Bitcoin cash is a cryptocurrency created in August 2017, from a fork of Bitcoin. Bitcoin Cash increased the size of blocks, allowing more transactions to be processed and improving scalability.
The cryptocurrency underwent another fork in November 2018 and split into Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision). Bitcoin Cash is referred to as Bitcoin Cash because it uses the original Bitcoin Cash client.
Understanding Bitcoin Cash
The difference between Bitcoin and Bitcoin Cash is philosophical.
As proposed by Bitcoin inventor Satoshi Nakamoto, Bitcoin was meant to be a peer-to-peer cryptocurrency that was used for daily transactions. Over the years, as it gained mainstream traction and its price surged, Bitcoin became an investment vehicle instead of a currency. Its blockchain witnessed 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 proposes to resolve the situation by increasing the size of blocks to between 8 MB and 32 MB, thereby enabling the processing of more transactions 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. The number of transactions on Bitcoin Cash’s blockchain during a stress test in Sep. 2018 surged to 25,000 per block.
Major proponents of Bitcoin Cash, such as Roger Ver, often invoke Nakamoto’s original vision of a payment service as a reason to increase the block size. According to them, the change in bitcoin’s block size will enable bitcoin’s use as a medium for daily transactions and help it compete with multinational credit card processing organizations, such as Visa, which charge high fees to process transactions across borders.
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.
Ideological and block size differences apart, there are several similarities between Bitcoin and Bitcoin Cash. Both use the Proof of Work (PoW) consensus mechanism to mine new coins. They also share the services of Bitmain, the world’s biggest cryptocurrency miner. The supply of Bitcoin Cash is capped at 21 million, the same figure as Bitcoin. Bitcoin Cash also started off using the same mining difficulty algorithm—known technically as Emergency Difficulty Adjustment (EDA)—which adjusts difficulty every 2016 blocks or roughly every two weeks.
Miners took advantage of this similarity by alternating their mining activity between Bitcoin and Bitcoin Cash. While it was profitable for miners, the practice was detrimental to the increasing supply of Bitcoin Cash in the markets. Hence, Bitcoin Cash has revised its EDA algorithm to make it easier for miners to generate the cryptocurrency.