August 1st marks the first birthday of Bitcoin Cash (BCH), the cryptocurrency that launched (forked) a year ago from bitcoin with the simple purpose of increasing the space available to make transactions through the bitcoin protocol.
Bitcoin Scaling Debate Leads to BCH Hard Fork
The last year has seen bitcoin truly enter the realm of public consciousness, but increasing usage has also brought growing demand for space on the bitcoin blockchain. At the start of 2017, bitcoin transactions took approximately 20 minutes to confirm and cost $0.35. Six months later, in June, those numbers had risen to over six hours for confirmation and fifteen times the cost: $5.50 USD. Given the increasing popularity to perform peer-to-peer transactions across the world, the bitcoin community ran into a formidable roadblock in scaling their decentralized network to match demand. While bitcoin has received the limeshare of attention, a year on, where does BCH stand and what is its function in the cryptocurrency ecosystem?
The central mechanism governing bitcoin transactions —the blockchain— is used to describe a plethora of projects utilizing the same underlying security apparatus. The size of the blocks dictates how much information can be stored on any given block. This size limit was originally set at 1MB in response to threats posed by denial of service (DoS) attacks (think spamming) from the early frantic days of getting bitcoin to stand on its own two feet.
By the time June rolled around last year, while confirmation times and transaction costs skyrocketed, a group of developers decided the easiest, most natural way to avoid cramping growth was to increase the amount of information that can be registered per block, leading to a ‘hard fork’ that changed the consensus rules from bitcoin’s. The catalyst driving developers seeking this change was to preserve, immediately, bitcoin’s status as an electronic cash system, whereby small amounts of money could be easily transferred for very little cost. This enables bitcoin to grow as a currency, specifically as a medium of exchange, in retail, commerce, and markets that are unbanked where people cannot afford high transaction fees – such as Venezuela where monetary inflation is estimated above 40,000%.
In June, the stakeholders and developers seeking to implement a block-size increase organized under the name Bitcoin ABC, increasing the block size limit to 8MB on August 1st, 2017: This launched BCH as a parallel network with all bitcoin account balances copied onto a new ledger encoded with a larger block size limit. BCH found its first block at 6:15 UTC, and was trading at around $230 USD. The network was processing around 7000 transactions per day with transaction fees under 20 cents (see block explorer). The hard fork was officially a success, and BCH was born.
Bitcoin Cash Goes Its Own Way
The following weeks of August saw the mining difficulty decrease in order to bring down confirmation times using a tool that ABC developers encoded called Emergency Difficulty Adjustment (EDA), which was designed to ensure the survival of the BCH blockchain in the event that the cryptographic difficulty was too high for the mining power available on the network. If the difficulty is too high for the amount of computers competing to secure new blocks, then transaction confirmations take too long. The problem was that after EDA was used successfully to level out the difficulty levelled out, miners began to exploit differences between BTC and BCH in order to optimize mining profits. These miners that switched back and forth caused spikes in confirmation times in order to drop the difficulty of BCH by triggering EDA making it more profitable to mine. This caused swings of miners to enter BCH network while the difficulty was lowered by the EDA, who would eventually exit once the difficulty properly adjusted, which had long-term ramifications for the integrity of the network.
By November, the fix was calculated, ready to implemented, and the various groups of developers managing BCH clients came together to implement a protocol fixing the swings in confirmation times caused by the emergency difficulty adjustment. This was crucial as the entire cryptocurrency market was undergoing a massive influx of investment, causing prices to ‘moon’, which in turn brought more people into the market, generating an unprecedented bull run that generated headlines across the world. Fortunately, BCH blocktimes stabilized to the correct 10-minute time frame, and the system performed smoothly during heavy traffic that occured in and out of the market between November and February this year. During this time, BCH saw block sizes of up to 4MB while maintaining transaction fees during these spikes under a dollar, which demonstrated proof of the immediate utility of larger block size limits and the role BCH sought to fulfill. After the price surge rebounded from record-breaking highs, developers from different clients running BCH’s blockchain came together in May 2018 to increase the block size limit once again to 32 MB.
The second significant change that was made in the May hard fork was to re-enable certain functions that had been turned off in the protocol’s scripting language a long time ago, and introduce a couple new ones too. These machine codes, called “Satoshi Op-codes” by the BCH community, allow developers to create different types of metadata implementations, i.e. programmable money. By having the ability to call these functions, developers can create “colored coins” or representative tokens that function as smart contracts. These are tokens that can be programmed by individual organizations to correspond to bonds, stocks, precious metals, commodities, and any physical or virtual object.
These op-codes broaden BCH developers’ tools to interact with scripting on top of the blockchain, which, in tandem with more space, allows for non-payment related information to be written and accessed on-chain. This has led to innovation in community engagement with applications like the social network—Memo, and a second layer application called Wormhole, which operates by linking a token called Wormhole Cash to the BCH blockchain.
One year after its creation, BCH has expanded onto 19 different services, e.g. Bitpay, Coingate, ViaBTC, Coinpayments, and CoinDance. Bitcoin Cash is also involved in fourteen different projects, e.g., OpenBazaar, Joystream, and Counterparty, and tradable on 41 different exchanges. Ultimately utilizing cryptocurrencies as a digital currency is what will push the entire industry forward. #HODL (holding coins as an investment) has been a rallying call for many within the cryptocurrency community, but I hope that the rallying call to #BUIDL (build blockchain solutions and decentralized businesses) will galvanize sustainable and practical use of Bitcoin and BCH alike, building a new age of peer-to-peer financial sovereignty open and accessible to all.