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What is the functioning of Bitcoin Cash (BCH)?

Bitcoin Cash (BCH) is a cryptocurrency that was created and launched to bring decentralization back to cryptocurrency. It is the result of a 2017 Bitcoin "hard fork," which occurs when an existing blockchain splits into two. Bitcoin Cash allows a greater number of transactions in a single block than Bitcoin, which should lower fees and transaction times. Learn more about Bitcoin Cash, how it differs from Bitcoin, where it's available, and if the project has been successful.

Key Takeaways

  • Bitcoin Cash is the result of a Bitcoin hard fork that happened in August 2017.
  • Bitcoin Cash was created to allow more transactions in a single block, theoretically decreasing the fees and transaction times.
  • Despite their philosophical differences, Bitcoin Cash and Bitcoin share several technical similarities: They use the same consensus mechanism and have capped their supply at 21 million coins.
  • Bitcoin Cash itself underwent a fork in November 2018 and split into Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision). In 2021, Bitcoin Cash ABC changed its name to eCash.
  • Bitcoin Cash continues to trade—at a fraction of Bitcoin's price—but has yet to achieve widespread consumer acceptance as a form of payment.

What Is Bitcoin Cash?

Bitcoin Cash is a cryptocurrency, created from a hard fork from the Bitcoin blockchain in 2017. A hard fork is when a blockchain splits, with no compatibility between the two forks. This is a radical change to a network's protocol that makes previously invalid blocks and transactions valid, or vice versa. A hard fork requires all nodes or users to upgrade to the latest version of the protocol software.

Bitcoin Cash is designed to be used as a cheap payment system, much in the way Bitcoin was designed to be originally. Transactions fees are generally less than $.01, and transaction confirmation times are significantly less than Bitcoin's, generally within seconds.

Bitcoin Cash was created and is maintained by an active community of developers. These developers still see Bitcoin Cash as a necessary alternative to Bitcoin, because in their view, Bitcoin has become more of an investment instrument than a payment system. It was designed as a peer-to-peer payment system that removes regulatory authorities and other third parties from financial transactions.

Bitcoin Cash operates on Bitcoin Cash Node, which is an ecosystem that enables users to transact in Bitcoin Cash. Bitcoin Cash Node is the blockchain for Bitcoin Cash, and can be thought of as the virtual machine that runs the network, powering transactions.

Understanding Bitcoin Cash

Bitcoin Cash was created in 2017 when developers disagreed on the route Bitcoin should take to address emerging issues with the blockchain. Transaction fees, paid to the miners for doing the work as an incentive for more people to become miners, had continued to rise between 2009 and 2016. In December 2017, fees had risen to nearly $.03 per transaction. By June 2017, fees hit $5.56 before dropping again in July and fluctuating through the rest of the year to skyrocket to $54.64 in December of that year.

Typically, a hard fork takes place when groups of miners and developers can't agree on updates to the software governing a particular digital token. As a result, one group continues to operate under the same rules, while the other branches off and generates a new blockchain with an updated software setup. In the process, a second digital currency is generated.

BCH's creators wanted to increase the size of the blocks within the blockchain so that more transactions could be stored—in theory, more transactions per block would decrease transaction fees. Other developers did not agree that this was the right approach, so the BCH developers created a fork from the Bitcoin blockchain.

Bitcoin's blockchain had scalability issues because it could not handle the increased number of transactions. The confirmation time and fees for a transaction on Bitcoin’s blockchain surged. This was mainly due to the 1MB block size limitation for Bitcoin. Transactions queued up, waiting for confirmation, because blocks could not handle the increase in size for transactions.

Bitcoin Cash itself experienced a few forks along the way. Bitcoin Satoshi Vision (BSV) forked from Bitcoin Cash and Bitcoin Cash became Bitcoin Cash ABC (BCHA) in 2018. In 2021, it changed name to eCash.

How Is Bitcoin Cash Different From Bitcoin?

Bitcoin Cash proposed to resolve the situation by increasing the size of blocks to between 8 MB and 32 MB, enabling mor transactions to be processed per block. The average number of transactions per block on Bitcoin at the time Bitcoin Cash was proposed was between 1,000 and 1,500.

Bitcoin Cash also differs from bitcoin in another respect, as it does not incorporate Segregated Witness (SegWit), another solution proposed to accommodate more transactions per block. SegWit retains only information or the metadata relating to a transaction in a block. Typically, all details pertaining to a transaction are stored in a block. 

Bitcoin Cash also has increased the size of the blocks on the blockchain throughout its history—in 2018, its block size was 8MB. In June 2022, the block size increased again to 32MB.

Is Bitcoin Cash Still Available?

Yes, Bitcoin is available for trading. Bitcoin Cash had a little over 19.4 million coins in circulation and stood at No. 28 in crypto market capitalization at $2.2 billion in late May 2023. It was trading for around $114.52 at that time, while Bitcoin SV ranks 65th with a market cap slightly over $655 million and was trading at $33.99. It has a similar number of coins in circulation.

Has Bitcoin Cash Been Successful?

Bitcoin Cash ultimately was created to raise awareness that BCH must remain permissionless and affordable so it could be used as the "best money in the world," according to the Bitcoin Cash website. In the shorter term, it's been focused on providing a fast, reliable, low-fee network, as well as "establishing a professional mining node that listens to feedback and delivers measurable improvements."

However, despite Bitcoin Cash's bigger block size and transaction capacity aimed at helping it become accepted as a form of payment, the cryptocurrency so far has experienced volatility and has not yet seen widespread consumer adoption.

Why Is Bitcoin Cash Cheaper Than Bitcoin?

VIDEO: What is Bitcoin Cash (BCH)?

Bitcoin Cash as of early June 2023 is trading at a fraction of the price of Bitcoin, but its volume is also much lower because it's not as in demand in the cryptocurrency market. Bitcoin Cash has cheaper transfer fees, so making transactions in BCH saves traders more money than using BTC. But in either token's case, it’s important to remember that Bitcoin and Bitcoin Cash only have value because people think they do.

How Is Bitcoin Cash Different From Bitcoin?

VIDEO: What is Bitcoin Cash? - A Beginner’s Guide

Bitcoin Cash was created to allow more transactions in a single block, theoretically decreasing fees and transaction times. But in spite of the philosophical differences that led to the hard fork, Bitcoin Cash and Bitcoin share several technical similarities. They use the same consensus mechanism and have capped their supply at 21 million coins.

Where Can You Buy Bitcoin Cash?

VIDEO: Bitcoin Cash explained: What it is and how it works

Most major cryptocurrency exchanges offer BCH, once you set up a trading account and make an initial deposit to cover the purchase.

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