What is Bitcoin Cash? A Beginner’s Guide

Bitcoin Cash (BCH) has sought to fulfill Bitcoin (BTC) creator Satoshi Nakamoto’s original vision of a peer-to-peer digital cash payment system that offers low fees and fast transactions. BCH was created in 2017 out of a need to realign the Bitcoin community’s focus back to everyday payments rather than the store-of-value asset BTC has become today.

How has Bitcoin Cash fared? This article brings you up to date: how Bitcoin Cash got started, how it works, what has changed recently, and what it may mean for the future.

Summary: What is Bitcoin Cash?

Bitcoin Cash is a cryptocurrency that was forked from the original Bitcoin network in August 2017. In simple words, a fork refers to the splitting of a blockchain into two separate chains.

The creation of BCH occurred following a long-drawn debate (known as the Block Size Debate) within the crypto community on the scaling roadmap of Bitcoin. For context, the Bitcoin network is not optimized for everyday payments, as heavy traffic on the network can result in high transaction fees and delayed transactions.

A faction within the Bitcoin community (referred to as “Big Blockers“) wanted to upgrade the Bitcoin blockchain by increasing the block size from 1 MB to 8 MB (BCH later upgraded to 32 MB blocks) so that more transactions could be processed quickly. However, they were opposed by “Small Blockers” who argued for keeping block size small to preserve decentralization and security.

As the two factions could not come to terms with each other. The Bitcoin blockchain split into two chains: one that maintained the properties of the original chain and another that became Bitcoin Cash, which featured larger blocks, faster transactions, and lower fees.

Later, in November 2018, Bitcoin Cash was forked to form the Bitcoin Satoshi Vision (BSV) blockchain. The supporters of Bitcoin SV wanted a blockchain that stayed true to the vision of Bitcoin’s pseudonymous founder, Satoshi Nakamoto. When Bitcoin Cash upgraded its blockchain beyond block sizes and introduced changes that strayed from the original Bitcoin whitepaper, Bitcoin SV was created.

That’s Bitcoin Cash in a nutshell. If you want a more detailed review, keep on reading. Here’s what I’ll cover:

1. Hard Forks Explained
2. The Block Size Debate
3. Big Blockers
4. Small Blockers
5. The Debate Resolution
6. Bitcoin vs. Bitcoin Cash
7. Bitcoin Cash vs. Bitcoin SV
8. Conclusion

Don’t Like to Read? Watch our Video Guide Instead

1. Hard Forks Explained

A lot of people who are just starting with Bitcoin or cryptocurrency in general get confused when they see that there’s not just one “type” of Bitcoin. For example, Bitcoin Cash, Bitcoin Gold, and Bitcoin Diamond are all forks of the original Bitcoin.

A fork can be described as an alternate version of an original coin. There are two types of forks: soft forks and hard forks.

• Soft forks  – Versions that work well with both the original version and the alternate version of the coin, so as a user, you can choose which version to run without a lot of concern.
• Hard forks – Don’t play well with the original version. This means that you need to choose whether to update your software to run the alternate version or to stick with the original one.

In other words, with hard forks, if the alternative is not accepted by 100% of the users, then a sort of split will occur in the network, and a new coin will emerge. One that is similar to the original but not identical.

Bitcoin Cash and other Bitcoin versions are actually the results of suggested updates to the Bitcoin protocol that weren’t agreed to by everyone.

So what happened is that an alternate version, or a hard fork, stemming from the original Bitcoin was created, and new coins came into existence.

If you want a complete, detailed explanation about forks, make sure to watch our Bitcoin Whiteboard Tuesday forks video as well.

2. The Bitcoin Block Size Debate

So now we know that Bitcoin Cash is actually a hard fork of Bitcoin, but why was it created?

To answer this question, we need to pause for a second and go back a few years to discuss one of the most controversial topics of Bitcoin’s code – the block size and scalability issue.

Bitcoin transactions don’t get confirmed instantly. In order for a transaction to be considered confirmed, it needs to be included as part of a block of transactions on the Bitcoin ledger, known as the blockchain. Check out this article to learn more about Bitcoin Transaction Confirmations and Blocks.

A new block of transactions is added to the blockchain on average about every 10 minutes.

Similar to any type of digital data, adding Bitcoin transactions to a block requires storage space, and the maximum capacity for each block of transactions is 1 MB. When you consider the average Bitcoin transaction size, you’ll find that a block can hold about 2700 transactions.

2700 transactions every 10 minutes means 4.6 transactions a second, that’s not a lot. Visa, for comparison, can confirm 1,700 transactions per second.

This means that when a lot of people want to send Bitcoin, during price rallies, for example, transactions get stuck in a very long queue inside the mempool, waiting to enter a block and get confirmed.

Of course, Bitcoin allows you to pay a higher transaction fee if you want to jump the queue, but this might cause fees to reach ridiculous levels as more and more people try to “cut the line” with their transactions.

This isn’t something you want to have happen if you’re building Bitcoin to become a global payment method. As a result of this scalability issue, two different camps emerged.

3. Big Blocks Proponents

The first camp was the “Big Blocks” camp. This camp was led by Chinese mining giant Bitmain and Roger Ver, an early Bitcoin investor who was involved with a number of startups when Bitcoin was just gaining initial adoption.

Big blockers were afraid that Bitcoin’s scalability issue would prevent it from becoming what Satoshi Nakamoto, Bitcoin’s inventor, initially intended – a peer-to-peer payment system.

With such long confirmation times and high fees, people wouldn’t use Bitcoin for day-to-day transactions and would instead treat it as a store of value, like gold.

The supporters of this camp suggested a very simple solution: Let’s increase the block size. If we increase Bitcoin’s block size to 8mb, we’ll be able to confirm as many as 8 times the number of transactions per second.

This will reduce the existing congestion of the network, and in the future, we’ll increase the block size as much as needed as Bitcoin achieves further adoption.

4. Small Blocks Proponents

Opposing them was the “Small Blocks” camp. The supporters of this camp rooted for keeping the current 1 MB block size, while finding solutions for optimizing transaction size and handling, to enable scaling.

One such solution was Segregated Witness, or Segwit for short. Segwit is an upgrade to the Bitcoin protocol, which, among other things, effectively reduces the transaction size by 75%.

This means that a 1mb Segwit block can hold the same amount of transactions as what would be a 4mb non-Segwit block.

Additionally, Small Blockers talked about the development of the Lightning Network, a second layer on top of the Bitcoin protocol for instant and cheap transactions.

Now, the Lightning Network is a pretty broad topic on its own, so make sure to catch our Lightning Network episode for a detailed explanation on how it works.

Why Oppose a Block Size Increase?

The reason is that small Blockers believe that, in the long run, this would hurt Bitcoin’s decentralization and functionality. Here are some of the arguments to justify their claim:

For one, an 8mb or even 32mb block takes more time to travel through the network than a 1mb block.

Additionally, once the block reaches a computer on the network, that computer now needs to verify all of the transactions inside that block. If the block is too big, it might not be able to finish verifying all the transactions before the next block arrives within 10 minutes or so.

This means the network will start lagging behind new transactions, which can create disputes about the current state of the Bitcoin ledger.

On top of that, by not optimizing transactions, you’re also not optimizing the size of the Blockchain, which already takes up several hundred Gigabytes.

Forcing computers to verify oversized transactions reduces the number of computers that can store the Blockchain on their hard drive, and therefore diminishes the network’s decentralization.

I mean, let’s think about it for a second:

If only high-end computers that are maintained by a handful of companies can validate transactions on the network, we’re basically taking away Bitcoin’s basic advantage – to have a large number of participants to make sure no one is breaking the rules.

To make it simple to understand, consider this analogy:

Imagine a street that’s suffering from heavy traffic. The obvious solution would be to increase the number of lanes, effectively the same solution as increasing the block size.

But what would you do once the street becomes more popular and even more cars come in? Eventually, there’s a limit to how many lanes you can add before running out of land to build them.

On the other hand, you could reduce traffic congestion by promoting public transportation routes or carpooling. Solutions similar to optimizing the transaction size and how transactions are handled by the network.

5. Arriving at a Resolution

This heated argument between the two rival camps went on for several years until it climaxed in August 2017. Back then, Bitcoin was making its first steps over the $1,200 mark, and the network was getting pretty crowded due to an overflow of transactions.

As a result, many transactions got delayed, and transaction fees skyrocketed as people were outbidding each other to “cut in line” and get confirmed faster. The average fee around that time was as high as $37 per transaction!

Now, you may be wondering why nobody took action to avoid this situation. Well, in order to answer this question, we need to understand who actually decides anything on the Bitcoin network.

You see, Bitcoin is decentralized, and this means there’s no one person who decides anything. Participants in the network vote through their actions. Their vote is actually whatever version of the Bitcoin protocol they choose to run on their computer.

Bitcoin Network Players

• Miners and mining pool operators – They are the ones in charge of creating blocks and updating the ledger of transactions. Some would argue that they have the ultimate say in what changes are finally accepted to the Bitcoin network.
• Developers – A group of individuals collaborating to maintain Bitcoin’s source code. Some believe that this group has the ultimate power since they are the ones writing the actual code that runs the network.
• Exchanges – the gateways for cryptocurrency adoption. They can decide which version of Bitcoin to list under the ticker symbol BTC. They’re the ones who have the power to connect people with the actual coins.
• Wallet providers – They write software that allows users to manage their coins.
• Nodes – the different computers that run the Bitcoin code and make sure no one is breaking the rules. These nodes are the backbone of the Bitcoin network. Owners of the nodes can decide to only accept transactions that support specific changes.
• Bitcoin users – who get to choose which coin to buy, which exchange to use, and which wallet to download – Without even knowing it, they actually have the most power. The coin that users decide to adopt will have a brighter future.

The DAO as an Example for User Adoption

A good example of the power of user adoption is the case of Ethereum (ETH). Back in 2016, after 3.6 million Ether (ETH) coins were stolen from an Ethereum-based project called the DAO.

Ethereum developers suggested rolling back the Ethereum blockchain and erasing the malicious transaction.

This created a heated debate, at the end of which Ethereum forked into two different blockchains – Ethereum and Ethereum Classic (ETC). The latter is the original, non-forked Ethereum blockchain that acknowledged and accepted the hack.

However, the crypto community considers the forked Ethereum chain as the primary Ethereum project. The reason is that the project that is backed by more developers and institutions and accepted by more users gains prominence, even if it is not the original chain.

Now you understand why it’s so hard to get any change to the Bitcoin protocol approved. You basically need to get all of these groups to agree.

Throughout Bitcoin’s history, there have been several cases where such agreements were reached, but as the network grew larger, it became harder to reach a consensus.

The Bitcoin Cash Hard Fork

Going back to our story in 2017, the end result of this Mexican standoff between the two camps was that each side did what they initially intended to do, leaving it to users to decide which coin to adopt as the true Bitcoin.

On August 1st, 2017, Small blockers activated SegWit on the original Bitcoin protocol, while big blockers created Bitcoin Cash – A Bitcoin fork with an 8 MB block size.

Initially, it was unclear which version of Bitcoin would win, when “Winning” in cryptocurrency terms means having a longer blockchain, or ledger of transactions.

The more miners a coin has onboard, means more computational power, hence a longer blockchain and a more robust network.

Bitcoin Cash had support from mining giant Bitmain, and as a result, the original Bitcoin’s mining power was cut nearly in half when the fork occurred. However, when the dust settled, it became clear that the original Bitcoin was still standing strong even after the fork.

6. Bitcoin Cash vs. Bitcoin

Since the fork, Bitcoin Cash has consistently maintained its space at the top of the cryptocurrency charts. The coin is backed mainly by Roger Ver, a libertarian who allegedly owns around 100,000 Bitcoins, making him one of the first Bitcoin billionaires.

Ver also purchased the domain name Bitcoin.com to promote Bitcoin Cash, as opposed to Bitcoin.org, which is the website for the original Bitcoin.

Bitcoin Cash is mostly similar to Bitcoin, but with some exceptions:

1. Its block size is bigger. When it first started, Bitcoin Cash’s block size was capped at 8mb. Later on, the coin went through another update, and the block size limit increased to 32mb.
2. Bitcoin Cash does not support SegWit or the Lightning Network.
3. Bitcoin Cash adjusts the mining difficulty for mining new blocks more quickly than the original Bitcoin.

While there are additional differences between the two coins, the ones I’ve just mentioned are the most notable.

7. Bitcoin Cash vs. Bitcoin SV

In November 2018, the Bitcoin Cash community split into two separate chains, leading to the creation of Bitcoin SV. The division stemmed from differing views on how to scale the network while preserving Satoshi Nakamoto’s original vision of peer-to-peer electronic cash. One side supported increasing block size as the best way forward, while the other pushed for broader protocol changes.

Bitcoin SV upholds that expanding the block size with minimal modifications best preserves Bitcoin’s original design. Meanwhile, the chain that retained the Bitcoin Cash name chose smaller block sizes and adopted more protocol updates, becoming widely recognized as the main Bitcoin Cash network over time.

8. Conclusion

Low transaction fees are vital for Bitcoin’s usability, but not if they compromise the network’s decentralization and security. Scaling through larger blocks may seem like a quick fix, yet history shows that long-term progress often comes from improving efficiency rather than just increasing capacity.

As things stand, Bitcoin has grown to breach the $2 trillion market cap mark and cement itself as the premier cryptocurrency in the world. Meanwhile, Bitcoin Cash has adoption has stagnated with BCH failing to scale new all-time high prices since December 2017. At the time of writing, Bitcoin’s market cap was nearly 200 times larger than Bitcoin Cash’s market cap of about $11 billion.

Today, Bitcoin Cash continues to evolve, recently introducing CashTokens to enable smart contracts, stablecoins, and decentralized apps,  a feature not available on Bitcoin. This innovation highlights BCH’s focus on expanding real-world utility, in contrast to Bitcoin’s reluctance to change and its continued emphasis on security, decentralization, and serving as a store of value.

See Also:

• Chapter 1: The Big Idea: Why Crypto Exists
• Chapter 2: The Heart of the System: Blockchain & Decentralization

FAQs:

What is Bitcoin Cash (BCH)?

Bitcoin Cash is a cryptocurrency for fast, low-fee payments that aims to serve as global peer-to-peer digital cash.

How is Bitcoin Cash different from Bitcoin?

Bitcoin Cash has bigger blocks, faster transactions, and lower fees, focusing on payments, not just store-of-value like Bitcoin.

Is Bitcoin Cash safe?

Yes. It uses Bitcoin’s proof-of-work security, but always store BCH in a trusted wallet for better protection.

How can I buy Bitcoin Cash?

Buy BCH on major crypto exchanges such as ByBit and Binance using a debit card, credit card, or bank transfer.

Why you can trust 99Bitcoins

10+ Years

Established in 2013, 99Bitcoin’s team members have been crypto experts since Bitcoin’s Early days.

90hr+

Weekly Research

100k+

Monthly readers

50+

Expert contributors

2000+

Crypto Projects Reviewed

Read more

How We Review Projects

Alexander Reed

Editor

Having delved into futures trading in the past, my intrigue in financial, economic, and political affairs eventually led me to a striking realization: the current debt-based fiat system is fundamentally flawed. This revelation prompted me to explore alternative avenues, including... Read More

Read Alexander Reed Articles