What Is Bitcoin Cash (BCH)?

Bitcoin Cash (BCH) is a cryptocurrency created as an alternative to Bitcoin (BTC), the original and most widely traded cryptocurrency.

Launched in 2017, Bitcoin Cash emerged from a split within the Bitcoin community. A group of users, dissatisfied with the direction set by Bitcoin's main developers (Bitcoin Core), believed that different technical changes were necessary for Bitcoin to achieve global adoption.

Supporters of Bitcoin Cash argued that Bitcoin needed improvements to compete with traditional payment systems like Visa and PayPal. They advocated for reducing transaction fees by shifting costs to other areas of the network.

To pursue these changes, Bitcoin Cash introduced new software that altered Bitcoin’s code, making the two systems incompatible. This resulted in a split, creating two separate blockchains (Bitcoin and Bitcoin Cash) and two distinct assets (BTC and BCH). At the time of the split, Bitcoin holders received an equivalent amount of Bitcoin Cash.

Since then, Bitcoin Cash has continued to evolve, increasing its block size to 32 MB to handle more transaction data per block. Additionally, it has adopted features from other cryptocurrencies, including the ability to create new types of tokens on its blockchain.

The History of Bitcoin Cash (BCH)

Bitcoin Cash was launched in 2017 as an alternative to Bitcoin, following a split within the Bitcoin community over how to address scaling issues and the SegWit upgrade. A group of users proposed increasing the block size limit through a hard fork, which ultimately led to the creation of Bitcoin Cash. However, many Bitcoin developers and users opposed this approach due to a key trade-off: while larger blocks can handle more transactions and reduce fees, they also make the blockchain harder to validate and store across thousands of computers globally—compromising Bitcoin's decentralised nature, which prevents any single entity from altering its blockchain.

Since its creation, Bitcoin Cash has encountered its own challenges, including a hard fork in November 2018, which resulted in the formation of a new cryptocurrency called Bitcoin SV (BSV).

What’s the Difference Between Bitcoin and Bitcoin Cash?

Bitcoin and Bitcoin Cash differ significantly in their design philosophy.

Bitcoin Cash developers prioritise consumer payments, believing that widespread usage for everyday transactions will boost BCH's value in the short term. As a result, Bitcoin Cash is often considered more suitable for online spending.

The key feature of Bitcoin Cash is its larger block size, allowing more transactions to be processed with each block added to the blockchain. This reduces the need for high fees used on Bitcoin during periods of heavy network demand.

However, the larger blocks come with trade-offs. Downloading and storing a full copy of the Bitcoin Cash blockchain can be more expensive and challenging due to its increased size.

Bitcoin Cash users may also need to update their software more frequently, as its developers implement upgrades and changes at a faster pace. This rapid development approach increases the risk that some changes may be rejected by the network, as seen when Bitcoin Cash split into two separate networks, Bitcoin Cash and Bitcoin SV.

How Does Bitcoin Cash (BCH) Work?

Bitcoin Cash uses a Proof-of-Work (PoW) consensus mechanism, just like Bitcoin. In this system, miners solve complex computational problems to validate transactions and add new blocks to the blockchain. Thanks to its larger block size, Bitcoin Cash can process transactions more quickly than Bitcoin. It also supports smart contracts and a variety of ecosystem apps, enhancing its utility beyond simple payments. With a total supply capped at 21 million coins and a circulating supply of 19.56 million as of November 2023, Bitcoin Cash maintains a limited supply. Its focus is on facilitating fast, low-cost transactions, typically costing less than a tenth of a cent.

What Gives Bitcoin Cash (BCH) Value?

Proponents of Bitcoin Cash believe that by focusing on reducing transaction costs, it will become the preferred choice for consumers making online purchases, ultimately increasing BCH's value.

Like Bitcoin, Bitcoin Cash retains key properties such as scarcity. It follows the same principle of limiting total supply to 21 million BCH, with the amount of new BCH introduced to the network gradually decreasing over time in events called halvings.

By the end of 2019, approximately 18.1 million BCH were in circulation, with 12.5 BCH introduced per block. In 2020, this amount decreased to 6.25 BCH per block.

Given its similarities to Bitcoin, traders may view Bitcoin Cash as a potential hedge, helping mitigate risks if Bitcoin’s development path restricts its adoption or impacts its long-term value.