Will Bitcoin Cash Be the Premier P2P Electronic Cash?
It has now been six months since Bitcoin Cash was hard forked from the Bitcoin protocol, so it is a good time to give the cryptocurrency its half year performance review.
Just to recap, Bitcoin Cash was borne out of frustration with the original Bitcoin’s ability to process more transactions per second and how to scale this up. The block size limitation meant that Bitcoin’s 1MB blocks could only fit a very limited number of transactions within them—estimated to be less than seven transactions per block.
With blocks being created on average once every 10 minutes (often much longer), then you can see how much of a threat this issue was to Bitcoin’s future.
While one proposed way to solve this was by what is known as a soft fork—the equivalent of a software change to the Bitcoin protocol—for others, a hard fork to permanently increase block size was seen as better. A bigger block size can handle far more transactions than a soft-forked Bitcoin could, thus making it more economically viable as an electronic payment method.
How Bitcoin Cash Started
After much toing and froing between the soft forkers and the hard forkers, Bitcoin mining pool Bitmain announced plans to go ahead with a hard fork in June 2017. Other development teams and mining pools quickly took interest in the project.
On Aug. 1, 2017, the Bitcoin blockchain forked. The Bitcoin Cash chain had the entire transaction history of the old chain, but now only could accept blocks that fit the Bitcoin Cash protocol. The original chain remained unaffected.
The new coin had a block size of 8MB, being able to handle about 60 transactions per second—and initially it was more profitable for miners to mine the new coin. This affected the mining rate of the original Bitcoin. For several months the predominance of mining power switched back and forth between the two, as each was more profitable to mine in different periods.
A new mining difficulty algorithm was deployed in November 2017 as to prevent mining difficulty changing by such extreme measures and bought some stability to both coins.
At the time of the fork, all users who held Bitcoin at participating wallets received 1 BCH for 1 BTC. But, many BCH were dumped soon after and the price plummeted in the short term. The price, however, had rebounded in December and reached an all-time high of more than US$4,000. At the time of writing, the price is around US$1,200, as crypto markets as a whole have experienced a great downtrend at the start of 2018.
Current State of Bitcoin Cash
Still though, Bitcoin Cash’s market capitalization has seen it remain as a top five cryptocurrency and the bigger block-sized coin has seen growth in adoption. Almost all major exchanges allow BCH trading. And more recently, BitPay and OpenBazaar are two of the major companies to accept Bitcoin Cash as a payment. So could we just be in the stage of early adoption?
Many institutes still signal their support for Bitcoin, such as Microsoft, who only supports the original Bitcoin protocol for their online store. A blog post from Microsoft in January stated that block size increases hamper the decentralized nature of the network and cannot reach the transaction volume output needed at a worldwide scale. They support off-chain methods of boosting transaction output.
In terms of daily transactions, Bitcoin Cash only has around 10 percent of the transaction numbers of Bitcoin. But average transaction fees have never wandered above US$1. In the short term then at least, it has been cheaper to make Bitcoin Cash transactions over Bitcoin. Note that it took many years for Bitcoin transaction fees to reach such a level, so we cannot really regard much from this statistic yet.
What’s Next for Bitcoin Cash?
Looking forward, though, Bitcoin Cash has not fully solved the block size problem. It can only handle around 60 transactions per second—a far cry from the 100,000+ transactions that Visa or Mastercard can handle. If the block size was increased again, will we see a Bitcoin-Cash cash?
Bitcoin Cash sees itself as a closer representation of Satoshi Nakomoto’s original whitepaper for “peer-to-peer electronic cash.” Bitcoin arguably has not reached this status yet either, so it is still a race to see which will become the undisputed holder of Satoshi’s throne. But we must remember that many pretenders with bigger block sizes have come and gone like Bitcoin Classic, Bitcoin Unlimited, or Bitcoin XT. Who? Exactly.
And we cannot disregard other cryptocurrencies with a completely different protocol that offer just the same ability to transfer value electronically. Litecoin (and now its forked variety, Litecoin Cash), Monero, and Dash are some of the outsiders trying to prove that they are the best cryptocurrency for the job. At least for now, Bitcoin Cash has established itself as the first in line behind the original Bitcoin.