Bitcoin Cash
It is rare for the writers here at Mycryptopedia to publish opinion pieces. We at all times attempt to remain neutral when writing articles, regardless of our own personal opinions. It is our objectivity that our readers value, and it is our objectivity that has allowed Mycryptopedia to grow as quickly as it has. However, given the recent increased attention Bitcoin Cash has received, I thought it important that I write about the digital currency in an effort to answer the question, “What exactly is Bitcoin Cash?”. Although, in-order to suitably understand what Bitcoin Cash is, we must first understand the scalability issues faced by Bitcoin itself.
Bitcoin's Scalability Issues
As Bitcoin grows in popularity, so too will the number of users that transact over its network. The scalability issue of Bitcoin stems from its very inability to handle the increasing number of transactions.
The primary reason why Bitcoin is currently unable to effectively handle the increase in transaction volume is because of its block size limit. I have covered the block size in extensive detail in a previous article, and so I recommend you go check it out here. Currently, Bitcoin has a block size limit of 1 MB, which in the past was perfectly suitable in handling the number of transactions Bitcoin was experiencing over its network. However, as time as gone on, one very clear disadvantage of the current 1 MB limit has surfaced:
- Higher transactions fees
Higher transaction fees: If you understand exactly how transactions are added to the blockchain, you will understand that is the miners who decide which transactions are added at any given time. Because of this, it has become common practise for users to pay a higher transaction fee in-order to incentivize miners to add their transaction to the blockchain as quickly as possible. If the transaction fee you pay is not high enough, your transaction will still be confirmed. However, it can take hours, and in some cases days, for the transaction to be confirmed.
As Bitcoin continues to grow, these transaction fees are expected to become more expensive for the average user. Therein lies Bitcoin’s scalability issue. However, there are numerous solutions being proposed that could help solve Bitcoin’s scaling problem. Solutions such as, segregated witness and an increase in the block size are two of the most viable solutions being considered and implemented right now. However, both solutions have their own advantages and disadvantages.
Ideological differences between Bitcoin and Bitcoin Cash
Before we dive into the technical differences between Bitcoin and Bitcoin Cash, I first want to explore the ideological differences between the two cryptocurrencies. The differences in ideology between the two camps can be summarised as follows:
- Bitcoin as a store of value
- Bitcoin as a peer-to-peer electronic cash system
Bitcoin as a store of value: If you believe that Bitcoin is meant as a store of value, similar to the way gold is a store of value, then the scalability issues that stem from increased transaction volume is a non-factor. The rationale is, users should not mind paying higher transaction fees because they should be transacting relatively infrequently across the network. If I wanted to move gold that I owned from one location to another, I would have to pay fees associated with that. In a similar vein, users of the Bitcoin protocol should have to pay a transaction fee.
Bitcoin as a peer-to-peer electronic cash system: If you believe Bitcoin should be used a form currency, in the same way the USD is a form of currency, then paying high transaction fees is not at all practical. If I want to use my Bitcoins to pay for a delicious cup of coffee, then paying $10 in transaction fee would hinder mass adoption. Therefore, if you believe in Bitcoin as electronic cash system, it then becomes paramount that any solution to the scalability problem cuts down on transaction fees.
Technicalities of Bitcoin Cash
Bitcoin Cash subscribes to the ideology that Bitcoin is meant as a peer-to-peer electronic cash system. Therefore, the way in which Bitcoin Cash sets about achieving this, is to simply increase the block size limit from 1 MB to 8 MB through a process known as a hard fork.
By increasing the block size limit from 1 MB to 8 MB, significantly more transactions can be included in a block before being added to the blockchain. Users no longer have to pay exorbitant fees just for their transactions to be included in block, because there is now ample space for it. Lower transaction fees better facilitate Bitcoin Cash for use as a digital currency as opposed to a store of value. In effect, Bitcoin Cash has achieved its goal of becoming a peer-to-peer electronic cash system.
Conclusion
As the debate rages on, there are of course advantages and disadvantages to any potential solution to the scaling problem. My argument however is this: “The degree to which anyone is willing to tolerate the disadvantages of their favoured solution to Bitcoin’s scalability issue, stems from a fundamental difference in ideology.”
A very simple way of deciding which side of the debate you are on is to answer this very simple question: Do you believe Bitcoin is meant as a store of value, or as a peer-to-peer electronic cash system?