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What is Bitcoin Cash & How Does it Work? - BCH for Beginners

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Author: Benson Toti Updated: March 10, 2022

Bitcoin Cash (BCH) is another peer to peer electronic payment currency that aims to enable consumers and merchants to send and receive payments without having to deal with long delays and high fees. BCH denotes Bitcoin Cash, and it's a decentralised and permissionless digital currency that works without any involvement of banks, governments, or any other central authorities. 

Unlike conventional money, which is continuously printed by the governments, causing the devaluation of currency and inflation, it has a fixed supply of 21 million coins to ensure long term stability. Using BCH, you are free to send money anywhere in the world to anyone. There are no approvals or permissions required regardless of how big your transaction is. The blockchain network is working round the clock and never has to experience any downtime.

Why Was Bitcoin Cash Invented?

As Bitcoin gained more popularity, its price didn't only surge but also became highly volatile, making it more of an asset class instead of a traditional currency alternative. The Bitcoin blockchain failed to scale proportionately with the growth in the number of transactions, which led to processing delays and higher fees. It was caused by the block size, which was capped at a maximum of 1MB. As a result, transactions got in line waiting to be verified as smaller blocks weren't able to handle more transactions while maintaining a faster processing speed.

Bitcoin Cash has attempted to find a solution by increasing the size of those blocks from 1MB to anywhere between 8MB and 32MB. Bigger blocks can accommodate more transactions allowing the miners to process and verify more transactions. 

The comparative evaluation shows that while Bitcoin blocks were handling 1,000 to 1,500 transactions per block, Bitcoin Cash was capable of handling up to 25,000 transactions per block. This allowed BCH to get closer to the vision of original Bitcoin, which offered a replacement for the traditional payment system instead of simply being a speculative investment asset.

Ready to invest in Bitcoin Cash?

How Does Bitcoin Cash Work and What Technology Is Behind It?

Apart from the differences in philosophy and block size, Bitcoin Cash and Bitcoin are pretty identical in terms of how they work. They both use a peer-to-peer network of computers or nodes made functional with the help of miners who verify transactions to earn rewards or use Proof of Work (PoW) consensus to mine new tokens whose supply is limited to 21 million. 

In the past, the algorithm of Bitcoin Cash was used to raise the mining difficulty after every 2016 blocks. But, recently, the developers have made the mining process easier as miners were making a shift to BTC. It also makes use of what developers call Segregated Witness solution or SegWit.

This method proposed that instead of storing all the information related to the block's transaction, it can be stored on a separate file that's outside the block. This will enable the blockchain to have more transactions on the block, reducing processing time. However, the solution hasn't been popular with cryptocurrency enthusiasts, and it's still to be seen if Bitcoin Cash blockchain can handle a large number of transactions.

Is Bitcoin Cash Real Money?

BCH provides versatility in terms of offering a complete payment alternative. It's accepted in more than 5,000 physical locations across the globe, but you can also use it for shopping online and paying for your meals at selected cafes and restaurants. Moreover, Bitcoin Cash brings support for popular third party payment gateways, enables BCH donations for WordPress and non-profit organisations, and offers a Point of Sale (POS) solution for businesses.

However, despite all of its flexibility and versatility for consumers as well as businesses, it has yet to gain the traction that its developers were hoping for. It hasn't been as successful because original Bitcoin teams could sort out and mitigate the impact of many issues that gave birth to Bitcoin Cash. That's why the digital currency has struggled to match the popularity of BTC, let alone achieve the status of being considered a real currency alternative.

Fees & Expenses

The average transaction fee of BCH at the time of writing is $0.0048. The price hit its peak in January 2018 when it crossed the $0.90 mark. Compared to the previous year, the average transaction fee has pretty much remained the same as the figure has been hovering between the range of $0.0040 and $0.0060, which is nominal. Given the current lukewarm situation of Bitcoin Cash, the transaction fee isn't expected to rise significantly as the blockchain hasn't been pushed to its limits.

It should be kept in mind that the average transaction price is calculated by evaluating the fee at the time of transaction verification by the miners. The transaction fee is affected by a wide range of factors, including the amount and network traffic. Apart from this, crypto exchanges, wallets, and trading platforms charge their commissions and service fees, depending on geographical location, mode of payment, and if BCH is being sold or purchased.

What Are the Benefits of Bitcoin Cash?

Extremely Low Fees - BCH offers transaction charges that are next to nothing. It means people can send and receive any sum of money without worrying about exorbitant service fees.

Offers Greater Privacy - Using a cryptocurrency like BCH means you have more control over your financial’s privacy, as traditional financial institutions require you to share a lot of personal information.

Exclusive Promotions - Since BCH eliminates bank card fees from the equation, merchants can offer better rates, discounts, and promotions using this alternative payment system.

Decentralised - Just like Bitcoin and Ethereum, it is also based on a decentralised peer-to-peer network, which means no single powerful entity has an unreasonable amount of control over the digital currency.

Stable & Secure - Compared to other highly volatile cryptocurrencies, BCH is relatively stable and offers highly secure blockchain technology, which prevents any data breaches or loss of funds.

Quick Transactions - Since it uses larger-sized blocks, miners can process a higher number of transactions enabling fast and reliable transaction processing and verification for users.

Robust Payment Infrastructure - Being a payment focused digital currency, it has built robust payment features for both the consumers and merchants to ensure quick, convenient and affordable payments.

Can Bitcoin Cash Be Used Anonymously?

Although cryptocurrencies like BCH offer some anonymity level compared to conventional financial institutions backed payment methods, you should always be mindful of the fact that any activity on the internet is traceable. Moreover, increasing regulations on cryptocurrency trading means that many Bitcoin Cash exchanges are now required to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. This leads to the collection of personal data for individual verification.

This is why thoroughly maintaining anonymity has become increasingly difficult in cryptocurrency trading. If you're going to use trustworthy websites, at some point, you will have to share at least some personal information. Moreover, many websites may use cookies and other analytics, enabling them to collect meta-information like the browser you're using, your IP address, PC model, operating system, and more. The ultimate payment tool that still offers close to absolute anonymity is hard cash.

How Safe Is Bitcoin Cash?

Bitcoin Cash uses a robust blockchain technology, which is pretty much impossible to break into. Your transactions and fund transfer records can't be tampered with or changed by a single individual as blockchain requires unanimous approval from all nodes. Cryptographic encryption adds another layer of security to the entire payment infrastructure providing a way to conduct safe and secure transactions.

If you want additional security, you can always use physical or software wallets to store your BCH coins. Compared to trading platform accounts and exchange storage, dedicated wallets offer an enhanced security level, which is strengthened through 2FA and passphrase.

What Teams Are Working On Bitcoin Cash Development

It isn't entirely clear what teams are currently working on Bitcoin Cash, but they have a wide range of operational projects for both the blockchain and additional functionality. Blockchain and token projects can be divided into three categories:

Scaling - These projects are geared towards improving the blockchain's ability to process more transactions in less time. These include Can—transaction Ordering, Faster Block Propagation, Merklix-Metadata Tree, UTXO commitment, Schnorr Signatures, and more.

Usability - These are the projects which aim to enhance the functionality and convenience for the users as well as merchants. The larger goal of these projects is to improve market acceptance and become a currency alternative standard. This phase includes projects like CashAddr, Sighash, Fee Improvements, Pre-consensus, Fractional Satoshis, and BEST MONEY.

Extensibility - These projects include Basic Opcodes, OP_RETURN At 223 bytes, OP_CHECKDATASIG, New Transaction Format, and TOKEN ECONOMY.

Apart from these projects, others use Bitcoin Cash infrastructure to build an ecosystem around the cryptocurrency. These include the likes of Honest Cash, Open Bazaar, Pompler, Awesome, Marco Coino, Satoshiwall, and more.

Which Financial Institutions Are Invested in Bitcoin Cash?

Bitcoin Cash being direct competition for traditional financial institutions and banks means they won’t put their own money for adding value to the blockchain or its infrastructure. If it succeeds as an alternative payment system, it’ll cannibalise one of the major businesses of financial institutions.

That’s why most of the banks and financial institutions are intrigued and are looking to evaluate and observe Bitcoin Cash blockchain and other decentralised cryptocurrencies to create a payment system that offers the same benefits as quick processing times as well as considerably low transaction charges. These banks and financial institutions include Standard Chartered, Goldman Sachs, Banco Santander, Barclays, UBS, Citi Bank, BNP Paribas, SocGen, JP Morgan, and Bank of America.

Bitcoin Cash Mining

Bitcoin Cash mining is quite similar to Bitcoin mining, with a few significant differences. Bigger block size means you need more computing resources to crack the mathematical problems, but the upside is that you get more tokens in terms of reward. You will need specialised computing rig to mine BCH. It's recommended that you use a profitability calculator designed for cryptocurrency mining to ensure your investment will yield healthy returns.

Although the reward is higher for BCH, the vast price difference in BTC and BCH means mining for the original variant remains more profitable. This is one of the reasons why Bitcoin Cash reduced the difficulty of mining for its blockchain to attract more miners. You should also keep in mind that mining also yields transaction fees around $2.5 for Bitcoin and not even a full penny for Bitcoin Cash. Before mining BCH, you must have a reliable wallet for secure storage.

Bitcoin Cash Wallets

Cryptocurrency wallets are physical devices or software applications used to store private keys that provide Bitcoin Cash or other digital assets. These wallets are designed to ensure the security of your funds and offer convenience for quick BCH trading. Here are some of the wallets you can use to store your BCH coins:

  • Recommended Wallets
  • Bitcoin.com, Yenom, Electron Cash
  • Mobile Wallets
  • BRD, Copay, Jaxx, Edge, Coinbase, Mobi, Gemini, IF Wallet, Bitpay
  • Desktop Wallets
  • Electron Cash, Exodus, Bitpay, Bitcoin.com, Badger Wallet
  • Cold Wallets
  • Ledger, Trezor, Coldar
  • Paper Wallets
  • Cash Address, WalletGenerator.net, Bitcoincashnotes.com

Is Bitcoin Cash Worth the Investment?

Given the volatility of cryptocurrencies, including BCH, there is no definitive answer to this question. Cryptocurrency trading can wipe out your capital in no time and double it in a matter of minutes. Nobody is entirely aware of what direction the market is going to take. That makes Bitcoin Cash a high risk and high reward investment.

Owing to the risks associated with BCH trading, you need to ensure that you're taking all the precautions. Don't commit more money than you can afford to lose when investing in BCH and always follow reliable experts and crypto enthusiasts. Bitcoin Cash may be a long-term investment opportunity given the underlying potential; however, if original Bitcoin manages to resolve all of its issues related to delays and processing fee, BCH might not remain as relevant.

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Frequently Asked Questions

  1. They are identical in terms of the underlying infrastructure, as both of them rely on blockchain. However, Bitcoin blocks can be up to 1MB in size, while Bitcoin Cash allows for blocks that can go as high as 32MB in storage size.
  2. The best way to ensure the safety of your cryptocurrencies is to use a hardware or software wallet. Exodus, Electron Cash, and Bitpay are great software wallets while Ledger and Trezor offer cold wallet solutions.
  3. Absolutely. There are no differences in terms of blockchain fundamentals when it comes to decentralisation.
  4. It's difficult to say because of the price volatility. You do get more BCH coins, and it's easier to mine, but you will have to take price difference and average transaction fee into account to make that decision.
  5. More than 5,000 physical locations and e-retailers accept BCH as a valid payment method. You can type in your area on the website to see the brands that will accept BCH payments.
  6. Given the volatility of BCH and the vast resources available to the original Bitcoin team, there is a lot of uncertainty around the currency. It's recommended that you only invest what you can afford to lose.
  7. Due to a sudden rise in Bitcoin popularity, the blockchain's ability to scale failed to deliver, and transaction fee and processing times increased too much, turning Bitcoin into an investment vehicle. That's why Bitcoin Cash was established to fulfil the original objective of replacing conventional payment systems.
  8. It offers ridiculously low transaction fees and is widely accepted as a valid digital currency.