BITCOIN CASH WAS USHERED INTO EXISTENCE BY A SPINOFF FROM THE BITCOIN BLOCKCHAIN, REFERRED TO AS A "FORK" IN THE CRYPTOCURRENCY WORLD.
Similar to when, in the business world, organizations sell off parts of a company, turning them into stand-alone enterprises. These spun-off companies are usually expected to be worth more as independent entities than part of the larger business.
The so-called hard fork was implemented on August 1, 2017, after groups of Bitcoin (BTC) developers had put forward competing plans for improvements to the network’s protocol.
When they couldn’t reach a consensus on which protocol to adopt, Bitcoin theoretically split in two.
To describe the split, one analyst uses the analogy of a word processing software, saying (in so many words) that Bitcoin Cash (BCH) is like a new version of Microsoft Word, which generates documents that can no longer be opened on older versions.
IN OTHER WORDS, following a fork, if one group of nodes (think “guardians” who monitor the blockchain to distinguish legitimate transactions from non-legitimate ones) continue to use the old software while the other nodes use the latest software, a permanent split occurs. So on the day of the split, for those who chose to make the switch, the amount of Bitcoin they possessed in their old wallets, was “converted” into Bitcoin Cash, also called Bcash, in their new BCH wallets.
WHY THE SPLIT?
THE SPLIT WAS DUE partially to philosophical differences on which direction the two groups wanted to move. Some developers (the Bitcoin camp) saw the coin as more of a store of value, while others (the Bcash camp) wanted to encourage its use as a more transactional medium of exchange – hence the addition of the word “cash.”
Bitcoin Cash proponents — including the infamous Roger Ver, an early Bitcoin advocate who calls himself “Bitcoin Jesus” — were also worried about the scalability of Bitcoin as the coin continued to grow in popularity.
This is where BCH’s increased block size comes in, as a bigger block can process more transactions at once. At its inception, BCH used 8-megabyte (MB) blocks – as opposed to the 1-MB blocks used by BTC. And later, on May 15, 2018, in further attempts to better prepare the coin for mass adoption, BCH quadrupled its block size to 32-MB blocks.
AT THE END OF 2017, due to an influx of new money into the crypto ecosystem, Bitcoin (as well as other coins) hit its first all-time high of almost $20,000. BCH developers arguably saw this all-time high coming and surmised that the Bitcoin network, as it were, would not be able to handle the ever-increasing number of transactions that would be coming in the near future. So they sought out an alternative (which would become Bitcoin Cash) that would be able to scale up and grow more seamlessly.
Another factor that contributed to the split was related to the running of nodes. Bitcoin advocates wanted to keep blocks small so that nodes could operate with fewer resources, something arguably more in line with the decentralized philosophy at the heart of cryptocurrencies.
By contrast, with Bitcoin Cash’s lager blocksizes comes the need for more powerful computers to run nodes which, in turn, tends to demand a more well-funded, centralized ecosystem.
WHILE THE BITCOIN CAMP SEES second-layer solutions like The Lightning Network as a better method for scaling (I intend to discuss this deeper in a future article), the Bitcoin Cash camp believe that bigger block sizes will ultimately lead to a network more people can transact on, hoping in the future BCH will be a sort of "PayPal 2.0."
POKING HOLES IN THE “BITCOIN AS DIGITAL GOLD” NARRATIVE
Now we’ve got a grasp of the history behind the split, let’s dive in a little deeper and look at some of the other significant differences between the two coins, notably, transaction costs and transaction fees.
THE NUMBERS ARE AS FOLLOWS: The Bitcoin network verifies between 3-7 transactions per second, at a cost of $5 to $50 per transaction (the average on May 4 being $18.28); Bitcoin Cash, on the other hand, verifies over 100 transactions per second and costs pennies (the average May 4 being $0.02).
Advocates of Bcash, in attempts to market their coin, try to poke holes in the Bitcoin as a digital gold narrative. They do this on their website by pointing out that the worldwide cash market is worth $100 trillion, compared to only $10 trillion for the worldwide gold market. The logic of BCH enthusiasts being: because the cash market is 10x larger than the gold market, Bitcoin Cash has not only a stronger use case but also “bigger upside potential.”
Bcash enthusiasts also point out that of the 3 trillion transactions per year in the global market, 75 percent are cash, with just 13 percent being credit/debit cards (and 12 percent "others”). These figures, they argue, highlight why BCH, with its lower fees and speedier processing times, is better suited for mass adoption by everyday, cash-spending consumers.
“Even 1 percent of global transactions would mean 82 million transactions per day for BCH,” states the website Why Bitcoin Cash?.
BITCOIN CASH’S MARKET CAP WOES
In addition to the BCH fork, there have been dozens of other forks and experimentations within the Bitcoin ecosystem. Some never became operational, many have fallen into obscurity, but there are a few that remain somewhat relevant. Bitcoin Gold (BTG) came into existence in late-2017 and was centered around alterations to the mining algorithm. In late-2018, the Bitcoin Cash blockchain experienced a hard fork resulting in the creation of a new cryptocurrency called Bitcoin Satoshi Vision, aka Bitcoin SV (BSV).