Bitcoin Cash is a hard fork from Bitcoin, which took place in August 2017. To understand Bitcoin Cash, it is first essential to know the background of its creation, which is the scalability debate of Bitcoin.

Early in the development of Bitcoin in 2010, Satoshi Nakamoto set the block size limit to 1Mb. This restricts the rate of bitcoin transactions, which with the success of Bitcoin and increasing adoption, became a possible limit to the future growth of the network. With the 1Mb blocksize, Bitcoin is able to handle around 4 – 7 transactions per second, comparing unfavorably to conventional payment networks such as Visa with a capacity of 24,000 transactions per second. As the block size reached the limit of 1Mb, users started to raise the transaction fee, in order to have the transaction confirmed, so that the average transaction fee rose from around $5 in the middle of 2016 to about $25 in the middle of 2017, although other factors also drive the size of transaction fee. As he set the 1Mb limit, Satoshi Nakamoto recognized that the limit may need to be increased in the future (Nakamoto, October 2010) and other early developers such as Jeff Garzik also acknowledged the limit as a significant roadblock to future uptake (Garzik, July 2010).

Potential solutions to this limitation are divided into 2 categories, onchain and offchain. Offchain solution proposals do not directly require a change the Bitcoin software itself, and include having transactions being initiated first on a layer running on top of the bitcoin network, and then subsequently being settled on the basis Bitcoin blockchain. Onchain solutions do modify the Bitcoin software, with an increase in the block size being the most obvious solution. Increasing the block size potentially has the effect of centralizing the network. Since bigger blocks require larger computational resources, fewer will be able to run bitcoin full nodes, thus reducing and concentrating the network in favor of larger participants. The bitcoin community divided into 2 camps, one side preferring larger blocks to allow an expansion of the transaction numbers on the blockchain, and the other side advocating the continuation of a more decentralized network as permitted with smaller blocks and thus smaller blockchain.

This impasse continued for around 2 years, in which many possible resolutions were suggested. In August 2017, a large portion of the community had agreed to implement SegWit as part of the SegWit2x agreement. A group opposed to SegWit and preferring to increase the block size, including Amaury Séchet and Roger Ver, hard forked Bitcoin on 1 August 2017 to create Bitcoin Cash, before SegWit had been rolled out on Bitcoin.

Bitcoin Cash, therefore, has many features of Bitcoin, it is a blockchain based cryptocurrency with a hard limit of 21 million coins. Miners are rewarded for completing a block by 12.5 bitcoin cash, whereby the proof-of-work difficulty adjustment algorithm was changed to take into account that the Bitcoin Cash network would generate blocks very slowly if the inherited difficulty from Bitcoin was not changed quickly. The maximum block size is 8 Mb, there is no “replace by fee” by which the fee of an already submitted transaction could be subsequently changed to speed its inclusion in the blockchain. So that malicious actors cannot copy transactions from the Bitcoin network to the Bitcoin Cash network and vice versa, replay protection is also implemented in Bitcoin Cash.

After the fork, the difficulty level reduced rapidly. Currently, the Bitcoin Cash difficulty level is about 0.5 TB/s, as compared to Bitcoin’s difficulty of nearly 3 Tb/s. Adoption rate is also a fraction of Bitcoin’s, with circa 20,000 transactions per day as compared to Bitcoin’s 200,000 transactions per day. Thus, Bitcoin Cash has not supplanted the pre-eminence of Bitcoin but nonetheless is one of the largest cryptocurrencies. The price of Bitcoin Cash has been very volatile since its introduction, rising as with many cryptocurrencies from an initial value of around $50 to a peak in December 2017 of about $3500, before falling to about $1500. Bitcoin Cash can be stored in many popular software and hardware wallets and is available on many of the largest cryptocurrency exchanges.

Future plans for the development of Bitcoin include an adaptive block size, an improved difficulty adjustment algorithm and transaction order sequence definition.