This article intends to provide an accurate guide for beginners that want to learn about Bitcoin’s history and utility. It contains some advanced topics and was created to answer questions beginners in the field have, made in a way that explains the basic terms required to understand this financial technology.
Readers can click on the links of the index below and transfer to the selected part of the article.
Table of Contents:
The Satoshi Whitepaper
How Bitcoin Works: A Peer-to-Peer Electronic Cash System
The Blockchain
What Problems Does Bitcoin Solve?
The Early Days
The Rise And Rise Of Bitcoin
The Chain Split
Bitcoin Cash Early Days - The Flippening
Why Bitcoin Cash?
The Maximalists Propaganda
Bitcoin Cash Is Bitcoin
How to Buy Bitcoin Cash
Bitcoin.com User Friendly Wallet
Accepting Bitcoin Cash In Your Shop
Services
Userbase increase
Merchant Adoption/Onboarding
Institutional Adoption
Developments on top of Bitcoin Cash
SWOT Analysis (Infographic)
Bitcoin Cash Development Teams
Bitcoin as Digital Cash vs Digital Gold
F) Conclusion
E) Resources
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A) Introduction to Bitcoin
The mission of this post is not to cover every historic event or to elaborate on how Bitcoin technically works. There are thousands of posts online doing the same. However, like everyone else, we were all beginners in need of guidance once.
We start from the very beginning, with the Satoshi Whitepaper:
i) The Whitepaper (download)
Everyone interested in Bitcoin should first read the whitepaper, perhaps several times, to understand the basics. The whitepaper was released by Satoshi Nakamoto in 2008 and contains the essence of Bitcoin.
The whitepaper explains the reasons for the inception of Bitcoin.
The objective of Bitcoin is to improve Commerce with a verifiable payments mechanism that is not relying on trusting a third party to perform the requested actions.
Image from: Whitepaper.
Commerce needs transactions with low cost and high speed. Competing the established Visa/Mastercard networks and other online payment systems (like AliPay in China) demands efficiency. Bitcoin was at a fair starting point, however, the scaling problem was obvious. It was in a testing phase until 2010, but the scaling issues had to be solved if it was going to reach mass adoption as a digital currency.
ii) How Bitcoin Works: A Peer-to-Peer Electronic Cash System
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.
- Bitcoin Whitepaper, Satoshi Nakamoto
While this part requires a lot of technical knowledge and programming skills, the Bitcoin code is open source and has been audited by thousands of independent developers. The code has differences after the fork of 2017, but both versions of Bitcoin relate to most parts.
Expanding into terms like elliptic curve digital signatures, hashing algorithms, and other technical expressions are confusing for beginners.
An illustration of how Bitcoin works:
Image Source.
There is no central authority in Bitcoin. However, the decision-making process relies a lot on the development side for BTC, and there are many discussions about how censorship from BIPs (Bitcoin Improvement Proposals) discussion channels (Reddit, bitcointalk) resulted in a one-sided discussion over the scaling debate. Bitcoin upgraded in 2017, but only the side of Bitcoin Cash proceeded with this upgrade.
iii) The Blockchain
The blockchain is a distributed ledger system. To put it simply, it is a database with two fundamental properties:
Consensus
No central administrator (Decentralization)
Typically, when we refer to the blockchain, the standard is Bitcoin’s Blockchain. A system of blocks, each sized in megabytes or kilobytes, containing the network transactions.
An intrinsic attribute of the Blockchain is immutability.
To achieve immutability, the network has to be decentralized. Decentralization is achieved with mining (hash power) and full nodes that validate blocks and transactions following consensus rules.
Hash power is divided between miners, and the more full nodes are available, having downloaded the blockchain and synched, the more decentralized a blockchain is.
A full node is a system running the Bitcoin software, having downloaded the full blockchain and synchronized with the rest nodes.
"Full nodes maintain a complete and up-to-date copy of the blockchain...
Full nodes can autonomously and authoritatively verify any transaction without external reference"
Mastering Bitcoin, by Andreas Antonopoulos (Source).
Consensus is a decision-making process. It is the core of Bitcoin. All decisions have to be taken by the overwhelming majority of all Bitcoin constituencies.
Consensus rules are the rules of the network that every participant adheres to. These rules are in the Bitcoin code and have to do with everything that concerns transactions, blocks, and mining.
iv) Which Problem Bitcoin Solves?
Before Bitcoin, there had been many attempts at the creation of digital cash. All of them failed, and the reason was centralization. A centralized private network can be shut down by governments or attacked by hackers. Bitcoin is decentralized, meaning there is no way for a government to shut it down. It will take all governments in the world to combine their efforts and outlaw Bitcoin, and still there will be servers running the Bitcoin software, in locations that won’t be reachable. This is the power of decentralized networks.
Bitcoin is trustless. We trust only the code and the developers that will find bugs in the code and fix them. Having a trustless network empowers the user, providing absolute control of the funds.
Bitcoin is permissionless and borderless. It gives absolute power to the user, to perform any action he wants. We can send funds anywhere in the world, to absolutely anyone we want without any restrictions, at any given time we want. The funds will be there after the transaction is mined in a block, and validated through the network.
Bitcoin solves the problem of having to rely on a financial institution. With Bitcoin everyone has absolute control of the funds and has total freedom to use them as they want and whenever they want. Never before in history, have we had a financial network offering complete freedom.
v) The Early Days
Most of us entered the cryptocurrency markets for profit following stories of those that bought or mined Bitcoin early and gained vast fortunes. We have also seen similar events with other cryptocurrencies.
The early days of Bitcoin were not as easy as it seems, and immediately achieving wealth was not the plan for everyone. It was an insecure environment. Nobody knew a lot about Bitcoin, and while the infrastructure was growing, with exchanges appearing and interest in Bitcoin rising, the hacks of these services kept Bitcoin in obscurity.
The price of Bitcoin crashed to zero when a hacker gained access to a MtGox admin account and started offloading Bitcoins from users’ wallets, back in 2011.
Nobody could be certain about the success of Bitcoin, and while one day a miner may have had a million dollars value of Bitcoin, the next day prices crash and the same Bitcoins were valued at just a few thousand dollars. Under these circumstances, the risk was extremely high for the early investors, and for many, it paid off, but it wasn’t a simple game at all, as many believe.
Until the first halving, miners were using their CPUs to mine Bitcoin. It took two years for an exchange to appear and give value to these Bitcoins. The price was initially low, even less than a penny when the first exchange went online.
It was just a small project with a few enthusiastic users that found it intriguing.
vi) The Rise And Rise Of Bitcoin
Everything started with Satoshi. We don’t know who this person is and we don’t know if it is one person or a team. Satoshi left the project in 2010 when WikiLeaks started accepting Bitcoin as an alternative payment method for donations.
It was the moment that the early Bitcoin users were long waiting for. Bitcoin was finally receiving recognition, although Satoshi’s plans were not about creating digital cash that could help institutions avoid government sanctions.
A few months later, the dark web Silk Road marketplace went online. Bitcoin gained notoriety as an underground system of payments and was used massively as such.
These two events (WikiLeaks and Silk Road) proved that Bitcoin had already entered a stage impossible to stop.
Bitcoin’s first halving took place on the 28th of November, 2012. The result is shown in the chart below:
Bitcoin reached $1,200, one year after the first halving, from a starting price of $10.
The adoption of Bitcoin was rapidly increasing and started becoming accepted by major corporations as a currency. Microsoft was one of them, followed by Steam and countless websites and physical stores.
In 2013, Bitcoin becomes for the first time a topic of discussion in the mainstream financial media (Bloomberg, CNBC, Reuters) as the price kept rising. It took four years, but finally, Bitcoin entered a massive wave of international recognition. Still, it went silent for two more years, immediately after the collapse of the MtGox exchange.
Digital money should not be trusted with centralized services, and holding the (private) keys to our wealth was more important than speculating on the price. The infrastructure was weak, requiring improvement. The regulations were also weak, and governments were often discussing a blanket ban on Bitcoin.
Bitcoin in 2015 had a decisive moment with the scaling debate. The chain split of 2017 that led to the fork and the creation of Bitcoin Cash resulted from many years of disputes and disagreements over consensus level changes.
The version that won the scaling debate was the one that did not prefer a scaling solution for Bitcoin but promoted a secondary network on top of Bitcoin instead, the Lightning Network (also another second-layer solution by Blockstream, the Liquid Network)
Bitcoin was to stay at a low blocksize with increasing high fees and transactions stuck for weeks. Bitcoin Cash went on its way to creating a network that proved blockchain could scale to meet demand and has plans for mass adoption as a digital currency. Bitcoin proceeded instead with a narrative of evolving into digital gold.
The Bitcoin Cash fundamentals are more relevant to the Satoshi whitepaper, and the discussions on scaling Bitcoin.
BTC didn’t select to scale but follows a dubious path concerning scaling with second-layer solutions. However, the Lightning Network seems to require trust in third parties to an overwhelming degree in transactions, which was what Bitcoin was created to eradicate.
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B) The Era Of Bitcoin Cash
i) The Chain Split
The events that led to Bitcoin’s blockchain split during the fork of August 2017 will not be discussed in length here. This is for everyone to find on the internet. Consensus was not reached, leading to the 1st August 2017 Segwit fork on block height #478559. Bitcoin Cash was created with an 8MB block size, and Bitcoin went on with SegWit and layer-two solutions. Bitcoin Cash currently has a block size of 32MB and will increase if required to accommodate further adoption.
The main argument of the Bitcoin (BTC) developers for not increasing the block size limit that could help Bitcoin scale was that decentralization would be limited, as the increase of the blockchain’s size (340GB at the time of writing) will limit the number of nodes that “verify transactions”.
However, improvements in digital storage technology over the last decade have proven this argument wrong, as hard-drive speeds and capacity are increasing and the cost is reducing. The argument that Bitcoin users won’t be able to download and run a full node to validate their transactions is not convincing.
Bitcoin Cash scaled to meet global adoption. Sending Bitcoin Cash is almost free, as transactions cost less than one cent, the network handles increased traffic very well and it is today a proven working upgrade for Bitcoin.
ii) Bitcoin Cash Early Days - The Flippening - Hash Wars
The early days of Bitcoin Cash were difficult but with enthusiasm surrounding all participants.
Bitcoin Cash tried several times what was dubbed “the flippening”. During times of BTC network congestion in 2017, Bitcoin Cash was increasing in value and hashrate. Bitcoin Cash reached second place in the market cap and kept pushing for months.
One year later, Bitcoin Cash had its civil war, with Craig Wright's team supporting a split, and the result was Bitcoin SV.
The hash-wars between Bitcoin Cash and Bitcoin SV, as well as the latest 2019 smaller size split of Bitcoin ABC, were events that made Bitcoin Cash lose a big part of its market dominance. It managed to recover though, and today we watch a similar enthusiasm from both the userbase and developer sides.
iii) Why Bitcoin Cash?
For the whole Bitcoin Cash userbase, Bitcoin Cash is the upgraded version of Bitcoin. It is scaling according to the needs of the network and can reach global adoption.
With fees and utility being for the people and not for just a small percentage of the wealthy population. BTC is for people like Saylor and Musk that speculate with taxpayer money. Bitcoin Cash is for all people. We can't use Bitcoin to purchase consuming goods. Fees vary between $1-$50.
It is financially logical to use Bitcoin Cash instead of Bitcoin.
Bitcoin Cash is creating a vast network of availability for payments with BCH having onboarded hundreds of thousands of merchants. It is also used for payments inside payment processors:
Fast transactions
Low Fees - Less than $0.01
Constant Blockchain Development
Robust and Reliable Network
Uncensorable
iv) The Maximalists Propaganda
This part is included in this guide because it has a big influence, especially for beginners in the cryptocurrency field. The arguments from the BTC side have to do with manipulating and convincing newcomers not to side with Bitcoin Cash.
This is the result of a “hodl” mentality without logical arguments.
Often beginners in crypto, discuss their frustration with the ~$20 fees for each transaction. Logic suggests that a currency needs to be efficient.
BTC is not a currency anymore, it is just used for speculation without having any purpose or use case. However, Bitcoin Maximalists think that every other cryptocurrency is useless and a scam. There are also numerous events and reports of censorship in media and public forums/platforms like bitcointalk and Reddit.
v) Bitcoin Cash is Bitcoin
Bitcoin Cash has combined every positive characteristic of Bitcoin and can also scale.
Bitcoin digital money until 2015. However, it wasn’t going to meet demands for mass adoption with low block capacity and just four transactions per second when established payment networks (Visa/Mastercard/etc.) perform thousands of transactions per second for their systems.
Bitcoin Cash didn’t sacrifice anything from the original protocol. It instead upgraded the code, just as Satoshi explained in technical remarks.
Bitcoin Cash is Bitcoin following the whitepaper. Permissionless, decentralized, "P2P Electronic Cash". With Bitcoin Cash, we are in control of our digital wealth. Bitcoin in the BTC version has not evolved and is not meeting the need to become electronic cash.
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C) How to use Bitcoin Cash
Image Source: Bitcoin.com
i) How to Buy Bitcoin Cash
Bitcoin Cash is available to buy from all cryptocurrency exchanges. Some of the top cryptocurrency exchanges are:
Coinbase
Binance
Kraken
Bitcoin.com
Bitcoin Cash is also available for purchase through the PayPal platform in the USA currently.
Finally, for institutional investors, there are two options:
ii) Bitcoin.com - User-Friendly Wallet
Bitcoin.com offers the top wallet for Bitcoin Cash (BCH) and BTC. Download from the official site either for Android or IOS mobile operating systems.
We should always remember to save passwords, phrases, and private keys, and write them down on paper. The private key provides access to our coins in the blockchain. Losing the private keys will probably result in a loss of funds.
Bitcoin.com offers one of the most user-friendly mobile wallets. The wallet takes just two minutes to understand how to use and securely store our BCH.
iii) Accepting Bitcoin Cash In Your Shop
In the video below, Roger Ver explains how to download and use the Bitcoin Cash Register App, to accept Bitcoin Cash in your shop.
iv) Services
There are several blockchain explorers to view transaction status and public addresses.
Bitcoin Cash is an acceptable payment method using the following payment processors that facilitate commerce through a network of hundreds of thousands of merchants:
Rakuten Pay (Japan)
Privacy services for Bitcoin Cash:
Electron Cash Wallet (Plugins)
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D) Network Adoption
i) Increase of Userbase
Bitcoin Cash is enjoying an increase in userbase since the beginning of 2021. Cryptocurrencies are once again mainstream. The coming mass adoption will decide which cryptocurrencies offer user-friendly infrastructure, and present cost-efficient, fast, and reliable transactions.
We observed a surge in the Bitcoin Cash network activity since the beginning of the year (2021). Activity in the network increased tenfold, while miner fees and speed of transactions stood unaffected.
The active addresses have also tripled in the first months of the year. Bitcoin Cash for a few months of 2021 was performing more transactions than Bitcoin as the userbase kept expanding.
ii) Merchant Adoption/Onboarding
Bitcoin.com has a world map containing all the registered merchants that accept Bitcoin Cash. While this is not a complete list, it certainly helps when visiting any location in the world where cryptocurrencies are legal, as Bitcoin Cash merchants will be glad to accept BCH for payments.
Various initiatives are running with volunteers onboarding merchants, physical shops, and e-commerce businesses in Bitcoin Cash.
iii) Institutional Adoption
Grayscale's Bitcoin Cash Trust is the only fund available in the US for institutional investment in Bitcoin Cash. BCHG is the ticker of the Bitcoin Cash Trust shares traded on the OTC exchange OTCQX.
More information for institutional and accredited investors is found on Grayscale's website (link).
iv) Developments on top of Bitcoin Cash
A full list of all bitcoin cash projects can be found in this link from Bitcoin.com. This list is growing every day, as new developers are joining Bitcoin Cash having found the perfect ground to create what they had in mind, without having to risk their product having no users because of the high fees of the Ethereum Network.
Bitcoin Cash is lately having working DeFi and NFT products, social media networks, tipping and crowdfunding services, new wallets, tools, and services.
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E) The Future of Bitcoin Cash
i) SWOT Analysis
Infographic: Own content, created with Canva.
Bitcoin Cash is on course for global domination. The network itself is the best marketing. A state-of-the-art blockchain that managed to scale without reducing decentralization or security.
The main weakness is the negative sentiment presented against Bitcoin Cash by the BTC community. Competition is welcome, although, the BTC community is often abusive against other cryptocurrencies.
While Bitcoin Cash has a few excellent evangelists, like Roger Ver, Marc De Mesel, Kim DotCom, and Jihan Wu, it is still very few compared to the number of influencers BTC has. Marketing and PR is a competitive advantage BTC maintains over Bitcoin Cash.
ii) Bitcoin Cash Development Teams
For developers:
iii) Bitcoin as Digital Cash vs Digital Gold
Bitcoin Cash is serving the people. It is money for everybody, not just the elite.
Bitcoin Cash has a certain use case, to make the life of billions of people better by transacting freely and effectively.
Utility Trumps Speculation:
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F) Conclusion
I created this guide to help beginners that start with their Bitcoin journey and feel lost with the flow of information (and misinformation) from various sources. Having in mind how confused I was back in 2017, my mindset was shaped to believe that I should accept Bitcoin as it is and “hodl” the BTC bags without questioning.
Inquiring minds don’t do that, but question and keep researching. What I always dreamt of was digital money. Government or centralized digital cash services have numerous drawbacks, though. I never imagined that decentralized digital cash with no central authority could exist, and this factor instantly brought me to research Bitcoin.
Digital money should be fast and cost-efficient to benefit commerce. There is no point in creating a currency just for a small percentage of our societies. Money must be the same for everyone and for the first time we can push the separation of money and State.
Taking everything into account, all of us that support Bitcoin Cash also use the term Bitcoin because we believe that this is the upgraded version of Bitcoin. Bitcoin was supposed to be about network adoption for electronic commerce, in online and physical stores, but Bitcoin-BTC offers a limited use case as digital gold.
Between 2008 and 2015, a lot changed in Bitcoin.
The narratives changed, and from “Be your own bank” we now watch BTC relying on banks and Wall Street funds. It is unforgivable for many of those that put their heart and soul into Bitcoin, and the reason that most early developers like Gavin Andresen and Mike Hearn abandoned Bitcoin in frustration.
When a currency is not useful in commerce, it is not useful as a store of value either. In the long term, people (consumers) will decide which cryptocurrencies have utility and which will have no reason to exist.
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E) Resources
Bitcoin's Whitepaper, Bitcoin.com
VPNmentor, Bitcoin Guide
Yahoo Charts, Blockchain's Size
Mastering Bitcoin, Andreas Antonopoulos
YouTube, Roger Ver's Channel
Bitcoin.com, Merchant Map
Bitcoin.com, Various resources
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Images
Lead Image created with Edit.org
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Material published in this content, is used for entertainment and educational purposes and falls within the guidelines of fair use. No copyright infringement intended. If you are, or represent, the copyright owner of images used in this article, and have an issue with the use of said material, please notify me.
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I appreciate the effort involved putting this resource together. As a relative newcomer to BCH but not crypto, I particularly liked you SWOT charge.