Bitcoin Cash

Bitcoin Cash is a Bitcoin hard fork advocating for and building towards a literal interpretation of Bitcoin as a “peer-to-peer electronic cash system”. It views cheap peer-to-peer transactions as the core value proposition of the network and is dedicated to increasing block sizes and on-chain transaction throughput in pursuit of this goal. Bitcoin Cash believes that starting as a medium of exchange is the superior route to becoming money in opposition to Bitcoin’s strategy of first optimizing for securely storing value.

BCH is used as a native currency within the Bitcoin Cash network. BCH can be used for peer-to-peer payments and value storage within the Bitcoin Cash network. With its larger block sizes (relative to Bitcoin), Bitcoin Cash aims to offer high throughput and on-chain scalability through increased block sizes, aiming to reduce the reliance on off-chain scalability solutions for transactions.

Bitcoin Cash was distributed via a Bitcoin hard fork whereby new BCH were distributed to current Bitcoin private key holders by inheriting the new chain the existing Bitcoin UTXO sets prior to the fork. Roughly 16.5 million BCH were distributed on August 1, 2017 (block 478559) at which point Bitcoin Cash broke out of Bitcoin’s consensus rules, making transactions incompatible.

Bitcoin Cash shares Bitcoin’s genesis block and entire blockchain history up to August 01, 2019 (block 478559) when the hard fork occurred. As such, it went through two halvings to date; in November 2012, and again in July 2016, each cutting the initial block reward by half. On average, Bitcoin Cash generates new blocks every 10 minutes, rewarding miners with 12.5 new BCH and the total transaction fees from the preceding block. Each block has a 32MB limit and block rewards are halved every 210,000 blocks (approximately 4 years). Eventually, once the 21 million BCH hard cap has been reached, block rewards will transition entirely to transaction fees shifting the security model of the protocol to one based on demand for block space versus one based on demand for BCH. Bitcoin Cash’s next halving is expected to happen in May 2020.

The difference between BCH and BTC supply curves since the fork can be explained by the difficulty adjustment algorithm which included one addition compared to Bitcoin: the Emergency Difficulty Adjustment (EDA). This mechanism was set by the Bitcoin Cash developers to incentivize miners to prioritize BCH’s transactions over that of BTC’s. Miners leveraged this mechanism to maximize their profit by reducing their BCH mining output while waiting for the Emergency Difficulty Adjustment to reduce BCH’s difficulty, which in turn would lead to higher returns. As a result, 120,000 more BCH than BTC were mined from August 01, 2017, until November 13, 2017, when Bitcoin Cash underwent a hard fork to change the difficulty adjustment algorithm.

Bitcoin Cash uses Nakamoto Consensus whereby the valid chain is the longest chain with the most accumulated proof-of-work. Consensus in Bitcoin Cash, and other systems using Nakamoto Consensus, is probabilistic because there is always a chance that a new, longer competing chain could emerge with more accumulated proof-of-work, that would invalidate the current chain.

Miners solve computational puzzles to generate new blocks using a SHA-256 algorithm. In this process, miners compete to generate a hash less than the target number set by Bitcoin Cash’s difficulty adjustment algorithm. Notably, the target difficulty level is adjusted every block as opposed to Bitcoin’s every 2016 blocks.

Although open to anyone with a CPU, Bitcoin Cash mining is now dominated by ASICs usually situated in enterprise-scale data centers. Furthermore, in order to smooth individual miner revenue as mining has become more competitive, mining is now done in pools where participants contribute hash power to the pool and receive a proportional share of the profits if the pool finds a valid block.

Bitcoin Cash development is open to the open-source community. Although largely driven by Bitcoin ABC, Bitcoin Cash has 6 different client implementations. Protocol development is governed by a proposal process whereby anyone in the open-source Bitcoin Cash community can submit draft proposals. After debate by the community, the client implementation editors accept or reject the proposals. Decisions from the process are written into the Bitcoin Cash specification, as well as the software that runs the network. Finally, protocol changes are “ratified” on-chain when the majority of the network adopts the upgrade and doesn’t break consensus.

Although very similar to Bitcoin overall, as opposed to users signaling support of upgrades, Bitcoin Cash tends to use hash power signaling to indicate support of network upgrades. Furthermore, Bitcoin Cash implements planned upgrades on a bi-annual basis as part of its more progressive network upgrade philosophy.

Bitcoin Cash, the protocol, is a distributed, time-stamped ledger of unspent transaction output (UTXO) transfers stored in an append-only chain of 32MB data blocks. A network of mining and economic nodes maintains this blockchain by validating, propagating, and competing to include pending transactions (mempool) in new blocks. Economic nodes (aka “full nodes”) receive transactions from other network participants, validate them against network consensus rules and double-spend vectors, and propagate the transactions to other full nodes that also validate and propagate. Valid transactions are sent to the network’s mempool waiting for mining nodes to confirm them via inclusion in the next block.

Mining nodes work to empty the mempool usually in a highest-to-lowest fee order by picking transactions to include in the next block and racing against each other to generate a hash less than the target number set by Bitcoin Cash’s difficulty adjustment algorithm. Bitcoin Cash uses a Proof-of-Work (PoW) consensus mechanism to establish the chain of blocks with the most accumulated “work” (a.k.a., energy spent on solved hashes) as the valid chain.