Bitcoin Cash: The Peer-to-Peer Electronic Cash System

Introduction

Bitcoin Cash (BCH) emerged from a hard fork of Bitcoin, driven by a vision to realize a literal interpretation of Satoshi Nakamoto's original concept: a "peer-to-peer electronic cash system." It champions the core value proposition of cheap, efficient peer-to-peer transactions. By prioritizing increased block sizes and on-chain transaction throughput, it seeks to reduce reliance off-chain scaling solutions. This approach positions Bitcoin Cash as a medium of exchange first, contrasting with Bitcoin's primary focus on becoming a secure store of value.

Understanding the Bitcoin Cash Token (BCH)

The native currency of the Bitcoin Cash network is BCH. It functions as a digital cash system, enabling users to send and receive payments directly without intermediaries. Its primary use cases include:

• Peer-to-Peer Payments: Facilitating fast and low-cost transactions between individuals and merchants globally.
• Value Storage: Acting as a decentralized digital asset for holding value, though its monetary policy is designed to support its use as cash.

The network's larger block size capacity is a fundamental technological differentiator, aiming to provide high throughput and scalability directly on the main chain.

The Launch of Bitcoin Cash

Bitcoin Cash was officially created on August 1, 2017, at block height 478,559 on the Bitcoin blockchain. The distribution was executed through a hard fork, meaning all holders of Bitcoin (BTC) at the time of the fork automatically received an equal amount of BCH on the new chain. This was possible because Bitcoin Cash inherited the existing Unspent Transaction Output (UTXO) set from Bitcoin. At the moment of the fork, the new chain broke away from Bitcoin's consensus rules, making the two chains separate and transactions incompatible.

Supply Curve and Halving Mechanism

Bitcoin Cash shares the same genesis block and historical blockchain data as Bitcoin up until the point of its fork. Consequently, it inherited Bitcoin's supply history and hard cap of 21 million coins. Key aspects of its supply mechanics include:

• Block Reward: Miners are currently rewarded with new BCH for validating transactions and securing the network. The reward is composed of new coins and transaction fees from the included transactions.
• Halving Events: Like Bitcoin, Bitcoin Cash undergoes halving events approximately every four years, or every 210,000 blocks. These events cut the block reward for miners in half, reducing the rate of new BCH issuance.
• Block Size: The protocol supports a 32MB block size limit, significantly larger than Bitcoin's, to allow for more transactions per block and keep fees low.
• Future Security: Once all 21 million BCH are mined, miner compensation will transition entirely to transaction fees, shifting the network's security model to one based on demand for block space.

A notable historical difference in the supply curve immediately after the fork was due to its original difficulty adjustment algorithm, which included an Emergency Difficulty Adjustment (EDA). This mechanism allowed miners to manipulate mining profitability between BTC and BCH chains, leading to a period of accelerated BCH issuance. This algorithm was later replaced to create a more stable mining environment.

Consensus Mechanism

Bitcoin Cash operates on Nakamoto Consensus, a Proof-of-Work (PoW) system where the valid version of the blockchain is the one with the longest chain of blocks and the most accumulated computational work.

• SHA-256 Algorithm: Miners use specialized hardware to solve complex cryptographic puzzles using the SHA-256 hashing algorithm. They compete to find a hash value below a specific target set by the network's difficulty.
• Difficulty Adjustment: A key difference from Bitcoin is that Bitcoin Cash adjusts its mining difficulty after every block, allowing it to respond more quickly to changes in network hash power and maintain a consistent block time.
• Probabilistic Finality: Consensus is probabilistic. While a transaction becomes more secure with each subsequent block confirmation, there is always a theoretical possibility that a longer, competing chain could emerge and reorganize the blockchain.

Mining is now predominantly performed by specialized Application-Specific Integrated Circuits (ASICs) organized into large mining pools. These pools allow individual miners to combine their hash power for a more consistent share of the block rewards. To explore the current state of blockchain consensus mechanisms, you can view real-time network data and tools.

Governance and Development

The development of Bitcoin Cash is managed by an open-source community. Unlike top-down governance models, it relies on a collaborative and competitive process.

• Multiple Implementations: There are several independent node implementations (like Bitcoin ABC, BCHN, and others), meaning no single entity controls the protocol's development.
• Improvement Proposal Process: Changes are proposed and discussed openly by the community. Developers from the various client teams then debate, refine, and ultimately decide whether to adopt these proposals into their software.
• On-Chain Activation: Upgrades are "ratified" when a majority of the network's miners and nodes adopt the new software. Bitcoin Cash has traditionally used hash power signaling to gauge miner support for upcoming upgrades.
• Scheduled Upgrades: The network follows a bi-annual upgrade schedule (May and November), allowing for a predictable and progressive evolution of its protocol.

Core Technology and How It Works

At its heart, the Bitcoin Cash protocol is a distributed, timestamped ledger that records the transfer of Unspent Transaction Outputs (UTXOs).

1. Transaction Initiation: A user creates a transaction to send BCH, specifying the recipient's address and the amount.
2. Validation and Propagation: The transaction is broadcast to the network and picked up by economic nodes (full nodes). These nodes validate the transaction against the network's consensus rules, checking for double-spends and invalid signatures.
3. Mempool: Valid transactions are placed into a memory pool (mempool), where they wait to be selected by a miner.
4. Mining and Block Creation: Mining nodes select transactions from the mempool, typically prioritizing those with higher fees, and assemble them into a candidate block. They then compete to solve the PoW puzzle for that block.
5. Block Confirmation: The first miner to find a valid hash broadcasts the new block to the network. Other nodes verify the block and its PoW, then add it to their copy of the blockchain, confirming the transactions within it.

This entire process ensures the decentralized and secure transfer of value without the need for a trusted third party. For those looking to get more involved, you can discover advanced methods for on-chain analysis.

Frequently Asked Questions

What is the main difference between Bitcoin (BTC) and Bitcoin Cash (BCH)?
The primary difference lies in their scaling philosophy. Bitcoin Cash believes in increasing the base layer block size to facilitate cheap, fast transactions as electronic cash. Bitcoin prefers to keep the base layer limited and foster development on second-layer solutions like the Lightning Network for transactions, aiming to be a digital store of value.

How often does a Bitcoin Cash halving occur?
Halving events occur every 210,000 blocks. Given the target block time of 10 minutes, this translates to roughly every four years. These events systematically reduce the rate of new BCH issuance.

Can I still claim Bitcoin Cash from the 2017 fork?
If you held Bitcoin in a self-custodied wallet (where you control the private keys) at the time of the fork in August 2017, then the corresponding BCH is associated with those same keys. You can still claim it by importing your keys into a Bitcoin Cash-compatible wallet. If your BTC was on an exchange during the fork, you must check that exchange's policy on fork distributions.

Is Bitcoin Cash more scalable than Bitcoin?
In terms of on-chain throughput, yes. Bitcoin Cash's larger block size allows it to process more transactions per second directly on its base layer, which typically results in lower transaction fees. However, Bitcoin is pursuing scalability through off-chain solutions.

What is the current block size limit for Bitcoin Cash?
The protocol currently supports a maximum block size of 32MB, which is significantly larger than Bitcoin's 1-4MB blocks (with SegWit). This design is intended to allow for massive on-chain scaling.

Who controls Bitcoin Cash?
No single entity controls Bitcoin Cash. It is a decentralized project with development handled by multiple independent teams, and governance is achieved through a rough consensus of miners, node operators, developers, and the broader economic community.