted external data source or oracle.
This change wasn’t acceptable to Bitcoin purists.
According to them, these opcodes and functionalities were never a part of Satoshi Nakamoto’s original vision. They wanted a Bitcoin Cash which was close to the original blueprint as possible. Hence, Bitcoin SV was born.
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Bitcoin SV is not going to use these new opcodes. In fact, it will use two of the original Satoshi opcodes (OP_LSHIFT and OP_RSHIFT) which had been deactivated in the new version of Bitcoin Cash.
The Ugly Side of The Hash War
We will try to keep a very neutral stance here, but we need to report on just how ugly this war has become. More than Bitcoin ABC vs Bitcoin SV, this has become Roger “The Bitcoin Jesus” Ver vs Craig “I am Satoshi” Wright.
There has been blatant name calling and negativity from both the the sides. In fact, some of the arguments have been no different than over-the-top pro-wrestling style rants. This one being top of the bunch:
And then there is also the email that that Wright sent Ver, which we can’t post here because of its strong content. You can read it here.
Ver, on his part, had this to say about Wright, “Satoshi or not, the things Craig Wright is saying are exactly the things that caused me to sign up for Bitcoin in the first place.”
Who is Winning the War?
Let’s look into both the camps and see who is winning the Hash War. All graphs are taken from coin.dance.
#1 Hashrate
Since this battle is all about the hashrate then we might as well check who is doing the best in that regard:
It looks like Bitcoin ABC has had a superior hashrate than Bitcoin SV for the most part, in the beginning. There were some instances when Bitcoin SV was able to overtake Bitcoin ABC, but for the most part, Bitcoin ABC has been superior hashrate-wise….right until 3rd December 2018.
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After that, it looks like Bitcoin ABC has suffered a big downturn in its hashrate while Bitcoin SV seems to have gotten the slight upper hand.
#2 Chain Length
One day after the fork, 16th November 2018, Bitcoin cash ABC raced ahead with 50 blocks. ABC seems to have a better overall POW strength than SV.
#3 ABC vs SV Nodes
Let’s look at how many nodes are in Bitcoin Cash ABC as opposed to Bitcoin Cash SV.
Bitcoin ABC has 1028 nodes right now. The number of nodes has decreased after seeing a peak on 16th August 2018.
Now, let’s look at Bitcoin SV nodes.
Bitcoin SV has a total of 542 nodes. The total number of nodes increased dramatically since 15th November 2018, i.e. the date of the Bitcoin Cash/Bitcoin SV hard fork. After reaching its peak, the number of nodes has been pretty consistent.
#4 Community Approval
Let’s look at which project is getting more approval from the companies and community.
According to coin.dance, 71.8% of the community supports Bitcoin ABC while Bitcoin SV has 44.9% of the support.
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BTC Hashrate vs ABC+SV
Getting out of this civil war, let’s look at the big picture and see how BTC’s hashrate compares to that of ABC and SV’s combined.
As you can see, BTC far exceeds both of them combined.
What is the future of Bitcoin Cash?
In short, we don’t know. We have no idea how bitcoin cash is going to turn out in the future nor do we know the long term repercussions that it will have on BTC. What we do know is that this is the first time that anyone has successfully hard forked from BTC whilst keeping the records of the existing transactions.
What we have here is a very interesting experiment which will teach us a lot of lessons moving forward. At the same time, the 8 mb block size is definitely a very alluring aspect and it remains to be seen how this affects the miners in the long run.
However, the Hash War has opened up a very intriguing situation. With the sheer number of Bitcoin forks out there, it may dilute the value of Bitcoin even more. The current market crash has been largely attributed to this war. The sad part is that the hash war has become really ugly. Let’s hope that we get out of this unscathed.
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