Module Four: Understanding Bitcoin Cash

Welcome to Understanding Bitcoin Cash

Lesson 1. What Is Bitcoin Cash?

Bitcoin Cash is a cryptocurrency that is a fork of Bitcoin. Bitcoin Cash is a spin-off or altcoin that was created in 2017.

Altcoin refers to any type of cryptocurrency other than Bitcoin. 

A crypto fork occurs when an original blockchain is split into two distinct development paths. 

Lesson 2. Launch of Bitcoin Cash

Bitcoin Cash, launched August 2017, increased the size of blocks, which improved scalability and facilitated the capability of higher transaction processing.

Originally created from a fork of Bitcoin, Bitcoin Cash, during November 2018, implemented another fork, which split it into Bitcoin Cash SV (or Bitcoin Satoshi Vision) and Bitcoin Cash ABC.

Lesson 3. Emergency Difficulty Adjustment (EDA)

Like Bitcoin, Bitcoin Cash started with a limited supply of 21 million coins. Bitcoin Cash also shares similar technical implementations of Bitcoin; including a mining difficulty algorithm, called Emergency Difficulty Adjustment (or EDA), and the consensus mechanism used.

Mining difficulty involves the degree of difficulty it takes for miners to discover new bitcoin blocks. EDA is an algorithm that was included in Bitcoins’ source code by Satoshi Nakamoto.

The algorithm constantly readjusts the difficulty of the mining process according to the number of miners operating in the network. This is intended to ensure that blocks are discovered at a steady pace. EDA adjusts difficulty every 2016 blocks or roughly every two weeks.

The most widely used blockchain consensus mechanisms are Proof of Stake, Delegated Proof of Stake, Proof of Authority, Proof of Work, and Proof of History. 

Lesson 4. Larger Blocks – Less Data – More Speed 

The issues of increasing the speed, and scalability, of transaction verifications has been discussed among Bitcoin developers and crypto miners for some time.

The team agreed upon two primary solutions to these concerns; first, increasing transaction speed, and making them less costly, by reducing the amount of data in each block that requires verification and second, increasing the size of data blocks, which allows more information to be processed at once.

These solutions facilitated the development of Bitcoin Cash (BHC).

Lesson 5. Bitcoin Block Size Limitations

Satoshi Nakamoto, the creator of Bitcoin, intended for the cryptocurrency to be used in daily transactions as a peer-to-peer network. As the price of Bitcoin continued a steady rise, it attracted widespread interest, and use, as an investment mechanism.

The high level of interest increased transactions substantially, causing issues with scalability of the blockchain. Primarily due to the limitations on bitcoins’ block size of 1MB, the cost of bitcoin transactions, and time required for confirmations, increased dramatically. The increase in size of transactions caused confirmations on the bitcoin blockchain to slow down.

Lesson 6. Bitcoin Cash Increases Transactions

Bitcoin Cash addressed the issues with increased cost, transaction time, and scalability limitations, by increasing the size of blocks to between 8 MB and 32 MB. During testing in September 2018, the Bitcoin Cash network achieved 25,000 transactions per block, while Bitcoin blocks were averaging just 1,000 to 1,500 transactions.

The increase in block size positioned Bitcoin Cash to reduce fees and become an international leader in daily transaction processing, competing with global financial companies, like Visa.

Lesson 7. Segregated Witness 

Unlike Bitcoin, Bitcoin Cash does not use Segregated Witness (known as SegWit), a technology designed to reduce bitcoin transaction fees. SegWit signifies a change in the transaction format of Bitcoin.

The upgrade to the SegWit protocol was designed to decrease transaction times and protect against transaction malleability by increasing the block capacity.

Bitcoin discovered the transaction malleability problem in 2011.

Transaction malleability refers to a vulnerability problem in blockchain which can be exploited by altering a cryptographic hash, such as the digital signature used to identify a cryptocurrency transaction; this would invalidate new cryptocurrency blocks.