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What is Bitcoin Cash and How Does it Work? – A Complete Beginner’s Guide

Louise Villalobos

ByLouise Villalobos

Oct 14, 2023

Bitcoin remains to be the most popular blockchain in the Web3 industry. However, due to its limited functionalities, several altchains have emerged to fill the gaps. Among them is Bitcoin Cash. Do you want to know how this blockchain works? Well, keep reading this article.

Exploring Bitcoin Cash

Bitcoin Cash was developed to address scalability problems experienced in Bitcoin. Since its launch, the Bitcoin blockchain has processed transactions slower than most of its rivals, and this is attributed to the chain’s small block size, which causes network congestion.

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Bitcoin Cash is a hard fork of Bitcoin. For starters, a fork in crypto is a project created using the code of another crypto project while adding some upgrades.

Small Blocks vs. Big Blocks Debate

The issue of scalability has sparked a hot debate within the Bitcoin community. Some of the community members want the block size to be increased from the current 1 MB to solve scalability problems, while others advocate for the block size to remain as it is, arguing that a bigger block will compromise decentralization.

When was Bitcoin Cash Launched?

Bitcoin Cash was launched in 2017 by Bitcoin supporters of big blocks. The altchain’s block size is 8 MB. This helps it to reduce network congestion and process transactions faster than Bitcoin.

At the start, Bitcoin Cash received massive backing from prominent crypto players like mining company Bitmain and Bitcoin billionaire Roger Ver, who is said to own over 100,000 BTC. Ver even bought the Bitcoin.com domain to promote Bitcoin Cash. However, in recent months, the crypto guru has not been as vocal about Bitcoin Cash as he was a few years ago.

It is worth mentioning that Bitcoin Cash has been forked by a number of crypto projects, including Bitcoin ABC and Bitcoin SV.

How Bitcoin Cash Works

Bitcoin Cash uses a similar consensus mechanism as Bitcoin, which is Proof-of-Work. Here, miners validate transactions using complex computing machines in exchange for BCH, the native token of Bitcoin Cash.

While Bitcoin Cash and Bitcoin employ the same consensus, they differ in some ways, such as:

Block size – As mentioned, Bitcoin’s block size is 1 MB, while Bitcoin Cash’s is 8 MB.

Lightning Network – This technology is intended to boost transaction efficiency. Bitcoin supports it, while Bitcoin Cash doesn’t.

Difficulty Adjustments – Bitcoin Cash is able to adjust its mining difficulty quicker than Bitcoin.

What’s Special About Bitcoin Cash?

Here are some features that make Bitcoin Cash unique:

Immutable – All transactions on Bitcoin Cash are stored permanently in the blockchain and cannot be altered.

A hard cap – BCH’s maximum limit is capped at 21 million tokens and cannot be adjusted.

Accessible to everyone – Being a decentralized blockchain, Bitcoin Cash allows anyone to use the protocol to make transactions.

Pseudonymous – Bitcoin Cash lets users make transactions without providing personal details.

Transparent – As stated, all transactions on Bitcoin Cash are permanently stored in the chain, and anyone can track them, thus promoting transparency.

Distributed – Bitcoin Cash can be considered a public ledger since the transactions stored in it are maintained by a decentralized network of participants called nodes.

BCH Tokenomics

As mentioned earlier, BCH’s total token supply is capped at 21 million. As of this writing, there are about 17.1 million BCH addresses, with the top ten collectively holding over 2.2 million BCH tokens, data from CoinGecko shows.

Moreover, the BCH circulating supply stands at 19.5 million tokens, with a market cap of $4.23 billion. BCH is the 17th biggest crypto asset and trades at $215 as of October 14.

When the token launched, BTC holders were airdropped BCH at a ratio of 1:1.

BCH Wallet

When selecting a crypto wallet to store your BCH tokens, consider the security measures a particular wallet adopts. If you are holding huge amounts of BCH, we recommend you store them on a hardware wallet like Ledger or Trezor. If you wish to maintain your BCH tokens on a hot wallet, check out Exodus or Trust Wallet.

Louise Villalobos

Louise Villalobos

Louise Villalobos is an adept writer, renowned for her compelling articles that illuminate and engage. Her prowess in breaking down intricate subjects provides readers with clarity and nuance. With a vast and varied portfolio, Louise has solidified her standing as a distinguished voice in contemporary journalism.