Today, one does not have to be an economist or a currency enthusiast to be aware of all the buzz surrounding Bitcoin (BTC) and Bitcoin Cash (BCH). Bitcoin has become a trending topic of discussion online from all the news outlets and social media posts revealing it to the world. However, despite all this talk, it can still be difficult to wrap one’s head around the concept of the Bitcoin system. It is a technical virtual economy concept, after all. In this article, you’ll find all the beginner essentials in understanding BTC and BCH to help you get a good grasp of what the system is about, how it works, and whether or not it has real economic benefits.
What is Bitcoin?
In order to understand BTC, one needs to go through a brief overview of its history, beginning with its nature as a cryptocurrency. Cryptocurrency is associated with the Internet’s cryptography system that translates information into secured codes. Cryptocurrency is basically a form of virtual money that is mostly used for anonymous purchases and transfers. There are several forms of cryptocurrencies available today. There’s Ethereum, Ripple, Litecoin, and the currently most talked-about, Bitcoin.
BTC, the first ever form of cryptocurrency, was launched in 2009. It was invented in 2008 by an anonymous Internet user who goes by the pseudonym Satoshi Nakamoto. It is currently the most popularly traded cryptocurrency that has a market capitalisation of roughly $230 billion as of the last quarter of 2017.
What is a blockchain?
The BTC network is made up of blocks that serve as permanent records of transactions. These can be compared to stock transaction ledgers or real estate agents’ record books. Apart from newer transactions, blocks also contain references to older transactions that may serve as answers or solutions to some mathematical puzzle that is commonly related to building BTC blockchains.
BTC has a software protocol called blockchain, which serves as its underlying technology. It has all these computing codes that represent rules for the entire BTC network. Blockchain is a disseminated record of data, which continuously grows, forming a chain of blocks – thus the term ‘blockchain’. Members of the BTC network must agree on a set of rules so that the entire system works harmoniously. This includes solving all aforementioned mathematical puzzles along the ever-growing blockchain. It works much like a mini digital economy with its own set of regulations; the only difference with Bitcoin is that all members must come to a consensus before rules get implemented. There is no single regulatory body. And miners, or Bitcoin members, constantly try to compete to solve the current block in the chain.
What are soft forks and hard forks?
Blocks are normally very difficult to solve, but once a solution is found, it is usually easy for the rest of the network to agree that the solution is correct. This is what you call a consensus. Sometimes, though, there are splits in a consensus. This is when, for example, several miners discover a block all at the same time. A fork happens when a blockchain splits into two sections: a consensus split and a change in underlying protocol rules. A consensus split is when miners stumble upon one block at the same time, thus splitting the chain. This becomes a temporary fork since the chain that lands the succeeding block first will be the longest chain and will automatically become the truth. The shorter chain will then be left out by the system. A change in underlying protocol rules, on the other hand, represents a consensual change of the codes among developers.
A soft fork is an upgrade in the software, which can be backwards-compatible with older versions. This means that members with older, non-upgraded versions of the software may still be able to participate in verifying the transactions. An example of a soft fork is when a new rule requires a block size to be 1 MB instead of 1.5 MB. It is important to note that while all members will be able to validate the rules regardless of whether they have upgraded or not, the system’s functionality may have several glitches for members who have not been able to upgrade. As a result, non-upgraded members will continue to see new transactions as valid, but when they try to mine new blocks, they can get rejected by the system.
Hard forks, on the other hand, are upgrades that will not be compatible with older versions of the software. This entails that all members will be required to upgrade to the latest version in order to continue validating succeeding transactions. Refusal to upgrade will automatically mean exit from the network.
What is SegWit?
SegWit is short for segregated witness and is a BTC update that changes the way the system stores data. SegWit is a process intended to solve the problem of hackers capturing and changing members’ transaction IDs in the attempt to earn more coins. This process also intends to free up more space in the chain to allow more transactions by implementing block size restrictions on certain blockchains. Specifically, SegWit does this by removing some signature data from Bitcoin transactions and moving it to the end of the chain.
How is Bitcoin different from Bitcoin Cash?
BTC and BCH are separate entities. They are not one and the same. Bitcoin Cash (BCH) is a BTC fork that was created in 2017 by a group of investors, miners and developers who came together in protest against the SegWit consensus to scale BTC. The story of how BCH came to be is actually a long and winding story, but to cut the long story short, after all the rally behind the recent consensus debate, BCH has then become BTC’s most successful by-product.
Is Bitcoin Cash cheaper to use than Bitcoin?
Investors are currently faced with skyrocketing BTC transactions fees making BCH a cheaper alternative to trade technically. In fact, a study conducted in December 2017 showed that BCH transactions were almost twice cheaper than equivalent BTC transactions. By the end of 2017, consumers were spending an average of $28 in transaction fees just to keep their BTC tokens mobile. Someone was even reported to have paid $16 just to remit BTC worth $25.
On a more technical note, there is actually very little difference between BCH and BTC. At the get-go, BCH will understandably seem much cheaper as it has lower fees. However, it is important to note that BTC has better security and stability since it continues to get better support from the infrastructure and miners themselves. BCH, on the other hand, is yet to have that same level of acceptance, as there are not as many wallets and systems accepting it – which is why there are still some slight inconveniences when trading BCH despite the lower fees.
AUD price of BCH in the last one year:
Does BCH price depend on BTC?
Bitcoin Cash, much like any other form of cryptocurrency, remains a volatile resource. These forms of virtual money are complex assets that are affected by a lot of internal and external economic factors. The answer to whether or not BCH price depends on BTC is a clear yes. Movements in the Bitcoin system do in fact affect BCH values considerably. For one, some of the pre-existing problems in the BTC system (e.g., scalability issues) could drive miners to shift to BCH. If these problems persist, this would push for further BCH growth as more miners decide to switch, thus resulting to considerable improvement in value. Furthermore, BCH’s shared network with BTC means that it remains to be closely associated with the world’s largest cryptocurrency. In effect, this establishes confidence and trust among investors as BCH remains upheld by a strong platform. Lastly, BCH, much like BTC and all other forms of cryptocurrency, is extremely dependent on the ‘supply vs. demand’ principle. The drive towards BCH transaction will always depend on its availability in the crypto market in comparison to BTC and other cryptocurrencies. If BCH remains able to compete against BTC in terms of crypto wallets availability, this would give it the credibility it needs to strengthen the demand for it within the market.
Should I invest in Bitcoin Cash?
As with all other forms of investment, it is crucial to study all the important aspects of Bitcoin Cash before deciding to invest your hard-earned money in it. Considering all the previous points we have covered so far, what we can agree on is that a lot of investors are leaving Bitcoin Cash and are shifting to BCH mainly due to the former’s scalability issues. These issues created a huge rift within the BTC community, making it difficult for members to reach a consensus after all the years of debate. As a result, BCH comes in like a shining light to members, offering a promising alternative with lower transaction fees and a variable block size limit. Moreover, potential investors should note that most online merchants have stopped accepting BTC as a digital currency, causing members to go after the next cheaper, quicker and simpler alternative – Bitcoin Cash.
To say whether BCH is a sound investment versus BTC or any other cryptocurrency is difficult to tell at this point. What’s certain is that while BTC has its limitations, BCH has its flaws too. But since rules for BTC remain unchanged and solutions to immediate issues are yet to be found, BCH will remain a strong competitor.
Where can I use BCH? What wallets support it?
When BCH was first launched, most exchanges were hesitant to accept it as a form of currency. However, as more investors braved to take a shot at it, more exchanges began agreeing to use BCH, thus improving its credibility and value over time. As of today, BCH is accepted by the following exchanges and wallets:
Exchanges that accept BCH
Wallets that accept BCH
How do I acquire Bitcoin Cash?
BCH and BTC can be purchased from most major exchanges. Understandably, BTC will remain easier to access as it has been in the market longer; however, if you’re after buying BCH, there is more than one way to do so.
The first method is to convert your BTC to BCH. A lot of exchanges have been offering to automatically convert their clients’ BTC to BCH after the hard fork. Most exchanges have also published trader guides to help ease clients into BCH currency. Another way of acquiring BCH is by setting up a wallet that supports it. You can then proceed to any of the abovementioned trading platforms that accept BCH and buy the currency from them. This will be like trading dollars or any other currency from this point on. You just have to have a valid payment method (e.g., PayPal, credit/debit card, etc.) to complete your transactions.
Who is Roger Ver?
A complete understanding of the BTC system won’t be complete without knowing about the so-called prophet of Bitcoin. Roger Ver was nicknamed ‘Bitcoin Jesus’ by cryptocurrency enthusiasts for his rather controversial and revolutionary contribution to the BTC community. Ver has been an active player in cryptocurrency ever since the early days of Bitcoin. He made a huge investment in BTC during its early days and immediately became an advocate of it, being vocal about it on social media and talking about it at different events – thus earning him the alias ‘Bitcoin Jesus’. Ver credits his million-dollar wealth to BTC and also, quite strangely, claims discovery of it in 2011, calling it the biggest, most important invention in the world next to the Internet. However, for the last couple of years, Ver has been reported to engage in many controversial deals and has even served jail time after being found guilty of dubious trading practices involving explosives. Despite his now tainted persona in the BTC world, Ver remains to be a significant name in cryptocurrency as he continues to be its biggest believer and goes on to have optimistic aspirations for the future of cryptocurrency.
As with any form of currency or investment, Bitcoin Cash requires an extensive amount of study and analysis before it is sound for anybody to decide whether or not to invest in it. It is a technical economic matter that requires a certain level of digital proficiency to fully understand. While Bitcoin Cash may not be for everybody due to its highly technical nature, it nonetheless looks to be a promising, unconventional substitute to the currently highly-regulated currency market.