Bitcoin is one of the most incredible innovations in the recent past. However, it has also come under a lot of criticism for its scalability issues which has given rise to a lot of debates which are politically as well as ideologically motivated. The Bitcoin scalability debate led to the cryptocurrency split on August 1, 2017. A chain coming out of the split and setting its block size limit to eight megabytes to increase the number of transactions its ledger can process is called Bitcoin Cash (BCH). The rule change increasing the bitcoin block size limit is classified as a hard fork.
A Step-By-Step Guide To Bitcoin Cash
What is Bitcoin Cash?
At its simplest, Bitcoin is either virtual currency or reference to the technology. You can make transactions by check, wiring, or cash. You can also use Bitcoin (or BTC), where you refer the purchaser to your signature, which is a long line of security code encrypted with 16 distinct symbols. The purchaser decodes the code with his smartphone to get your cryptocurrency. Put another way; cryptocurrency is an exchange of digital information that allows you to buy or sell goods and services.The transaction gains its security and trust by running on a peer-to-peer computer network that is similar to Skype, or BitTorrent, a file-sharing system.
Bitcoin Cash (BCH) is a lot like Bitcoin but has some very noticeable differences:
- The blocksize is 8 MB
- It won’t have segwit
- It won’t have the “replace by fee” feature
- It will have replay and wipeout protection
- It offers a way to adjust the proof-of-work difficulty quicker than the normal 2016 block difficulty adjustment interval found in Bitcoin
Since BCH is a result of a hard fork, anyone who possessed BTC got the equal amount of coins in BCH PROVIDED they didn’t have their BTC in exchanges and were in possession of their private keys at the time of the hard fork. So now let’s go through certain interesting features of Bitcoin Cash.
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How does Bitcoin Cash prevent replay attacks?
One of the best features of Bitcoin Cash is how it circumnavigates one of the biggest problems that any cryptocurrency can face post-forking, the replay attack.
A replay attack is data transmission that is maliciously repeated or delayed. In the context of a blockchain, it is taking a transaction that happens in one blockchain and maliciously repeating it in another blockchain.
- Using a redefined sighash algorithm. This sighash algorithm is only used when the sighash flag has bit 6 set. These transactions would be invalid on the non-UAHF chain as the different sighashing algorithm will result in invalid transactions.
- Using OP_RETURN output which has the string “Bitcoin: A Peer-to-Peer Electronic Cash System” as data. Any transaction which contains this string will be considered invalid by bitcoin cash nodes until the 530,000th block. Basically, before that block you can split your coins by transacting on the non-UAHF chain first with the OP_RETURN output, and then transact on the UAHF chain second.
Any cryptocurrency depends heavily on its miners to run smoothly. Lately, bitcoin cash has attracted a lot of miners which has significantly improved its hash rate. Bitcoin cash has a set rule as to when it decreases its difficulty. Before we see the rule it is important to understand what Median Time Past (MTP) is. It is the median of the last 11 blocks that have been mined in a blockchain. Basically, line up the last 11 blocks one after another and the time at which the middle block is mined is the median time past of the set. The MTP helps us determine the time at which future blocks can be mined as well.
So, this is the rule for difficulty adjustment in bitcoin cash: If the Median Time Past of the current block and the Median Time Past of 6 blocks before is greater than 12 hours then the difficulty reduces by 20% i.e. it becomes 20% easier for miners to find newer blocks. This gives the miners some power to adjust difficulty.
The difficulty rate adjusts according to the number of miners in the system. If there are fewer miners, then the difficulty rate goes down because the overall hashing power of the system goes down. When bitcoin cash first started it was struggling a bit to get miners, as a result, its difficulty dropped down drastically. This, in turn, attracted a lot of miners who found the opportunity to be very lucrative. This caused an exodus of miners from BTC so much so that the hashing power of BTC halved, decreasing the transaction time and increasing the fees. Reports on social media stated that BTC transaction was taking hours and even days to complete.
So what is the driving force behind the value of Bitcoin Cash?
More and more exchanges are agreeing to take up bitcoin cash. When it first started most exchanges were reluctant to take up BCH, but now more and more exchanges are accepting it. This, in turn, gives it credibility which increases its value.
Another reason is more and more miners are joining in. As explained above, BCH is currently very lucrative for miners and many of them are coming in and giving their hashing power which in turn increases its value. At the same time, since the block size is 8 MB as well, it will enable more transactions within the block which will generate more transaction fees for the miners.
What is the future of Bitcoin Cash?
In short, we don’t know. We have no idea how bitcoin cash is going to turn out in the future nor do we know the long-term repercussions that it will have on BTC. What we do know is that this is the first time that anyone has successfully hard-forked from BTC whilst keeping the records of the existing transactions. What we have here is a very interesting experiment which will teach us a lot of lessons moving forward. At the same time, the 8 MB block size is definitely a very alluring aspect and it remains to be seen how this affects the miners in the long run. Can this really address all the scalability issues? Can BCH ever overtake BTC and become the primary chain? All these questions are mere speculations for now. What we can say for sure is that we have a very interesting future ahead.
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