Bitcoin Cash Blockchain: a potential DeFi opportunity

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criptocu

Bitcoin, crypto, evolving human being...

1 year ago

In community: Everything Crypto(f12e)

Topics: Cryptocurrency, Bitcoin Cash, Crypto, BCH, Blockchain, ...

From Pixabay

In 2017 after a long debate in the community, the difference of opinion and lack of consensus on the matter caused a hard fork in the network of Bitcoin which results in the creation of a new currency. This fact marked the end of the war of the size of block (as it is known today) as this was the main reason that unleashed the division.

After the split, each group claimed to be the real Bitcoin. However, the general public continued to call the network Bitcoin which remained unchanged and as the block size increased it began to be called Bitcoin Cash.

Taking the above into account, it is undeniable to say that, despite sharing a common history, Bitcoin Cash is somewhat different from Bitcoin. It is not my intention to define now who was right or wrong, nor which currency is better than the other.

The objective of this article is to analyze the Bitcoin Cash blockchain and explore all the innovations that it has incorporated over time. Improvements that, despite the fact that the network remains out of the media spotlight, make this blockchain one of the most solid and innovative. Being also a niche of opportunities to explore and exploit.

If you are open to learning something new, welcome and read carefully.

The Bitcoin Cash blockchain

As I explained to you, it is not my goal to narrate the reasons that led to the creation of BCH, you can find out about that in a fairly summarized way in Wikipedia. What I will do is mention to you the main changes introduced in this blockchain since 2017 when it stopped having a common history with Bitcoin. This will help you understand the potential represented by Bitcoin Cash today.

DAA Algorithm

It is considered the first update of the BCH protocol, in which the emergency adjustment algorithm of mining difficulty (EDA) is replaced by the Difficulty Adjustment Algorithm (DAA) that contained considerable improvements.

CashAddresses

On January 9, 2018, a new native address format is implemented with the official name of CashAddr Address Format, popularly known simply as CashAddress.

32 MB block size

After the increase to 8 MB that gave rise to Bitcoin Cash, on May 15, 2018 the protocol was updated again to allow blocks of up to 32 MB (as happened in BTC in its beginnings). This update also reactivated original Bitcoin opcodes disabled by Bitcoin Core.

It should be noted that the increase in the maximum block size did not set a minimum, so this change does not force miners to mine 32MB blocks, it just introduced the possibility.

Curiously, the weight of the BTC blockchain is greater than that of BCH. While Bitcoin has a weight of 483 GB and Bitcoin Cash only reaches 188 GB. This has its main cause in the different popularity that both currencies have reached.

To see the weight of the BCH blockchain: https://blockchair.com/es/bitcoin-cash/charts/blockchain-size
To see the weight of the Bitcoin blockchain: https://blockchair.com/es/bitcoin/charts/blockchain-size

Schnorr Signatures

This is an enhancement that increases privacy and efficiency for both standard and multi-signature transactions. Getting to optimize the use of bandwidth and storage by 25%. Bitcoin Cash became the first coin to implement this feature even though it was possible since the patent was released in 2008.

Zero conf ( 0-conf )

From Unsplash

Bitcoin Cash supports 0-conf allowing merchants to charge for their services and products quickly and securely. In this case, the double spend is avoided since the option to replace by fee is not enabled in the BCH code. In this case the transactions are processed by the first sight principle.

In theory, for double spending to occur, the two transactions would have to occur simultaneously. 4 years ago it was verified that less than 0.09% of double-spend transactions sent just 1 second after the first transaction was successful.

Today all BCH acceptance systems for merchants and merchants monitor the blockchain network for a few seconds looking for signs of double spending before declaring the payment valid. This makes it nearly impossible to successfully double-spend.

It is valid to clarify that this is generally accepted for low amounts, with high amounts almost everyone expects at least 1 confirmation on the blockchain.

Simple Ledger Protocol (SLP)

Simple Ledger Protocol allows users to create, issue and transfer digital tokens with the same network and security model as Bitcoin Cash.

Tokens can be associated with assets and securities using the Blockchain as a public ledger with transparency and integrity to document transactions. Using the computational power and other benefits such as the low fees of the Bitcoin Cash network.

Simple Ledger Protocol is non-invasive as it does not make any changes to the Bitcoin Cash protocols. Transactions containing SLP tokens are accepted and validated in the same way as BCH transactions, so double spend attempts will be rejected by the network.

However, tokens are considered spent once their associated output (valid transaction) is spent. Therefore, there is a risk that if the wallets do not know the SLP tokens associated with the BCH UTXO, or if invalid SLP transactions were sent, users will lose the tokens for good.

Another fact to note is that SLP transactions must obey the consensus rules of BCH transactions. So the outputs have to be above the threshold of dust; if the BCH satoshis from the inputs with SLP tokens cannot pay the outputs, an additional input of BCH must be included.

Despite potential drawbacks, the versatility and functionality provided by Simple Ledger Protocol Tokens (or cashtokens) make them a useful and effective tool for increasing financial access.

AnyHedge Protocol

The development of AnyHedge started in the year 2020. Anyhedge is an open source protocol that allows us to use the Bitcoin Cash blockchain to create smart contracts. In this way we can create "hedges" between Bitcoin Cash and any other asset.

This protocol bases its approach on the market by trying to enable "risk trading" between peers. It works with a blind oracle, its settings apply OP_CHECKDATASIG, an active innovation in BCH.

This allows a digital signature of any arbitrary data to be verified, ensuring that the smart contract is configured ahead of time without the need for oracle interaction or permission. Also reducing the danger of misuse. Participants can choose between different oracles and theoretically establish smart contracts with the use of multiple oracles further minimizing risk.

An example of a use case can be found detailed in Pablo Beltran's article, About the AnyHedge protocol….

Thanks to this development, Bitcoin Cash is now an environment for the implementation of smart contracts and DeFi platforms. BCH's UTXO model, in which each transaction creates a new unspent output, gives advantages of scalability and security, making this blockchain an attractive option for decentralized finance projects.

Since October 2022, BCH Bull (a decentralized trading platform based on Bitcoin Cash) has been in beta phase, during this stage more than 3000 smart contracts were created and traded. This project was just released in full production mode this past May.

Now the users of this system can now initiate contracts of up to 90 days in duration enjoying the security and scalability offered by the BCH blockchain.

Using the AnyHedge protocol, BCH Bull allows you to create long or short positions on various assets (US dollar, Bitcoin, gold, etc.). It is even possible to add leverage to trades.

The main difference with similar applications found on other networks like Ethereum, is that each exchange has its own independent smart contract. Once two people agree to the terms, the contract is initiated, eliminating centralized security risks.

Final notes

As you can see, the sprawling Bitcoin Cash ecosystem has become a promising option for DeFi applications and paves the way for further innovation. Also offering potential advantages in scalability and security through its UTXO model.

Your CashTokens are valid for identity tokens, agreement tracking, fungible token voting, decentralized agreements and many other applications. With the increasing demand for innovative financial solutions, the potential of BCH as a blockchain in the DeFi space cannot be ignored.

As the financial industry continues to evolve, monitoring Bitcoin Cash innovation may be crucial for investors and cryptocurrency users in general.