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Bitcoin Cash: The Dawn of a New Fork

November 10, 2020

10 min

Bitcoin Cash: The Dawn of a New Fork
Beginner

Bitcoin Cash, born from a Bitcoin fork in 2017, is among the largest cryptocurrencies in terms of market capitalisation.

With a particularly turbulent community, its blockchain has been divided several times resulting in new tokens.

bitcoin cash

Fun Fact

The Bitcoin Cash network updates its protocol twice a year, on November 15 and May 15. This strict roadmap aims to achieve the ambitious goals of the community on time. That’s why the last two hard forks took place both on November 15.

In August 2017 the Bitcoin community split. At the exact moment, digital gold reached its maximum value and a hard fork divided its blockchain, generating Bitcoin Cash.

The purpose of Bitcoin Cash is to combine the scarcity of Bitcoin with the immediate expendability of cash. With a limited total supply of 21 million coins, Bitcoin Cash is anti-inflationary and, like cash, can be easily spent.
The very low fees, in fact, favour microtransactions, as for example those used to support content creators.

To fully understand the project behind Bitcoin Cash, let’s see the events that led to its origin.

The Limits of Bitcoin

Although Bitcoin is still the most important cryptocurrency, it has undeniable technical weaknesses. The most limiting is certainly the low scalability.

The size of its blocks is originally only 1 MB, which allows about five transactions per second. This limit reduces the number of trades that can be managed by the network and increases the processing time of transactions.

Initially, the 1 MB limit was set to reduce the chance of spam or DDoS attacks. Since not many transactions were carried out, this restriction did not affect the efficiency of the network.

However, with the growth of the Bitcoin community, this limit led to network overload and block accumulation. In May 2017 it could take up to four days for a transaction to be confirmed.

Users who chose to speed up the confirmation process paid higher transaction fees. For small amounts, however, these fees were unacceptable, making Bitcoin not convenient and discouraging its use.

The first solutions chosen by the Bitcoin community

In 2017, when these problems reached their peak, the Bitcoin community came up with two solutions: Bitcoin Unlimited and Segregated Witness (SegWit).

Bitcoin Unlimited

The first one is a tool to help the Bitcoin community find a consensus on the size of the block limit.

Bitcoin Unlimited, in fact, allows users to choose the block size they prefer and find the one with the most consensus. Thus, it is not a fork, but a tool to increase the block size without involving a division of the blockchain.

Miners, mainly because it involved an increase in transaction fees, supported it. Developers, instead, had a different opinion. Increasing the amount of data included in each block would have made it more difficult for individual miners to process it, favouring mining pools. In other words, Bitcoin Unlimited risked a slow yet inevitable centralisation of Bitcoin.

In the end, this solution was not accepted by the majority of the community and was rejected.

In 2020, however, the project was recovered, and the full Bitcoin Unlimited node was implemented in the Bitcoin protocol. In this way, miners can independently configure the size of the blocks they validate. As soon as a block larger than one megabyte is extracted, all miners follow the chain with this larger block.

Segregated Witness

The second alternative, Segregated Witness, was proposed by Dr. Pieter Wuille. It consists of increasing the block limit to almost 4 MB and reducing transaction costs.
This solution implied a soft fork that was adopted in August 2017 and was the first step of the wider “New York Agreement“.

The second step of the agreement should have been SegWit2x, adopted through a hard fork.
This protocol would have increased the size of the blocks from 1 MB to 2 MB and would have involved a change in the rules governing Bitcoin.

In November 2017, however, the announcement of a new hard fork, Bitcoin Cash, questioned the utility of SegWit2x and the launch was cancelled.

New York Agreement

On May 23, 2017, a group of companies and miners announced that they had reached a compromise between Segregated Witness and the increase in block size. This compromise is known as the New York Agreement and is divided into two phases: SegWit and SegWit2x.

bitcoin fork

How Bitcoin Cash came to be

From this moment on, the fate of Bitcoin Cash is left in the hands of a former Facebook engineer, Amaury Séchet.

On August 1, 2017, during the Future of Bitcoin conference in the Netherlands, announces the first implementation of Bitcoin Cash, named Bitcoin ABC.

With this move, Séchet and his team of developers wanted to propose a definitive alternative to SegWit2x. Bringing the size of the blocks up to 8 MB, they hoped one day to compete with the trade volume of industry giants like PayPal and Visa.

According to them, these fundamental technical changes were the only way to bring Bitcoin to a global audience.
It was a radical change, that required a hard fork. The event would make Bitcoin Cash a new independent cryptocurrency, based on a new blockchain.

A large number of investors, entrepreneurs and miners based in Asia supported Séchet and the hard fork was successful: Bitcoin Cash was born.
As a result of the split, those who already had bitcoin, received the same amount of Bitcoin Cash tokens in a new wallet.

Hard Fork

Since most blockchains are open-source, any member of its community can propose changes to improve operation. When the change involves very radical modifications in the protocol, to the point that it is no longer compatible with previous versions of the blockchain, a hard fork is carried out. This split will result in a new blockchain and a new cryptocurrency.

An unexpected success

Bitcoin’s hard fork was very successful and quickly adopted by investors. After only one day, in fact, it became the third cryptocurrency by market capitalisation, after Bitcoin and Ethereum.

Even Roger Ver, also known as Bitcoin Jesus, is a major supporter and investor of Bitcoin Cash. Besides being a famous investor and one of the first Bitcoin buyers, he is CEO of Bitcoin.com and one of the five founders of the Bitcoin Foundation. Nonetheless, he blindly believes in the Bitcoin Cash project.

In an interview with Cointelegraph he states that:

“Bitcoin Cash is the real Bitcoin and will have the bigger market cap, trade volume and user base in the future.”

fork

Price evolution

Bitcoin SV

In 2018 Bitcoin Cash undergoes an additional hard fork that leads to the birth of Bitcoin SV (Satoshi Vision).

The name suggests a presumed desire to return to the origins. This faction of the community is led by Craig Wright. The Australian entrepreneur closely linked to the creation of Bitcoin SV claims (obviously) to be Satoshi Nakamoto and wants to remain faithful to the goals expressed in the Bitcoin Whitepaper.

It only took Amaury Séchet two years to build a secessionist movement with an entirely different vision.

Amaury Séchet vs Roger Ver: a new hard fork

Bitcoin Cash ABC

It is at the beginning of 2020 that Amaury Séchet, tired of being underpaid, proposes an 8% security tax, called IFP, Infrastructure Funding Proposal, to fund Bitcoin Cash developers.

This change to the protocol would’ve led to a second hard fork, but this time in the Bitcoin Cash blockchain, leading to the birth of a new cryptocurrency: Bitcoin Cash ABC.

Bitcoin Cash Node

Roger Ver, on the other hand, declared himself against the tax and, along with a part of the BCH community, created an anti-fork called BCHN, Bitcoin Cash Node, without IFP.

These conflicts led to the announcement of a hard fork that divided Bitcoin Cash into Bitcoin Cash Node and Bitcoin Cash ABC, which occurred on November 15th, 2020.

Bitcoin Cash price history

In August 2017, when launched, Bitcoin Cash was worth about $500 and in the following months it fluctuated between $200 and $600.
In November of the same year, like the other cryptocurrencies, it grew to a peak of $1,812. However, it reached its all-time-high in December, reaching $4,355.62.

It then started to fall back until reaching its all time low price of $63.39 at the end of 2018.
Currently it fluctuates around $500.

bitcoin cash

After the fork

Séchet supporters probably abandoned Bitcoin Cash in the face of their faction’s loss. On the other hand, the buzz caused by the event has certainly brought in new possible adopters for Bitcoin Cash.

The actual strength of this already fragmented cryptocurrency, however, will have to be tested over time.

Almost a year after the fork, in July 2021 the losing faction, Bitcoin Cash ABC stands at 217th place in the market and announces a change: it will now be called eCash (XEC). ECash will adopt Proof-of-Stake, will only have 2 decimal places like fiat currencies, and will support Ethereum‘s technology to develop smart contracts, with the intention of joining DeFi.

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