What is Bitcoin Cash? - A Beginner’s Guide
Summary
TLDRBitcoin Cash (BCH) is a hard fork of the original Bitcoin, created in response to disagreements over the block size and scalability issues. The video explains the difference between soft and hard forks and delves into the controversy that led to the creation of Bitcoin Cash. It highlights the two opposing camps: the 'Big Blocks' group, advocating for an increase in block size to 8MB to allow more transactions and reduce fees, and the 'Small Blocks' group, preferring to keep the 1MB block size and instead improve transaction optimization through solutions like Segregated Witness (SegWit) and the Lightning Network. The video also discusses the decentralized decision-making process in the Bitcoin network, involving miners, developers, exchanges, wallet providers, nodes, and users. Bitcoin Cash, with its larger block size and different approach to mining difficulty, has maintained its position in the cryptocurrency market, while the original Bitcoin continues to be the dominant choice. The video concludes by emphasizing the importance of considering long-term implications over quick fixes and the strength of the decentralized Bitcoin network.
Takeaways
- 📈 Bitcoin Cash (BCH) is a hard fork of Bitcoin, created due to disagreements over scalability solutions.
- 🔄 Forks in cryptocurrency can be either soft or hard; Bitcoin Cash resulted from a hard fork.
- ⛓ The block size debate led to the creation of Bitcoin Cash, with the 'Big Blocks' camp advocating for an increase in block size for faster transactions.
- 💻 Bitcoin transactions are grouped into blocks, which are added to the blockchain every 10 minutes, with a 1 MB limit causing scalability issues.
- 💵 High transaction volumes can lead to increased fees and confirmation times, affecting Bitcoin's utility as a payment method.
- 🤝 Two main camps emerged from the debate: 'Big Blocks', led by Bitmain and Roger Ver, and 'Small Blocks', supporting optimization over increasing block size.
- 🔍 SegWit was a 'Small Blocks' solution to reduce transaction size and enable scaling without increasing block size.
- 🌐 The Lightning Network is a second-layer solution proposed to enable instant and feeless transactions on top of Bitcoin.
- 🚧 Larger block sizes were argued to hurt decentralization by requiring more storage and processing power, centralizing the network around fewer participants.
- ⚖️ The Bitcoin network is decentralized, with no single entity making decisions; changes are made based on consensus among miners, developers, and users.
- 💬 The Bitcoin Cash fork in 2017 was a pivotal moment, showing the power of user adoption in determining the 'true' Bitcoin.
- ⛓️ Bitcoin Cash has a larger block size (up to 32mb), does not support SegWit, and adjusts mining difficulty more quickly than Bitcoin.
Q & A
What is Bitcoin Cash and how is it related to Bitcoin?
-Bitcoin Cash (BCH) is a hard fork of Bitcoin's protocol that created a new coin with a larger block size. It was born out of disagreements over how to scale Bitcoin, with Bitcoin Cash proponents favoring an increase in block size to allow for more transactions.
What are the two types of forks in the context of cryptocurrencies?
-The two types of forks are soft forks and hard forks. Soft forks are backward compatible with the original coin, allowing users to run either version without significant issues. Hard forks, however, are not compatible with the original coin and require users to choose between running the new version or sticking with the original.
Why was Bitcoin Cash created?
-Bitcoin Cash was created as a response to the scalability issues of Bitcoin. Proponents believed that increasing the block size from 1MB to 8MB would allow for more transactions per second and reduce network congestion.
What is the block size of Bitcoin Cash and how does it differ from Bitcoin's?
-Bitcoin Cash initially started with a block size of 8MB, which was later increased to 32MB. This is significantly larger than Bitcoin's block size of 1MB, allowing Bitcoin Cash to process more transactions in each block.
What is SegWit and how does it relate to the block size debate?
-SegWit, or Segregated Witness, is a protocol upgrade that effectively reduces the transaction size by 75%, allowing a 1MB block to hold as many transactions as a 4MB non-SegWit block. It was proposed by the 'Small Blocks' camp as an alternative to increasing the block size.
What is the Lightning Network and how does it aim to solve Bitcoin's scalability?
-The Lightning Network is a second-layer solution on top of the Bitcoin protocol that enables instant and feeless transactions. It was proposed by the 'Small Blocks' camp to address scalability without increasing the block size.
Why were some groups against increasing the block size of Bitcoin?
-Groups against increasing the block size, known as 'Small Blockers', believed that larger blocks would hurt Bitcoin's decentralization and functionality. They argued that big blocks would require more storage and processing power, leading to a reduction in the number of nodes and potentially centralizing the network.
How does the Bitcoin network make decisions on protocol changes?
-The Bitcoin network is decentralized, meaning no single entity makes decisions. Participants vote through their actions, such as which version of the protocol they run. Key players include miners, developers, exchanges, wallet providers, node operators, and users.
What happened on August 1st, 2017 in the context of Bitcoin Cash?
-On August 1st, 2017, Bitcoin Cash was created as a hard fork of Bitcoin with an 8MB block size. This happened when the 'Small Blockers' activated SegWit on the original Bitcoin protocol, and the 'Big Blockers' created Bitcoin Cash.
What is the significance of the Bitcoin Cash hard fork in demonstrating the decentralized nature of Bitcoin?
-The Bitcoin Cash hard fork demonstrated that no single party, not even powerful interest groups, can dictate the direction of the Bitcoin network. It showed that the system is unbiased and that the future of Bitcoin is determined by the collective decision of its users and participants.
How does the Bitcoin Cash hard fork relate to the concept of 'true Bitcoin'?
-The concept of 'true Bitcoin' is subjective and largely depends on user adoption. After the hard fork, both Bitcoin (BTC) and Bitcoin Cash (BCH) continued to exist, with Bitcoin maintaining a strong position. The 'true Bitcoin' is often considered to be the version that the majority of users choose to adopt and use.
What are some key differences between Bitcoin Cash and the original Bitcoin post the hard fork?
-Key differences include Bitcoin Cash's larger block size (initially 8MB, later 32MB), its lack of support for SegWit and the Lightning Network, and its faster adjustment of mining difficulty for new blocks. These differences reflect the distinct philosophies and technical approaches of the two communities.
Outlines
🤔 Introduction to Bitcoin Cash and its Origins
This paragraph introduces the topic of Bitcoin Cash (BCH) and poses several questions about its relationship with Bitcoin. It sets the stage for a discussion on the differences between the two, the concept of forks in cryptocurrencies, and the significance of Bitcoin Cash as a hard fork of Bitcoin. The speaker, Nate Martin from 99Bitcoins.com, invites viewers to learn about the deeper implications of Bitcoin Cash's creation, which tested Bitcoin's decentralization. The paragraph also touches on the scalability issue of Bitcoin and the emergence of different camps advocating for either 'Big Blocks' or 'Small Blocks' as solutions.
🚀 The Debate Over Block Size and Scalability
The second paragraph delves into the technical aspects of Bitcoin transactions, the block size limit, and the scalability debate that led to the creation of Bitcoin Cash. It explains the difference between soft and hard forks and why hard forks can result in a split in the network, leading to new coins. The paragraph outlines the positions of the 'Big Blocks' camp, which advocated for increasing the block size to 8mb to allow for more transactions, and the 'Small Blocks' camp, which supported keeping the 1mb block size and instead focused on optimizing transaction size and handling through solutions like Segregated Witness (Segwit) and the Lightning Network. The discussion also highlights the importance of maintaining decentralization and the potential drawbacks of large block sizes.
💬 The Power Dynamics Within the Bitcoin Network
This paragraph explores the decentralized nature of the Bitcoin network and the various stakeholders who influence its development, including miners, developers, exchanges, wallet providers, nodes, and users. It emphasizes that no single entity has the ultimate say, and changes to the Bitcoin protocol are decided through a consensus of these participants. The paragraph also discusses the contentious debate between the 'Big Blocks' and 'Small Blocks' camps, which culminated in the creation of Bitcoin Cash with an 8mb block size, while the original Bitcoin implemented SegWit. It concludes by reflecting on the importance of considering long-term implications and the value of optimization over quick fixes.
⛓️ The Fork and the Aftermath
The final paragraph describes the events following the Bitcoin hard fork that led to the creation of Bitcoin Cash. It details the initial uncertainty over which version would prevail, the support Bitcoin Cash received from Bitmain, and the subsequent realization that the original Bitcoin remained strong. The paragraph outlines the key differences between Bitcoin and Bitcoin Cash, including block size, support for SegWit and the Lightning Network, and mining difficulty adjustments. It also mentions a subsequent hard fork of Bitcoin Cash into Bitcoin ABC and Bitcoin SV, with the former being more widely accepted. The video concludes with a reflection on the decentralized nature of Bitcoin and the importance of considering the long-term effects of protocol changes.
Mindmap
Keywords
💡Bitcoin Cash (BCH)
💡Forks
💡Block Size
💡Scalability
💡Decentralization
💡Transaction Fees
💡SegWit (Segregated Witness)
💡Lightning Network
💡Bitcoin Whiteboard Tuesday Forks
💡Satoshi Nakamoto
💡Hard Fork of Bitcoin’s Protocol
Highlights
Bitcoin Cash (BCH) is a hard fork of Bitcoin, resulting from disagreements over the block size and scalability.
A hard fork creates an alternate version of a cryptocurrency, leading to a split in the network if not universally accepted.
Bitcoin transactions are confirmed by being included in a block on the blockchain, with a current block size limit of 1 MB.
The scalability issue of Bitcoin, with its limited transaction capacity, led to the formation of two camps: 'Big Blocks' and 'Small Blocks'.
Big Block supporters, including Bitmain and Roger Ver, advocated for increasing the block size to 8 MB to allow more transactions.
Small Block proponents argued for maintaining the 1 MB block size and optimizing transaction handling through solutions like SegWit and the Lightning Network.
The disagreement over block size threatened Bitcoin's decentralization, as larger blocks could lead to a smaller number of validating nodes.
The Bitcoin network is decentralized, with decisions made through the actions of miners, developers, exchanges, wallet providers, nodes, and users.
The Bitcoin Cash hard fork occurred on August 1, 2017, with Bitcoin Cash adopting an 8 MB block size and the original Bitcoin activating SegWit.
Bitcoin Cash has a larger block size, does not support SegWit or the Lightning Network, and adjusts mining difficulty more quickly.
Bitcoin Cash experienced its own hard fork in November 2018, leading to Bitcoin ABC and Bitcoin SV, with differing block sizes and features.
The Bitcoin Cash saga demonstrates the decentralized nature of Bitcoin, where no single party can dictate the direction of the network.
The 'true Bitcoin' is considered to be the version most widely adopted by users, highlighting the power of user choice in cryptocurrency.
The debate between optimizing within small blocks and increasing block size is a complex issue with long-term implications for Bitcoin's functionality and decentralization.
Bitcoin Cash, while similar to Bitcoin, has distinct differences and a separate development path, influenced by its community and supporters.
The story of Bitcoin Cash is a case study in the challenges of reaching consensus in a decentralized system and the potential for forks in cryptocurrency.
Transcripts
What is Bitcoin Cash?
Is it the same as just “Bitcoin”?
What’s the difference between the two?
And which is the “true Bitcoin”?
Well stick around,
in this episode of Crypto Whiteboard Tuesday
we’ll answer these questions and more.
Hi, I’m Nate Martin from 99Bitcoins.com
and welcome to Crypto Whiteboard Tuesday
where we take complex cryptocurrency topics,
break them down and translate them into plain English.
Before we begin,
don’t forget to subscribe to the channel
and click the bell so you’ll immediately get notified
when a new video comes out.
Today’s topic is Bitcoin Cash, also known as BCH.
The story of Bitcoin Cash
goes much deeper than just the creation of another cryptocurrency.
It was actually one of the fiercest tests for Bitcoin’s decentralization.
So let’s get started...
A lot of people who are just starting out with Bitcoin or cryptocurrency in general,
get confused when they see that there’s not just one “type” of Bitcoin.
For example, Bitcoin Cash, Bitcoin Gold and Bitcoin Diamond
are all forks of the original Bitcoin.
A fork can be described as an alternate version of an original coin.
There are two types of forks: soft forks and hard forks.
Soft forks are versions that work well with both the original version
and the alternate version of the coin,
so as a user,
you can choose which version to run without a lot of concern.
Hard forks on the other hand, don’t play well with the original version.
This means that you need to choose
whether to update your software to run the alternate version,
or to stick with the original one.
In other words, with hard forks,
if the alternative is not accepted by 100% of the users,
then a sort of split will occur in the network
and a new coin will emerge.
One that is similar to the original but not identical.
Bitcoin Cash and other Bitcoin versions
are actually the results of suggested updates to the Bitcoin protocol
that weren’t agreed to by everyone.
So what happened is that an alternate version of the coin,
or a hard fork, stemming from the original Bitcoin was created
and new coins came into existence.
If you want a complete detailed explanation about forks,
make sure to watch
our Bitcoin Whiteboard Tuesday Forks video as well.
So now we know that Bitcoin cash is actually a hard fork of Bitcoin,
but why was it created?
To answer this question, we need to pause for a second
and go back a few years to discuss one of the most controversial topics
of Bitcoin’s code - the block size and scalability issue.
Bitcoin transactions don’t get confirmed instantly.
In order for a transaction to be considered as confirmed
it needs to be included as part of a block of transactions
on the Bitcoin ledger, known as the blockchain.
A new block of transactions is added to the blockchain
on average about every 10 minutes .
Similar to any type of digital data,
adding Bitcoin transactions to a block requires storage space,
and the maximum capacity for each block of transactions is 1 MB.
When you consider the average Bitcoin transaction size,
you’ll find that a block is able to hold about 2700 transactions.
2700 transactions every 10 minutes means 4.6 transactions a second,
and that’s not a lot.
Visa, for comparison, can confirm 1,700 transactions per second.
This means that when a lot of people want to send Bitcoin,
during price rallies for example,
transactions get stuck in a very long queue
waiting to enter a block and get confirmed.
Of course, Bitcoin allows you to pay a higher transaction fee
if you want to jump the queue,
but this might cause fees to reach ridiculous levels
as more and more people try to “cut the line” with their transactions.
This isn’t something you want to have happen
if you’re building Bitcoin to become a global payment method.
As a result of this scalability issue, two different camps emerged.
The first camp was the “Big Blocks” camp.
This camp was led by Chinese mining giant Bitmain and Roger Ver,
an early Bitcoin investor
who was involved with a number of startups
when Bitcoin was just gaining initial adoption.
Big blockers were afraid that Bitcoin’s scalability issue
would prevent it from becoming what Satoshi Nakamoto,
Bitcoin’s inventor, initially intended - a peer to peer payment system.
With such long confirmation times and high fees,
people wouldn’t use Bitcoin for day to day transactions
and would instead treat it as a store of value - like gold.
The supporters of this camp suggested a very simple solution -
Let’s increase the block size.
If we increase Bitcoin’s block size to 8mb,
we’ll be able to confirm as many as
8 times the number of transactions per second.
And this will reduce the existing congestion of the network,
and in the future
we’ll increase the block size as much as needed
as Bitcoin achieves further adoption.
Opposing them was the “Small Blocks” camp.
The supporters of this camp rooted for keeping the current 1mb block size,
while finding solutions for optimizing transaction size and handling,
in order to enable scaling.
One such solution was Segregated Witness,
or Segwit for short.
Segwit is an upgrade to the Bitcoin protocol,
which among other things effectively reduces the transaction size by 75%.
This means that a 1mb Segwit block
can hold the same amount of transactions
as what would be a 4mb non-Segwit block.
Additionally, Small Blockers talked about
the development of the Lightning Network -
A second layer on top of the Bitcoin protocol
that allows for instant and feeless transactions.
Now, the lightning network is a pretty broad topic on its own,
so make sure to catch our Lightning Network episode
for a detailed explanation on how it works.
But why were the small blockers against increasing the block size
to begin with?
The reason is that small Blockers believe that in the long run
this would hurt Bitcoin’s decentralization and functionality.
Here are some of the arguments to justify their claim:
For one, an 8mb or even 32mb block
takes more time to travel through the network than a 1mb block.
Additionally, once the block reaches a computer on the network,
that computer now needs to verify all of the transactions
inside that block.
If the block is too big
it might not be able to finish verifying all the transactions
before the next block arrives within 10 minutes or so.
This means the network will start lagging behind new transactions,
which can create disputes about the current state of the Bitcoin ledger.
On top of that, by not optimizing transactions,
you’re also not optimizing the size of the Blockchain
which already takes up several hundred Gigabytes.
Forcing computers to verify oversized transactions,
reduces the number of computers that can store the Blockchain
on their hard drive,
and therefore diminishes the network’s decentralization.
I mean let’s think about it for a second:
If only hi-end computers
that are maintained by a handful of companies
can validate transactions on the network,
we’re basically taking away Bitcoin’s basic advantage -
to have a large amount of participants
to make sure no one is breaking the rules.
To make it simple to understand, consider this analogy:
Imagine a street that’s suffering from heavy traffic.
The obvious solution would be to increase the number of lanes,
effectively the same solution as increasing the block size.
But what would you do
once the street becomes more popular
and even more cars come in?
Eventually, there’s a limit to how many lanes you can add
before running out of land to build it.
On the other hand,
you could reduce traffic congestion
by promoting public transportation routes or carpooling.
Solutions similar to optimizing the transaction size
and how transactions are handled by the network.
This heated argument between the two rival camps
went on for several years until it climaxed in August of 2017.
Back then, Bitcoin was making its first steps over the $1,200 mark
and the network was getting pretty crowded
due to an overflow of transactions.
As a result,
many transactions got delayed and transaction fees skyrocketed
as people were outbidding each other to “cut in line”
and get confirmed faster.
The average fee around that time was as high as $37 per transaction!
Now, you may be wondering why nobody took action
to avoid this situation.
Well, in order to answer this question
we need to understand who actually decides anything
on the Bitcoin network.
You see, Bitcoin is decentralized
and this means there’s no one person that decides anything.
Participants in the network vote through their actions.
Their vote is actually whatever version of the Bitcoin protocol
they choose to run on their computer.
There are several players in the Bitcoin network.
First, there are the miners and mining pool operators.
They are the ones in charge of creating blocks
and updating the ledger of transactions.
Some would argue that they have the ultimate say
in what changes are finally accepted to the Bitcoin network.
Then we have the developers,
which are a group of individuals collaborating together
to maintain Bitcoin’s source code.
Some believe that this group has the ultimate power
since they are the ones writing the actual code that runs the network.
We also have exchanges,
which are the gateways for cryptocurrency adoption.
They can decide which version of Bitcoin to list under the ticker symbol BTC.
They’re the ones who have the power of connecting people
with the actual coins.
Another important group are the wallet providers.
They write software that allows users to manage their coins.
Additionally we have the nodes,
which are the different computers which run the Bitcoin code
and make sure no one is breaking the rules.
These nodes are the backbone of the Bitcoin network.
Owners of the nodes can decide to only accept transactions
that support specific changes.
And finally, we have the Bitcoin users,
who get to choose which coin to buy, which exchange to use
and which wallet to download.
Without even knowing it, they actually have the most power.
The coin that users decide to adopt will have the brighter future.
A good example for the power of user adoption
is the case of Ethereum’s hard fork.
Back in 2016,
after several million dollars were stolen from an Ethereum based project
called the DAO,
the Ethereum developers suggested rolling back the Ethereum blockchain
and erasing the malicious transaction.
This created a heated debate,
at the end of which Ethereum forked into two different coins -
Ethereum and Ethereum Classic.
However, what’s known today as Ethereum
is actually the altered Ethereum version and not the original one.
The reason that this is considered the “true” Ethereum
is because that’s the coin most of the users decided to adopt.
Miners, exchanges, wallet providers and even developers -
all rely on the acceptance of the public to survive.
That’s why in the end, the users have the final say.
Now you understand
why it’s so hard to get any change to the Bitcoin protocol approved.
You basically need to get all of these groups to agree.
Throughout Bitcoin’s history
there have been several cases were such agreements were reached,
but as the network grew larger it became harder to reach a consensus.
Going back to our story in 2017,
the end result of this Mexican standoff between the two camps was that
each side did what they initially intended to do,
leaving it to users to decide which coin to adopt as the true Bitcion.
On August 1st, 2017
Small blockers activated SegWit on the original Bitcoin protocol
while big blockers created Bitcoin Cash -
A Bitcoin fork with an 8mb block size.
Initially it was unclear which version of Bitcoin would win,
when “Winning” in cryptocurrency terms means having a longer blockchain,
or ledger of transactions.
The more miners a coin has on board means more computational power,
hence a longer blockchain and a more robust network.
Bitcoin Cash had support from mining giant Bitmain,
and as a result the original Bitcoin’s hashing power was cut nearly in half
when the fork occurred.
However, when the dust settled
it became clear that the original Bitcoin was still standing strong
even after the fork.
Since the fork,
Bitcoin Cash has consistently maintained its space
at the top of the cryptocurrency charts.
The coin is backed mainly by Roger Ver,
a liberterian that allegedly owns around 100,000 Bitcoins
making him one of the first Bitcoin billionaires.
Ver also purchased the domain name Bitcoin.com
to promote Bitcoin Cash, as opposed to Bitcoin.org,
which is the website for the original Bitcoin.
Bitcoin Cash is mostly similar to Bitcoin, but with some exceptions:
First, its block size is bigger.
When it first started out,
Bitcoin Cash’s block size was capped at 8mb.
Later on the coin went through another update
and its block size limit increased to 32mb.
In practice,
Bitcoin Cash isn’t as popular as Bitcoin
and its blocks rarely surpass 1mb of transactions.
Second, Bitcoin Cash does not support SegWit
or the Lightning Network.
And finally,
Bitcoin Cash adjusts its mining difficulty for mining new blocks
more quickly than the original Bitcoin.
I won’t go into detail
but it’s claimed that miners
can actually manipulate this feature to create questionable advantages.
While there are additional differences between the two coins,
the ones I’ve just mentioned are the ones that are most notable.
In November 2018,
Bitcoin Cash went through its own hard fork.
This time the two camps were the original Bitcoin Cash,
also known as ABC,
and Bitcoin SV - which stands for Satoshi’s Vision.
Bitcoin ABC’s camp was led by Roger Ver and Bitmain.
The Bitcoin SV camp was led by Craig Wright -
a person who previously claimed to be Satoshi Nakamoto
but never supplied ample proof,
and Calvin Ayre,
the owner of the largest Bitcoin Cash mining pool, CoinGeek.
There are two main differences between the two Bitcoin Cash versions.
Bitcoin ABC maintained a maximum block size of 32mb
while Bitcoin SV increased its block size to 128mb
with additional increases planned in future updates.
Additionally, Bitcoin ABC added smart contract-like functionality
into its code,
while Bitcoin SV chose not to accept this change.
For now it seems that Bitcoin ABC has become more popular
and is considered by most as the “true” Bitcoin Cash.
Before we conclude today’s extensive video
I'd like to leave you with some food for thought.
Sometimes the obvious solution to a problem
isn’t necessarily the best one.
Low transaction fees are important to the usability of Bitcoin,
but not at all costs,
and a quick fix often has unforeseen consequences.
I mean, just imagine what life would be like
if instead of investing in and developing file compression technologies,
we would simply have to buy additional hard drives
just to save all of our uncompressed documents,
photos, videos, and projects to our computers.
How much longer would it take to transmit those files
along the internet to our friends, family, colleagues, or clients?
Keeping this in mind,
it would seem as though optimizing data within small blocks
while maintaining decentralization will pay off in the long run.
Adding to the block size might prove necessary,
but it should be used sparingly.
For now, the Bitcoin Cash hard fork saga
stands as a testament
to the decentralized nature of the Bitcoin network.
It demonstrated how unbiased the system is,
and how no single party can dictate what will happen,
even when very powerful interest groups are involved.
That’s it for today’s episode of Crypto Whiteboard Tuesday.
Hopefully by now you understand what Bitcoin Cash is -
A hard fork of Bitcoin’s protocol
that created a new coin with a larger block size.
You may still have some questions.
If so, just leave them in the comment section below.
And if you’re watching this video on YouTube,
and enjoy what you’ve seen, don’t forget to hit the like button.
Then make sure to subscribe to the channel
and click that bell so that you’ll be notified
as soon as we post a new episode.
Thanks for watching me here at the Whiteboard.
For 99bitcoins.com,
I’m Nate Martin, and I’ll see you… in a bit.
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