Bitcoin Cash is a clone of Bitcoin and shares most of its characteristics. However, it features a bigger block size so that each individual block can contain more transactions than Bitcoin’s blocks. This in turn improves network throughput.
It came into existence on August 1st, 2017 around 14:20 UTC, after a so-called fork of Bitcoin’s blockchain.
Now we’ll give a summary of the reasons and events that lead to the creation of Bitcoin Cash.
Bitcoin’s 1Mb Block Size
For various reasons, the maximum block size of Bitcoin is fixed at 1Mb. This limits the number of transactions a block can contain as each transaction needs some space for its data.
This in turn limits the network throughput, as on average, a new block that confirms transactions is mined very 10 minutes.
Around 2015, with the rise of Bitcoin’s popularity, it became apparent that the network’s throughput would have to be lifted. The 1Mb block size constraint was becoming an issue.
Two competing teams proposed different solutions:
- Segregated Witness
- A blocks size increase.
Segregated Witness Approach
Segregated Witness, often simply called Segwit, proposes a two layer protocol approach:
- The first layer is basically the Bitcoin network protocol as we know it today, with the block size still fixed at 1Mb. That’s why this approach is also called “small block”.
- A second protocol layer is added above the first layer, and that second layer is designed to be more efficient and able to transmit a higher number of transactions per seconds.
This layered approach of network protocols is quite common and is used for example with Internet protocols:
- At a base level, we have the TCP/IP protocol, which allows computers to send blocks of information to other computers identified by an IP address.
- At a higher level, we have application protocols such as HTTP, that uses the lower-level TCP/IP protocol, and allows web servers to send HTML pages to web browsers.
Segregated Witness Pros and Cons
The advantage of Segregated Witness is that as it keeps the base protocol layer and block size of Bitcoin the same. This in turn means that computer hardware most likely won’t need to be upgraded and Bitcoin should be able to run on lower-powered devices.
The disadvantage of Segregated Witness is that the two layer approach is more complicated, more difficult to program and hence more bug-prone.
Block Size Increase Approach (AKA Big Blocks)
In the big block approach, the block size is increased so that a block can contain more transactions. Because of this, the throughput of the network increases as long as the mining rate of blocks stays the same (one block each 10 minutes on average). Bitcoin Cash has currently a block size of 8Mb, or 8 times the block size of regular Bitcoin.
Block Size Increase Pros and Cons
The advantage of a bigger block size is that the change is trivial to program, theoretically all that is needed is changing the line of code that defines the block size.
The disadvantage of a bigger block size is that it increases the requirements on computer hardware (bigger hard drives, faster network cards, etc.).
From a mining perspective, this could lead to miner centralization, as more expensive hardware is needed to mine bigger blocks and so over time only the biggest miners would be able to do this cost-efficiently. And centralization is bad for any decentralized cryptocurrency.
Block Size Debate and Resolution
The so-called scaling debate about which solution was better to increase Bitcoin’s throughput lasted from 2015 to early 2017, with each camp stuck on its position and unable to make a compromise.
Finally, things came to a head mid 2017, and the Bitcoin blockchain split in two on August 1st 2017. The advocates of Segregated Witness kept their 1Mb block size and their cryptocurrency kept the Bitcoin name.
On the other hand, the advocates of bigger blocks modified their software to produce and use those bigger blocks after August 1st.. They also decided to use the Bitcoin Cash name for their cryptocurrency.
Reclaiming your Bitcoin Cash
The nice thing about the chain split is that if you had bitcoins in your possession on August 1st, you also automatically became an owner of Bitcoin Cash, except if you held your bitcoins on an exchange that didn’t properly support the chain split.
If you held your bitcoins in the Bitcoin Core client during the chain split, I’ve written a guide on how to reclaim your Bitcoin Cash and move them to the Bitcoin ABC wallet.
Bitcoin Cash’s Future
Bitcoin Cash got a rocky start, but this is a bit expected with a new cryptocurrency. Some Segwit hardliners previously declared that Bitcoin Cash would be dead on arrival, but this didn’t happen.
An increasing number of wallets and exchanges support Bitcoin Cash, so looks like it is here to stay for a while.
By the way, the (traditional) 1Mb Bitcoin is due for another chain fork around November 23 (called Segwit2X), so it is difficult to say at this time which Bitcoin flavor will prevail over the long run.
That’s why for now I hold on to both coins and will let the market decide which coin is the better one.