Guide to Bitcoin Cash: What It Is and How It Works

What Is Bitcoin Cash?

Bitcoin Cash was created to address Bitcoin's scalability challenges that had been limiting its growth and adoption. The processing of Bitcoin transactions, constrained by a block size of 1 MB, frequently resulted in network congestion and elevated transaction fees that made everyday use impractical. As Bitcoin's popularity grew, these limitations became increasingly problematic, with users experiencing delayed transactions and paying higher costs during peak network activity. Consequently, a group of developers and community members advocated for a network upgrade that would increase the block size capacity. This led to a network split, resulting in the emergence of Bitcoin Cash along with its native currency BCH. This fork represented a fundamental philosophical difference in how to scale blockchain technology while maintaining its core principles of decentralization and accessibility.

History of Bitcoin Cash

To truly understand Bitcoin Cash and its significance in the cryptocurrency ecosystem, it is fundamental to comprehend the concept of "fork" in the crypto domain. In blockchain technology, forks represent crucial moments when a network diverges into separate paths, each following different protocol rules. Forks can be broadly categorized into two distinct classes: "soft forks" and "hard forks," each with different implications for the network and its participants.

Soft forks comprise backward-compatible changes that do not necessitate an upgrade for all participants to continue operating on the network. These modifications maintain compatibility with the original blockchain, allowing users to choose their preferred version while still being able to interact with the network. Nodes that haven't upgraded can still validate transactions and blocks created under the new rules. Conversely, hard forks create a new autonomous blockchain that is incompatible with the original, thus causing a permanent division within the network. This results in two separate cryptocurrencies with distinct blockchains, protocols, and communities. Bitcoin Cash represents a hard fork of the original Bitcoin network, marking one of the most significant splits in cryptocurrency history.

Block Size Debate

The scalability issue sparked an intense and prolonged debate within the Bitcoin community, leading to two main camps of thought: "big blockers" and "small blockers." This debate, which lasted for several years, became increasingly contentious as Bitcoin's adoption grew and the limitations became more apparent. The "big blockers" camp believed that larger blocks would directly solve scalability problems by allowing more transactions to be processed in each block, thereby reducing congestion and keeping fees low. They argued that this approach was the most straightforward solution and aligned with Bitcoin's original vision as a peer-to-peer electronic cash system for everyday transactions.

In contrast, the "small blockers" camp emphasized the risk of compromising decentralization and network functionality with larger blocks. They argued that increasing block size would make it more difficult and expensive to run full nodes, as larger blocks require more storage space, bandwidth, and computational resources. This could potentially lead to centralization, as only entities with significant resources could afford to maintain nodes. The small blockers advocated for alternative scaling solutions, such as Segregated Witness (SegWit) and second-layer solutions like the Lightning Network, which would improve scalability without increasing the base block size.

The Birth of Bitcoin Cash

Reaching a stalemate in August 2017, both camps took decisive action to implement their respective visions. The "small blockers" community successfully activated SegWit on the Bitcoin network, which optimized transaction data storage and paved the way for second-layer scaling solutions. Meanwhile, supporters of the "big blockers" approach created Bitcoin Cash through a hard fork, implementing an initial block size of 8 MB—eight times larger than Bitcoin's 1 MB limit. This split resulted in two separate cryptocurrencies: Bitcoin (BTC) continuing on the original chain with SegWit, and Bitcoin Cash (BCH) on the new chain with larger blocks.

Ultimately, in blockchain networks, greater computational power and network security typically determine which chain becomes the dominant or "winning" blockchain in terms of adoption and market value. Bitcoin Cash received significant backing from influential figures and organizations in the cryptocurrency space, most notably Bitmain, one of the world's largest cryptocurrency mining hardware manufacturers, and Roger Ver, an early Bitcoin investor and prominent advocate who became known as "Bitcoin Jesus." Their support provided Bitcoin Cash with substantial mining power and visibility in its early days.

The evolution of Bitcoin Cash continued beyond its initial creation. In 2018, the Bitcoin Cash network underwent another contentious hard fork, resulting in a further split that created two new chains: Bitcoin SV (Satoshi Vision) and Bitcoin ABC (Adjustable Blocksize Cap). This division stemmed from disagreements about the future direction of Bitcoin Cash, including debates over block size limits, protocol changes, and development priorities.

How Does Bitcoin Cash Work?

Just like Bitcoin, Bitcoin Cash employs a proof-of-work consensus mechanism to secure its network and validate transactions. This battle-tested consensus algorithm ensures that the network remains decentralized and resistant to attacks. Miners engage in competitive transaction processing and block creation, using computational power to solve complex cryptographic puzzles. When a miner successfully solves a puzzle, they add a new block to the Bitcoin Cash blockchain and receive a reward in BCH tokens. Both Bitcoin and Bitcoin Cash share the SHA-256 hashing algorithm, which means that mining hardware designed for Bitcoin can also be used to mine Bitcoin Cash, creating a competitive dynamic between the two networks for hash power.

The mining process on Bitcoin Cash follows the same fundamental principles as Bitcoin: transactions are broadcast to the network, collected into a mempool, selected by miners based on fee priority, and then included in blocks that are added to the blockchain. The proof-of-work mechanism requires miners to expend real-world resources (electricity and hardware) to participate, making attacks on the network economically prohibitive.

Notable Distinctions

1. Expanded Block Size: Initially limited to 8 MB, Bitcoin Cash subsequently increased the block size threshold to 32 MB, providing significantly more capacity for transactions compared to Bitcoin's 1 MB blocks. This larger block size allows Bitcoin Cash to process more transactions per block, theoretically enabling higher throughput and lower fees. However, in practice, Bitcoin Cash blocks rarely exceed 1 MB in size due to current transaction volume, meaning the network has substantial unused capacity. This excess capacity serves as a buffer for future growth and helps maintain low transaction fees even during periods of increased activity.

2. Absence of SegWit or Lightning Network: Bitcoin Cash does not support Segregated Witness (SegWit) or the Lightning Network, two key scaling solutions implemented on Bitcoin. This decision reflects the Bitcoin Cash philosophy that on-chain scaling through larger blocks is superior to off-chain or second-layer solutions. The Bitcoin Cash community argues that keeping all transactions on the main blockchain maintains simplicity, security, and the peer-to-peer nature of the system without relying on additional network layers.

3. Faster Difficulty Adjustments: Bitcoin Cash regulates its mining difficulty more rapidly compared to the original Bitcoin network. While Bitcoin adjusts its difficulty every 2016 blocks (approximately every two weeks), Bitcoin Cash implements a more responsive difficulty adjustment algorithm that can adapt more quickly to changes in network hash rate. This feature was particularly important after the fork, as it allowed Bitcoin Cash to remain functional even with fluctuating miner support, ensuring consistent block production times and network stability.

What Makes Bitcoin Cash Unique?

Like Bitcoin, Bitcoin Cash operates as a decentralized peer-to-peer electronic cash system, functioning completely independently of central authorities, governments, or financial institutions. This decentralization is fundamental to its value proposition and distinguishes it from traditional payment systems. The Bitcoin Cash network embodies several key characteristics that define its uniqueness and value:

1. Immutable: Each transaction is permanently recorded in a block and cryptographically linked to the previous block through a chain of hash functions, ensuring a transaction history that cannot be altered or reversed without the consensus of the network. This immutability provides a reliable and tamper-proof record of all transactions, creating trust without requiring a central authority. Once a transaction is confirmed and buried under subsequent blocks, it becomes exponentially more difficult to modify, providing increasing certainty over time.

2. Fixed Supply Cap: The invariable limit of 21 million coins is an intrinsic feature of Bitcoin Cash's base code, inherited from Bitcoin's original design. This hard cap creates digital scarcity, similar to precious metals like gold, and protects against inflation that affects fiat currencies. The predictable supply schedule is enforced by the protocol itself, making it mathematically impossible to create more than 21 million BCH. This scarcity model is designed to preserve value over time and makes Bitcoin Cash potentially attractive as a store of value.

3. Accessible to Everyone: Bitcoin Cash remains completely decentralized, without a central authority controlling the network or determining who can participate. Anyone with an internet connection can send, receive, or hold BCH without requiring permission from banks, governments, or other intermediaries. This permissionless nature enables financial inclusion for people who may not have access to traditional banking services, particularly in developing regions or for individuals who are unbanked or underbanked.

4. Pseudonymous: Transactions are not directly linked to personal identities, allowing users to conduct transactions without revealing their real-world identity. Instead, transactions are associated with cryptographic addresses, providing a degree of privacy. This pseudonymity allows users to transact without censorship or discrimination based on their identity, location, or political views. However, it's important to note that transactions are still traceable on the blockchain, and with sufficient analysis, it may be possible to link addresses to individuals.

5. Transparent: All transactions are openly documented on a public global ledger—the blockchain—which anyone can view and verify at any time. This transparency creates accountability and allows users to independently verify the total supply, transaction history, and network activity without trusting a central authority. The public nature of the blockchain enables unprecedented auditability while maintaining user pseudonymity, striking a balance between privacy and transparency.

6. Distributed: The blockchain is maintained voluntarily by a decentralized network of participants known as "nodes," which are computers running Bitcoin Cash software. These nodes store a complete copy of the blockchain, validate transactions and blocks according to consensus rules, and relay information to other nodes. This distributed architecture means there is no single point of failure, making the network highly resilient to attacks, censorship, or technical failures. The more nodes that exist, the more robust and decentralized the network becomes.

Tokenomics of Bitcoin Cash

Bitcoin Cash has a fixed supply model that creates predictable scarcity and transparent monetary policy. The maximum supply of BCH is capped at 21 million coins, exactly mirroring BTC's supply limit. This hard cap is enforced by the protocol and cannot be changed without consensus from the network, ensuring that Bitcoin Cash maintains its deflationary characteristics over time.

When Bitcoin Cash separated from Bitcoin through the hard fork in August 2017, nearly 16.5 million BCH were distributed among existing BTC holders at a 1:1 ratio. This meant that anyone who held Bitcoin at the time of the fork received an equivalent amount of Bitcoin Cash, allowing for a fair initial distribution that rewarded existing Bitcoin supporters. This distribution method ensured that Bitcoin Cash started with a broad holder base rather than concentrating supply among a small group of early adopters.

Important Facts About BCH

1. Emission Schedule: BCH follows a predetermined algorithmic emission schedule that is transparent and predictable. The rate at which new BCH are created is defined in the protocol and follows a disinflationary model. Similar to Bitcoin, Bitcoin Cash implements a "halving" mechanism where the block reward for miners is reduced by half at regular intervals. This means that the rate of new coin creation decreases over time, gradually approaching the 21 million supply cap. This predictable emission schedule allows users and investors to understand the future supply dynamics without relying on central bank decisions or monetary policy changes.

2. Use Cases: BCH functions primarily as a digital currency oriented toward peer-to-peer transactions, staying true to the original vision of cryptocurrency as electronic cash. Its core strength lies in its capability for rapid and cost-effective exchanges, making it practical for everyday purchases, remittances, and merchant payments. The larger block size enables Bitcoin Cash to handle more transactions with lower fees compared to Bitcoin, making it more suitable for small-value transactions like buying coffee or sending money to friends. Beyond simple payments, Bitcoin Cash can also be used for smart contracts through its scripting capabilities, tokenization, and various decentralized applications.

3. Ownership: BCH is owned by individuals and entities who have acquired them through various means, including mining (receiving block rewards for securing the network), trading on cryptocurrency exchanges, direct purchases from other holders, receiving payments for goods or services, or obtaining them through the original fork distribution. Unlike traditional financial assets, BCH ownership is determined solely by possession of private keys, giving holders complete control over their assets without intermediaries. This self-sovereign ownership model means that no government, corporation, or third party can freeze, seize, or control your BCH without access to your private keys.

4. Future Supply: The rate at which new BCH are created diminishes over time due to halving events that occur approximately every four years (specifically, every 210,000 blocks). During each halving, the block reward for miners is cut in half, reducing the rate of new coin issuance. The first halving for Bitcoin Cash occurred in April 2020, reducing the block reward from 12.5 BCH to 6.25 BCH. Future halvings will continue this pattern until approximately the year 2140, when the last BCH will be mined and the supply will reach its maximum of 21 million coins. After that point, miners will be compensated solely through transaction fees rather than block rewards.

5. Development and Governance: BCH has a diverse community of developers and stakeholders who participate in decision-making processes regarding protocol upgrades and network improvements. Unlike centralized projects with a single company or foundation controlling development, Bitcoin Cash follows a decentralized development model where multiple independent teams propose and implement changes. Major protocol changes require broad consensus from the community, including miners, node operators, exchanges, and users. This governance structure aims to prevent any single entity from controlling the network's direction, though it can also lead to disagreements and potential forks, as seen with the Bitcoin SV split.

BCH Wallets

To interact with the Bitcoin Cash network, it is necessary to have a BCH wallet that allows you to manage and store your coins securely. A cryptocurrency wallet doesn't actually store your BCH—instead, it stores the private keys that prove ownership of your coins on the blockchain. Choosing the right wallet depends on your security needs, technical expertise, and how you plan to use your BCH.

If you are new to BCH and dealing with a small amount for everyday transactions, mobile wallets or web-based wallets offer a good balance between security and ease of use. These wallets are convenient for quick access and making payments on the go, with user-friendly interfaces that make them accessible to beginners. Mobile wallets are installed on your smartphone, while web wallets can be accessed through a browser from any device. However, these options are considered "hot wallets" because they are connected to the internet, which makes them more vulnerable to hacking compared to offline storage solutions.

In contrast, more experienced users or those holding significant amounts of BCH might prefer hardware wallets for enhanced security. Hardware wallets are physical devices that store your private keys offline in a secure chip, protecting them from online threats such as malware, phishing attacks, and exchange hacks. Even if your computer is compromised, your BCH remains safe in the hardware wallet. These devices typically require you to physically confirm transactions on the device itself, adding an extra layer of security.

Popular BCH wallet options include:

• Hardware Wallets: Trezor and Ledger are industry-leading hardware wallet manufacturers that support Bitcoin Cash. These devices offer maximum security for long-term storage and are ideal for holding larger amounts of BCH. They typically cost between $50-$200 but provide peace of mind for serious holders.

• Mobile Wallets: Trust Wallet is a popular mobile option that supports Bitcoin Cash along with many other cryptocurrencies. It offers a good balance of security and convenience, with features like biometric authentication and backup phrase recovery. Other mobile options include Bitcoin.com Wallet and Edge Wallet.

• Desktop Wallets: Exodus is a well-designed desktop wallet that supports BCH and provides a user-friendly interface with built-in exchange features. Desktop wallets offer more security than web wallets while remaining convenient for regular use. Electron Cash is another popular desktop option specifically designed for Bitcoin Cash.

When choosing a wallet, always ensure you maintain control of your private keys (avoid leaving large amounts on exchanges), create secure backups of your recovery phrases, and use strong passwords and two-factor authentication where available.

Does Bitcoin Cash Have a Future?

While Bitcoin Cash offers larger blocks and faster difficulty adjustments that address some of Bitcoin's limitations, it has not yet approached the reputation or adoption level of the original Bitcoin network. Bitcoin remains the dominant cryptocurrency by market capitalization, network security, brand recognition, and institutional adoption. Bitcoin's first-mover advantage, combined with its positioning as "digital gold" and a store of value, has given it a significant lead that Bitcoin Cash has struggled to overcome.

However, Bitcoin Cash remains a significant player in the cryptocurrency ecosystem and continues to develop its technology and use cases. As one of the top 20 cryptocurrencies by market capitalization, BCH has demonstrated resilience and maintained a dedicated community of developers, miners, and users. The network processes thousands of transactions daily, with real-world adoption in various merchant payment systems, particularly in regions where low transaction fees are crucial. It is likely that BCH will continue to exist and serve its niche as a peer-to-peer electronic cash system.

Whether BCH will recover from bear market conditions to surpass previous all-time highs depends on multiple factors beyond just market forces. Broader adoption by merchants, payment processors, and users for everyday transactions will be crucial. The development of new features and improvements to the protocol could enhance its competitiveness. Additionally, the overall cryptocurrency market conditions, regulatory developments, and competition from other payment-focused cryptocurrencies will all play roles in determining Bitcoin Cash's future trajectory. The cryptocurrency market is highly dynamic, and while Bitcoin Cash faces significant challenges in competing with Bitcoin's dominance, its focus on low-cost, fast transactions gives it a distinct value proposition that may find increasing relevance as cryptocurrency adoption grows globally.

FAQ

What is Bitcoin Cash (BCH) and how does it differ from Bitcoin (BTC)?

Bitcoin Cash (BCH) is a cryptocurrency that forked from Bitcoin (BTC) in 2017. BCH uses larger block sizes for faster transactions and lower fees, while BTC maintains smaller blocks and implements a halving schedule every 210,000 blocks.

How does Bitcoin Cash work? What is its blockchain principle?

Bitcoin Cash uses SHA-256d Proof-of-Work consensus to validate transactions. It operates on a blockchain with larger block sizes of 8 MB instead of Bitcoin's 1 MB, enabling faster transaction processing and lower fees while maintaining the same security principles.

How do I purchase and use Bitcoin Cash?

Visit a cryptocurrency platform, select Bitcoin Cash, choose your payment method (card or bank transfer), and complete the purchase. Once acquired, store BCH in a wallet for transactions, payments, or transfers to other users seamlessly.

What are the advantages and disadvantages of Bitcoin Cash?

Bitcoin Cash offers low transaction costs and faster block processing compared to Bitcoin. However, it faces lower adoption rates and increased competition from other cryptocurrencies and layer-two solutions.

Is Bitcoin Cash secure? Will my funds be protected?

Bitcoin Cash operates on a secure blockchain with cryptographic protection. Your funds are safeguarded through private keys and advanced security infrastructure. Store BCH in reputable wallets for maximum security and full control of your assets.

Bitcoin Cash的交易速度和费用如何？

Bitcoin Cash transactions typically cost $0.005 to $0.03, with speeds depending on network activity. Higher fees ensure faster processing, making BCH efficient for low-cost, quick payments.

Where can Bitcoin Cash be used for payments?

Bitcoin Cash can be used for payments at various online merchants and services. Notable use cases include Lnk.Bio for upgrading link in bio pages. Additionally, many retailers and service providers worldwide accept Bitcoin Cash for goods and services transactions.