Understanding Bitcoin Cash, the Newest Cryptocurrency

Bitcoin Cash (BCH) is an offshoot or fork of Bitcoin (BTC) created by big-block supporters in the Bitcoin community. They launched the fork on August 1, the day Bitcoin improvement proposal 148 (BIP148)—a user-activated soft fork—was scheduled to activate.

The surprise announcement to create Bitcoin Cash was yet another turn in the years-long contentious road the cryptocurrency has taken to scale. Creators of the new altcoin wanted a scaling solution that included an increase in Bitcoin’s block size. For this reason among others, they were against the implementation of Segregated Witness (SegWit).

SegWit enforcement

One function of SegWit is that it reduces the amount of data from each transaction that gets stored in a Bitcoin block. This is supposed to create room on the blockchain and also speed up confirmations.

Following the release of the SegWit code in late 2016, miners were slow to adopt it. BIP148 was designed to enforce support from miners, or risk having nodes reject their mined blocks.

Since a majority in the Bitcoin community agreed to support it, the SegWit scaling solution activated on 23 August.

Many miners, developers and entrepreneurs believed UASF would be detrimental to Bitcoin. They thought it would expose the network to unnecessary risks and offer only a short-term solution.

Led by the Chinese mining firm Bitmain, opponents of UASF came up with a contingency plan to protect the network. Their plan involved developing a miner known as Bitcoin ABC to implement Bitcoin Cash’s core software, increase the block size to 8MB, and exclude SegWit.

Scaling disagreements

In late May of this year, a scaling conference in New York had brought together representatives of major companies in the Bitcoin space to sign the second agreement on the scaling roadmap.

The first agreement had been signed in Hong Kong in February 2016 to encourage the writing of the SegWit code following a presentation from its designer and proposer, core developer Pieter Wuille.

Just as with the Hong Kong agreement, signers of the New York Agreement—otherwise known as SegWitx2—committed to adopting SegWit before a hard fork was activated to increase the block size. They agreed that SegWit would activate before August 1 and that an increase in block size to 2MB would follow before the end of the year.

A majority of UASF supporters opposed the New York agreement and saw it as an attempt by Bitcoin corporates to hijack, direct and control the Bitcoin project. They saw it as a danger to decentralization.

Some opponents of SegWit also transferred their dislike to SegWitx2.

As contention continued, core developer James Hilliard worked on another Bitcoin improvement proposal (BIP91) that would achieve much the same functions as BIP148. It would force the network to reject blocks from miners choosing not to signal support for SegWit.

The design of BIP91 was more agreeable to a majority of both UASF and SegWitx2 supporters because it made it easier to meet technical requirements. BIP91 was released in mid-July, and by the 24th, 100% of miners were signalling support for it.

Its success meant that UASF (BIP148) would not need to activate on August 1, because by then BIP91 would already be doing what BIP148 had been designed to do. Most in the community also interpreted the activation to mean the contingency plans for a hard fork that were put into place by Bitmain and others would no longer be necessary.

The Launch of Bitcoin Cash

On July 22 July, ViaBTC—an exchange owned by Bitmain and Bitcoin.com—surprised the community when they announced they would proceed to activate Bitcoin ABC on August 1 and launch the Bitcoin Cash cryptocurrency.

Bitmain explained in a statement that, while they still approved of SegWitx2, they were open to supporting Bitcoin ABC and therefore Bitcoin Cash. Users of Bitcoin received an amount of Bitcoin Cash equivalent to their Bitcoin holdings at the time of the fork. However, they had to have their BTCs stored in a wallet they controlled, or in one belonging to a third-party service provider who supported both cryptocurrencies.

While the majority of exchanges and wallet services have chosen not to support Bitcoin Cash, they’ve allowed their users to transfer BCH to other wallets.

The Bitcoin Cash altcoin is currently trading on exchanges such as ViaBTC, Kraken and Bittrex. The immediate price after its launch was about $350. It rose to slightly more than $700 over the following two days. Then, the price has stabilized at around $300, only to rise to about $800 on 19 August. At the time of publishing it is trading at about $500.

By | 2017-08-30T21:28:54+10:00 August 30th, 2017|Altcoins, Bitcoin|0 Comments