Bitcoin Cash 101: Then and Now

20 May 2018

Bitcoin cash has a short but rich history, and has some in the industry optimistic that it could be a positive force for the future of cryptocurrencies. Its advocates claim that it has refined many of bitcoin’s core tenets, and has shown a strong favor for different ways of thinking. Even so, while many are eager to point out their massive differences, bitcoin cash and its origin, bitcoin, share a surprising amount of DNA.

What is Bitcoin Cash?

Bitcoin cash started off as a simple disagreement in the bitcoin community. Those with a stake in bitcoin’s future had different opinions on the cryptocurrency’s purpose. One group believed that bitcoin’s best chance for adoption was as an accessible tool for the widest possible audience—ideally billions of people. The other group put decentralization over other values, claiming that the cryptocurrency’s original purpose should override other concerns. The former camp claimed that this stubbornness could lead to higher costs and reduce its viability as a financial solution. Bitcoin cash is the former, and bitcoin is the latter.

The crux of the issue boiled down to block size, or the amount of space that a block of transactions takes up on the chain. This affects the speed and volume of transactions, and fees as well. Bitcoin developers believed that keeping smaller blocks encourages smaller network nodes to participate, thereby preserving decentralization, and that third-party solutions could be added later to increase efficiency. Opponents on the bitcoin cash side argued that blockchain could achieve its goals as a standalone solution by expanding it to cater to a potentially larger audience. This, however, would mean letting go of some of bitcoin’s founding beliefs.

Even with this new outlook, questions remained about how bitcoin cash could handle this supposed problem.  The biggest outcome was that the bitcoin cash team decided to increase block sizes from 1 megabyte to 8 megabytes. They also added another feature, called emergency difficulty adjustment (EDA).

Developers from the team that would become bitcoin cash decided to let the users choose which version they wanted, which meant splitting from bitcoin’s blockchain permanently. Bitcoin cash would become a new, separate currency in what is referred to as a “hard fork” within the community.

The Fork

A key concept of cryptocurrency blockchains is the algorithm that adjusts the profitability, or difficulty, of mining. Mining is what a computer does when it helps to process the blockchain’s transactions. Cryptocurrency miners get paid in the currency of whichever chain they choose to process. By making their version of the blockchain algorithm a mirror image of bitcoin with a few key changes, the bitcoin cash team encouraged miners, exchanges, and users to adopt it. They also had a cause to stand behind. Some have since argued that the way bitcoin cash handled this fork was somewhat deceptive, focusing on the short-term benefits and ignoring the impact this abrupt fork could have on the broader crypto ecosystem.

This historical experiment was fraught with controversy and had interesting results. Regardless of what people believed the future of cryptocurrency should be, those who mined bitcoin could suddenly compare the profitability of the two coins, and swap between them easily. The implications were enormous. A community that until then had a unified bitcoin to support watched as the “rival” currency gained traction. Miners provided fresh volume to bitcoin cash, and alongside them, a growing community of users.

There are still same large unresolved issues with bitcoin cash. For one, the new currency goes against a major principle underpinning—decentralization—and some have argued that it could open up bitcoin cash to consolidation problems down the line that limit mining participation. The currency’s EDA gives substantial leverage to a centralized group, and opens bitcoin cash to security problems that have become less common with bitcoin.

Additionally, the large overheads for many exchanges to start supporting BCH have led to some not holding it at all. While it does improve transaction speeds, the mining rate and number of blocks being created is still far below bitcoin’s, which could lead to adoption issues down the line.  However, despite some of its early drawbacks, bitcoin cash does exhibit several notable advantages that may help it play a bigger role in the cryptocurrency ecosystem over time.

The Future for Bitcoin Cash

Today, there are few people who exclusively mine bitcoin. Miners frequently switch between the two different coins—increasingly because bitcoin cash is considered a legitimate coin thanks to its increased transactability and scalability. The same support that brought people together around bitcoin is now occurring for bitcoin cash, making it only a matter of time before it challenges bitcoin’s outright hegemony in the now burgeoning crypto environment.

The bitcoin cash chart has consistently pointed upward, largely at the expense of its older counterpart. While the post-fork bitcoin cash began at a price of around $500, it’s now eclipsed $1,000 just months later, and has reached a per-coin all-time-high of over $2,500. “The flippening” is a theory among some community members that sometime in the future, bitcoin cash or some other cryptocurrency will become a bigger market than the original blockchain in terms of mining and hashing power, price, and volume. Thanks to its beneficial structure, that day could be quickly on the approach for bitcoin cash if adoption rates of this crypto-offshoot accelerate.

Bitcoin cash is gaining in adoption among cryptocurrency applications like wallets and exchanges, but has also been useful for off-chain services such as The Internet Archive. With the industry anticipating institutional investment in cryptocurrency, bitcoin cash’s suitability for higher transactional volumes could be a decided advantage against other solutions, and many believe this factor alone could boost adoption and price considerably.

When Revolutions Evolve

With bitcoin cash, blockchain has successfully demonstrated that consensus between remote internet communities can produce value. There is no single greater example of this than the natural influx of cryptocurrency participants to this new system. Bitcoin was undoubtedly the first-mover of the cryptocurrency ecosystem, but quickly outgrew its container. Many BCH advocates argue that the fork happened for the good of the broader community, and not just the team and miners behind bitcoin cash. These supporters claim a need for speed and flexibility produced a solution, regardless of what existed before.

The entire crypto community is collectively experiencing events like the bitcoin cash hard fork for the first time, and no one knows what the future holds. However, bitcoin cash has already earned its place among those cryptocurrencies with the highest market capitalizations, and few doubt that its success will end there.

Mati Greenspan is the Senior Analyst for the eToro social investment network and has been involved in the crypto-market since the early days. He sees bitcoin cash as an exciting experiment stating…

“it’s very interesting to see the different economic incentives playing out between the users, the miners, and the exchanges. However, one of the original promises of bitcoin is the scarcity. The fact that only 21 million will ever be created ensures that each coin is rare and desirable. So far, things seem to be working out for the new crypto and I certainly recommend all of my clients to hold onto a bit as part of a balanced alternative investment portfolio. Long term though, I’m not quite convinced. As we go down the road there are bound to be more forks, some of them are bound to be superior, so where does that leave bitcoin cash? Unless it does something really impressive from now until then, there is a real chance that this success story may get forked into oblivion.”
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