Bitcoin Cash Guide: Understanding the Bitcoin Alternative
Bitcoin Cash was created to solve problems that emerged as Bitcoin grew more popular. This guide explains how Bitcoin Cash works, why it split from Bitcoin, and how you can trade it on LeveX.
What is Bitcoin Cash (BCH)?
Bitcoin Cash is a cryptocurrency that was created in 2017 when a group of developers and miners decided to split away from the original Bitcoin network. This split, known as a "hard fork," happened because of disagreements about how Bitcoin should handle its increasing popularity and transaction volume.
As Bitcoin became more widely used, transactions began taking longer to process and fees started rising. Some community members believed that increasing the size of Bitcoin's blocks (batches of transactions) would solve these problems, while others preferred different approaches. When the community couldn't reach consensus, Bitcoin Cash was born as a separate cryptocurrency with larger block sizes.
The fundamental purpose of Bitcoin Cash is to function as digital cash for everyday transactions. Its larger blocks allow it to process more transactions per second than the original Bitcoin, resulting in faster confirmation times and lower fees. While Bitcoin has evolved to be seen more as a store of value (similar to "digital gold"), Bitcoin Cash maintains a focus on being a practical payment system for daily use.
Like Bitcoin, Bitcoin Cash has a maximum supply of 21 million coins and uses a similar mining process to create new coins and secure the network. However, its larger block size capacity – initially 8MB and later increased to 32MB, compared to Bitcoin's 1MB – represents a significant technical difference between the two cryptocurrencies.
Bitcoin Cash maintains many of the core principles of the original Bitcoin, including decentralization, security through cryptography, and freedom from central control. Its existence reflects the diversity of approaches to achieving Satoshi Nakamoto's original vision of peer-to-peer electronic cash.
The History of Bitcoin Cash
The creation of Bitcoin Cash emerged from years of debate about how best to scale Bitcoin to accommodate growing adoption.
The Scaling Debate
As Bitcoin gained popularity between 2015 and 2017, the network faced increasing congestion. With Bitcoin's 1MB block size limit, the system could only process approximately 7 transactions per second. This limitation led to longer wait times and higher fees during periods of high demand.
The Bitcoin community became divided over the best solution to this scaling problem:
- One group advocated for increasing the block size to allow more transactions per block
- Another group preferred keeping blocks small while implementing other solutions like the "Segregated Witness" (SegWit) upgrade and developing "Layer 2" solutions such as the Lightning Network
This disagreement became known as the "block size debate" and grew increasingly contentious as both sides believed their approach better represented Bitcoin's original purpose.
The Fork
On August 1, 2017, the disagreement culminated in a hard fork of the Bitcoin blockchain. A hard fork occurs when a significant change to a network's protocol creates two incompatible versions of the blockchain.
At block height 478,558, Bitcoin Cash split from the main Bitcoin chain. Anyone who owned Bitcoin at the time of the fork automatically received an equal amount of Bitcoin Cash. The new cryptocurrency launched with an increased block size limit of 8MB (later increased to 32MB), allowing for more transactions per block.
Bitcoin Cash was supported by notable figures in the cryptocurrency space, including Roger Ver (sometimes called "Bitcoin Jesus" for his early advocacy of Bitcoin) and mining hardware manufacturer Bitmain's co-founder Jihan Wu.
Subsequent Developments
Bitcoin Cash itself experienced another contentious hard fork in November 2018, resulting in the creation of Bitcoin Cash ABC (which retained the BCH ticker) and Bitcoin SV (Satoshi Vision).
In 2021, Bitcoin Cash ABC underwent a rebranding to become eCash (XEC), another evolution in this branch of cryptocurrency development.
Despite these changes and a market value significantly lower than Bitcoin's, Bitcoin Cash has maintained its focus on being an accessible, low-fee payment system and continues to have an active development community and user base.
How Bitcoin Cash Works
Bitcoin Cash shares many technical similarities with Bitcoin while incorporating key differences designed to facilitate everyday transactions.
Blockchain Fundamentals
Like Bitcoin, Bitcoin Cash operates on a blockchain – a distributed ledger that records all transactions across a network of computers. This technology ensures transparency and security without requiring trust in a central authority.
The Bitcoin Cash blockchain builds on Bitcoin's fundamental architecture:
- Transactions are grouped into blocks
- Miners compete to solve complex mathematical problems to add new blocks
- Successful miners receive newly created BCH as a reward
- Each block references the previous block, creating an immutable chain
While this basic structure is similar to Bitcoin's, Bitcoin Cash made specific modifications to improve transaction processing.
Key Technical Differences
Increased Block Size: The most significant technical difference is Bitcoin Cash's larger block size. While Bitcoin maintained a 1MB block size limit, Bitcoin Cash initially increased this to 8MB and later to 32MB. This allows BCH to process more transactions in each block, reducing congestion and keeping fees lower.
Rejection of SegWit: Bitcoin eventually adopted Segregated Witness (SegWit), a method of restructuring transaction data to fit more transactions within the 1MB limit. Bitcoin Cash rejected this approach, preferring the straightforward solution of increasing the block size instead.
Difficulty Adjustment Algorithm: Bitcoin Cash implemented an improved difficulty adjustment algorithm to ensure stable block times even with fluctuations in mining power.
Transaction Format: BCH has made adjustments to the transaction format to fix some issues in the original Bitcoin design, including a solution to the "transaction malleability" problem.
These technical choices reflect Bitcoin Cash's philosophy that on-chain scaling through larger blocks is the best approach to maintain the peer-to-peer electronic cash vision outlined in the original Bitcoin whitepaper.
Day-to-Day Use
From a user perspective, Bitcoin Cash functions much like Bitcoin but with some practical advantages for everyday transactions:
Faster Confirmations: With less network congestion, transactions typically confirm more quickly.
Lower Fees: Transaction fees on the Bitcoin Cash network generally remain below $0.01, even during high-volume periods.
Same Security Model: Despite the differences, Bitcoin Cash maintains the same fundamental security model as Bitcoin, using proof-of-work mining to secure the network.
This combination of technical features makes Bitcoin Cash particularly suitable for smaller, everyday transactions where Bitcoin's higher fees might be impractical.
BCH Tokenomics
Understanding the economic model behind Bitcoin Cash provides insight into its role in the cryptocurrency ecosystem.
Supply and Distribution
Bitcoin Cash mirrors Bitcoin's supply model, with some key characteristics:
Maximum Supply: BCH has a capped maximum supply of 21 million coins, creating digital scarcity similar to Bitcoin.
Current Circulation: As of 2023, approximately 19.4 million BCH are in circulation, representing over 90% of the eventual total supply.
Mining Schedule: New BCH is created as mining rewards, with the reward amount halving approximately every four years. This "halving" schedule means that the rate of new supply decreases over time.
Initial Distribution: When Bitcoin Cash forked from Bitcoin, the initial distribution matched Bitcoin's exactly – anyone holding BTC received an equal amount of BCH at the moment of the fork.
This supply model ensures that Bitcoin Cash maintains the deflationary characteristics that many cryptocurrency advocates value while establishing its own market identity separate from Bitcoin.
Economic Use Cases
BCH serves several economic functions within the cryptocurrency ecosystem:
Medium of Exchange: The primary purpose of Bitcoin Cash is to serve as digital cash – a medium for everyday transactions with low fees and quick confirmation times.
Store of Value: While BCH prioritizes transactional use, it also functions as a store of value due to its capped supply, though it has shown more price volatility than Bitcoin.
Trading Pair: On many cryptocurrency exchanges, BCH serves as a trading pair against smaller cryptocurrencies, allowing traders to move between different digital assets.
Remittances: The low transaction fees make BCH practical for sending money across borders, particularly in areas with limited banking infrastructure.
These economic characteristics position Bitcoin Cash as a practical cryptocurrency for both everyday use and as part of a diversified cryptocurrency portfolio.
Real-World Applications of Bitcoin Cash
Bitcoin Cash has found various practical applications that leverage its strengths as a payment-focused cryptocurrency.
Merchant Payments
Bitcoin Cash's low fees and quick confirmation times make it particularly suitable for merchant payments:
Retail Adoption: A growing number of online and physical retailers accept BCH as payment, attracted by the lower processing fees compared to credit cards and the faster settlement compared to bank transfers.
Point-of-Sale Integration: Several payment processors have integrated BCH, allowing merchants to easily accept the cryptocurrency and either keep it or automatically convert it to traditional currency.
Tipping and Microtransactions: The minimal fees make BCH practical for small payments like content creator tips or pay-per-use services that would be uneconomical with higher-fee payment systems.
This merchant focus aligns with Bitcoin Cash's original vision of serving as electronic cash for everyday transactions.
Global Payments
Bitcoin Cash offers advantages for payments that cross borders:
Remittances: Traditional international money transfers often involve high fees and long waiting periods. BCH enables near-instant transfers worldwide at a fraction of the cost.
Banking the Unbanked: In regions with limited banking infrastructure, Bitcoin Cash provides a way for people to participate in the digital economy without needing a traditional bank account.
Currency Crisis Hedge: In countries experiencing severe inflation or currency controls, BCH offers an alternative store of value and medium of exchange outside the local monetary system.
These applications demonstrate how Bitcoin Cash can solve real financial problems, particularly in situations where traditional financial systems are expensive, slow, or inaccessible.
Developer Ecosystem
Beyond payments, Bitcoin Cash has developed an ecosystem of applications and services:
Smart Contracts: While not as extensive as Ethereum's capabilities, Bitcoin Cash has implemented basic smart contract functionality that enables more complex applications than simple payments.
Tokens: The Simple Ledger Protocol (SLP) allows for the creation of tokens on the Bitcoin Cash blockchain, similar to how ERC-20 tokens function on Ethereum.
Decentralized Applications: Developers have built various applications on BCH, including social media platforms, marketplaces, and games.
This growing developer ecosystem suggests that Bitcoin Cash's utility may continue to expand beyond its original focus on payments, though payments remain its core strength and focus.
Trading BCH on LeveX
LeveX offers multiple ways to trade Bitcoin Cash based on your experience level and strategy:
Spot Trading
Spot trading allows you to buy and hold actual BCH tokens. This approach is suitable if you:
- Want to own the underlying asset
- Are interested in BCH's long-term potential
- Prefer straightforward buy/sell trading
Perpetual Contracts
Perpetual contracts let you trade BCH price movements with leverage without owning the actual tokens. These derivatives offer:
- Leverage of up to 100x to amplify potential returns
- Ability to profit from both rising and falling prices
- No need to manage wallet security or token storage
LeveX provides competitive fees and an intuitive interface for both trading options, making it easy to incorporate BCH into your trading strategy.
Advantages and Challenges
Bitcoin Cash's Strengths
Lower Transaction Fees: BCH typically maintains transaction fees below $0.01, making it practical for everyday payments and microtransactions.
Faster Confirmation Times: With less network congestion due to larger blocks, BCH transactions generally confirm more quickly than on the Bitcoin network.
Scalability: The 32MB block size allows for significant scaling on the base blockchain layer without requiring additional protocols or layers.
Bitcoin Compatibility: BCH shares much of its codebase with Bitcoin, making it relatively easy for Bitcoin-focused developers and services to add BCH support.
These strengths align with Bitcoin Cash's mission to serve as practical electronic cash for daily use.
Challenges to Consider
Market Position: BCH has a significantly smaller market capitalization than Bitcoin, potentially affecting liquidity and wider adoption.
Brand Recognition: Despite sharing the Bitcoin name, BCH has less mainstream recognition, which may limit adoption among non-technical users.
Network Effect: Bitcoin's larger user base and ecosystem create a network effect that can be difficult for alternative cryptocurrencies to overcome.
Community Divisions: The Bitcoin Cash community has experienced its own splits and governance challenges, as demonstrated by the 2018 fork that created Bitcoin SV.
Competition: BCH faces competition not only from Bitcoin but also from other payment-focused cryptocurrencies and traditional payment systems.
These challenges highlight the competitive nature of the cryptocurrency space and the ongoing efforts required for Bitcoin Cash to achieve its vision of becoming widely used electronic cash.
Getting Started with Bitcoin Cash
Whether you're interested in Bitcoin Cash for its practical payment capabilities, its approach to scaling blockchain technology, or its trading potential, understanding this Bitcoin alternative provides insight into the different approaches to creating effective cryptocurrency systems.
For traders, creating a LeveX account gives you access to both spot trading and leveraged perpetuals for BCH, with competitive fees and an intuitive interface.
If you're new to cryptocurrencies, our Help Center provides resources to help you understand trading basics and platform features. For more information about other cryptocurrencies, check out our Crypto in a Minute series.