What Is Bitcoin Cash (BCH) and How Does It Work?

Key Takeaways

• Bitcoin Cash was created through a hard fork to address Bitcoin’s scalability issues in 2017.
• Bitcoin Cash offers faster, cheaper transactions by increasing the block size to 32MB.
• Bitcoin Cash is positioned as a practical, peer-to-peer digital currency for everyday use.
• Despite its advantages, Bitcoin Cash faces competition and adoption challenges from other scalable cryptocurrencies.

On Aug. 1, 2017, Bitcoin Cash was created through a hard fork that resulted from a long-standing debate within the Bitcoin community over how to scale the network effectively.

Bitcoin Cash was created by a group of developers and prominent figures, including Roger Ver and Bitmain, a major Chinese mining company led by Jihan Wu. It sought to address Bitcoin’s scalability issues by increasing the block size.

In August of 2017, two camps emerged:

• Big Blockers (supporters of larger block sizes) proposed increasing the block size to accommodate more transactions.
• Small Blockers favored optimizing the transaction process without increasing block size to preserve Bitcoin’s decentralization.

Bitcoin Cash (BCH) Explained

Bitcoin Cash (BCH) was created by the “Big Blockers” camp, which believed that Bitcoin’s 1MB block size was insufficient for global adoption as a peer-to-peer payment system.

On Aug. 1, 2017, Bitcoin Cash was created through a hard fork, meaning a split from Bitcoin’s blockchain, which allowed for an increased block size of 8MB at its inception (now 32MB) to accommodate more transactions per block.

The primary vision behind BCH was to stay true to the idea of Bitcoin as “peer-to-peer electronic cash.” The larger block size meant faster transactions with lower fees, aiming to make Bitcoin Cash a practical currency for everyday use.

Key Differences Between Bitcoin (BTC) and Bitcoin Cash (BCH)

Block Size Limit

Bitcoin’s block size is capped at 1MB, while Bitcoin Cash’s is 32 MB. The increased block size allows BCH to handle more transactions per second, reducing congestion and fees.

Transaction Fees and Speed

Bitcoin transactions are often slower and incur higher fees, especially during network congestion. With larger blocks, Bitcoin Cash processes transactions faster and with lower costs, making it more suitable for daily transactions.

Vision: Store of Value vs. Medium of Exchange

While Bitcoin has increasingly been seen as a “store of value” like digital gold, Bitcoin Cash remains focused on being a “medium of exchange.” This distinction is vital because Bitcoin Cash’s proponents emphasize practical use cases for everyday transactions, unlike Bitcoin, a monetary instrument adopted as a savings technology or hedge against inflation.

How to Mine Bitcoin Cash (BCH)

Mining Bitcoin Cash is similar to mining Bitcoin, where miners use computational power to solve complex mathematical problems and validate transactions on the blockchain. 

Miners receive BCH as a reward for successfully mining new blocks. However, Bitcoin Cash’s larger block size means the network can accommodate more transactions, which may appeal to miners seeking faster block rewards.

Steps to Mine Bitcoin Cash

• Get mining hardware: Invest in ASIC (Application-Specific Integrated Circuit) miners, which are more efficient than traditional CPUs or GPUs for mining Bitcoin Cash.
• Join a mining pool: Joining a mining pool allows you to combine your computational resources with other miners to increase the chances of solving a block and sharing the rewards.
• Download mining software: Choose reputable mining software that supports Bitcoin Cash. Common options include CGMiner or BFGMiner.
• Set up a Bitcoin Cash wallet: Ensure you have a Bitcoin Cash wallet ready to receive your mining rewards. This could be a hardware wallet (Ledger, Trezor) or a software wallet.
• Start mining: Once your hardware, pool, and software are set up, begin mining and monitor performance through the mining pool’s dashboard.

How To Buy Bitcoin Cash (BCH)

Bitcoin Cash is available on most cryptocurrency exchanges. Popular platforms such as Binance, Coinbase, and Kraken offer BCH trading pairs. Users can purchase BCH using fiat currencies (like USD, EUR) or by converting other cryptocurrencies into BCH.

Bitcoin Cash is available on most cryptocurrency exchanges, making it easy to buy. The process is similar to purchasing any other cryptocurrency. The steps to buy Bitcoin Cash include:

• Select a cryptocurrency exchange: Popular options include Binance, Coinbase, and Kraken. Ensure the exchange supports BCH and offers your preferred trading pairs (e.g., BCH/USD, BCH/EUR).
• Create and verify your account: Register an account on the exchange, verify your identity through KYC (Know Your Customer) protocols, and set up two-factor authentication for added security.
• Deposit funds: Deposit fiat currency (USD, EUR) or another cryptocurrency like Bitcoin or Ethereum into your exchange account.
• Place a buy order: Select the BCH trading pair and place a market or limit order to buy BCH based on your desired price.
• Withdraw BCH to your wallet: After purchasing, transfer your BCH to a personal wallet for safekeeping. This could be a hardware or software wallet.

How To Convert Bitcoin (BTC) Into Bitcoin Cash (BCH)?

Many exchanges offer the option to convert BTC into BCH directly. By selecting the trading pair (BTC/BCH) and placing a market or limit order, users can easily convert Bitcoin holdings into Bitcoin Cash. 

Before swapping in and out, it is recommended to consider the current market price and any applicable fees.

Advantages of Bitcoin Cash

• Faster and cheaper transactions: With its increased block size, Bitcoin Cash has faster confirmation times and lower transaction fees than Bitcoin, making it a viable option for smaller, everyday transactions.
• Increased scalability: With a 32MB block size, Bitcoin Cash can process more transactions per block, giving it a significant advantage in handling higher transaction volumes as cryptocurrency adoption grows.

Challenges Facing Bitcoin Cash

• Competition with other cryptocurrencies: Despite its advantages in transaction speed and costs, Bitcoin Cash competes not only with Bitcoin but also with other scalable cryptocurrencies like Litecoin (LTC) and Ethereum (ETH) , each offering solutions to similar problems.
• Market adoption and price volatility: Although Bitcoin Cash remains among the top cryptocurrencies by market capitalization, its adoption rate has lagged behind Bitcoin. Additionally, the price of BCH has experienced significant volatility, making it a less stable store of value compared to Bitcoin.

Why Bitcoin Cash Matters

Bitcoin Cash represents an essential distinction in digital assets, where functionality and accessibility often weigh just as heavily as scarcity.

To grasp the difference between Bitcoin and Bitcoin Cash, it helps to think about how we use metals in the physical world. Just as certain materials are chosen for durability, flexibility, or conductivity, digital currencies are designed with specific purposes.

For comparison, why is the tangible Palladium metal valuable? It has value because it is a rare silver-white metal used in car exhaust systems to reduce emissions, making it valuable for its industrial utility to clean toxic fumes.

In the same way, Bitcoin Cash may be seen as the “palladium” of the digital world, at least to help distinguish it from digital gold and digital silver. Bitcoin Cash is scarce and has practical value for everyday transactions.

Bitcoin Cash’s larger block size allows for faster, cheaper transactions, making it better suited for high-volume usage. Bitcoin, like gold, is not used for real-time payments due to its smaller block size and higher fees. As digital adoption grows, Bitcoin Cash may offer a scalable alternative.

Is Bitcoin Cash a Good Investment?

As with any cryptocurrency, investing in Bitcoin Cash comes with risks. Bitcoin Cash (BCH) has been trending downward versus the USD, with three notable peaks visible on the chart below.

BCH is about 37% away from the rectangle resistance zone, which has acted as the most consistent price range for 80-90% of the BCH lifecycle.

A breakout above the $437 level would face immediate resistance at the long-term downward-sloping trendline. 

If BCH can get above this slope, it will encounter three additional resistance points ($720, $1,100, and $1,780), where profit-taking activity is expected to be high. 

It remains to be seen if BCH can reach a new all-time high (ATH) this cycle, and failure to do so could pose significant problems and challenges for BCH, especially with increasing competition in the crypto space fighting for the same “palladium” kind of role.

Conclusion

Bitcoin Cash was created to address Bitcoin’s scalability issues, offering a practical alternative for faster, cheaper transactions.

With a larger block size, Bitcoin Cash positions itself as a medium of exchange for everyday transactions, while Bitcoin increasingly serves as a store of value. Although Bitcoin Cash faces significant competition from other scalable cryptocurrencies like Litecoin and Ethereum, it remains relevant due to its ability to handle high transaction volumes with low fees.

However, BCH’s future will depend on its ability to overcome adoption challenges and price volatility in an increasingly competitive market. 

As the digital economy continues to evolve, Bitcoin Cash may play an essential role in fulfilling the demand for real-time, low-cost transactions.

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