Bitcoin was invented in 2008 and the open-source software was released to the market in 2009 by the mysterious Satoshi Nakamoto. It was the first cryptocurrency to market after several digital currency fails in the 1990s. This included Flooz, Beenz, and DigiCash. There are a few reasons why the first attempts at creating a digital currency failed but the main issues related to fraud and internal wranglings within the programmers.
In this in-depth guide you’ll learn:
- What is Bitcoin?
- What is Bitcoin Cash?
- What you can do with Bitcoin and Bitcoin Cash
- Bitcoin Core versus Bitcoin Cash
And lots more…
Let’s dive right in…
👉 The earliest digital currencies used a Trusted Third Party approach which meant there was still a company behind the digital currency that verified and processed cryptocurrency transactions.
👉 The Trusted Third Party approach defeated the object of a decentralized monetary platform and, for many years, it wasn’t looking promising that the programmers would produce a digital coin solution that bypassed a central authority.
👉 Enter the anonymous group of programmers that went by the alias Satoshi Nakamoto and Bitcoin was born. Its disruptive innovation shook up the world of traditional banking and despite many cryptocurrency critics pooh-poohing the viability of digital money, Bitcoin has taken the market by storm.
👉 Bitcoin is not perfect which is why eight years later, Bitcoin Cash arrived on the scene. Contrary to popular belief, Bitcoin Cash is not a natural extension of Bitcoin brought to you by Satoshi Nakamoto. Rather, it’s a contentious hard fork taken by a group of disgruntled members of the Bitcoin community. At its head is a prominent investor and early Bitcoin adopter, Roger Ver.
👉 Let’s look at Bitcoin and Bitcoin Cash and you can decide which one is best.
What is Bitcoin?
👉 Bitcoin was the first authentic cryptocurrency to market and it offered the world a peer-to-peer electronic cash system. The cryptocurrency technology is 100 percent decentralized which means transactions bypass servers and central authorities.
👉 More importantly, Bitcoin solved the problem of double-spending which solved the problem of fraud. The decentralized system requires every single participant on the network to verify and confirm a transaction using the process of cryptography.
👉 In simple terms, each transaction is a file that consists of the sender and receiver’s public keys and the number of digital coins that have been transferred. Public keys are known as the wallet address. Each transaction must be signed off by the sender with his or her private key and confirmed before the transaction is broadcast in the peer-to-peer network.
👉 Today, Bitcoin is the most expensive cryptocurrency in the world but also the most stable and popular. It can be traded as a commodity or as a forex pair and used as a payment alternative to fiat currency for goods and services.
👉 However, despite its revolutionary appeal, Bitcoin had one major fault; scalability. Its strength was also its greatest weakness where the size of a block of transactions was limited to 1 MB. This limits the extent to which Bitcoin will be adopted as a competitor currency.
👉 The way Bitcoin works are only miners can confirm transactions by solving a complex cryptographic puzzle. Bitcoin miners pick up a transaction, mark it as legitimate, and spread it across the network. Thereafter, every node of the network is added to the database.
👉 Bitcoin transactions cannot be changed or tampered with in any way. They also can’t be reversed. For their efforts, miners are rewarded in Bitcoins plus a transaction fee.
👉 Because the peer-to-peer network works entirely in an interconnected manner, there has to be the absolute consensus from all miners when it comes to validating and confirming transactions and balances. This process of consensus-keeping is enabled by strong cryptography. It takes third parties and central banking authorities out of the equation.
The Bitcoin conundrum
👉 By late 2010, Satoshi Nakamoto realized the block size had to be limited to prevent miners from producing bigger blocks than other miners were willing to accept; this could split the chain and open up the peer-to-peer network to fraud and cyber-attacks.
👉 So, Satoshi secretly inserted a 1MB limit into the open-source code. And it remained a secret until Bitcoin’s scalability became an issue.
👉 The 1MB block size of Bitcoin means there are substantial delays in the time it takes to process transactions and there is a limit to how many transactions can be processed by the network. To compare, Bitcoin’s transaction speed is about 7 transactions per second. Visa performs over 24 000 transactions per second.
👉 Because Satoshi Nakamoto designed Bitcoin as a decentralized medium of exchange (a digital currency), traders and merchants were becoming frustrated by its scalability.
👉 It’s obvious now that Satoshi never expected the 1 MB block size to be a problem. In fact, it was the perfect solution to secure the network and protect smaller miners. It’s also likely Satoshi never anticipated the scale of pool mining and the uptake of the application-specific integrated (ASIC) miner. This is a device that’s designed for large-scale Bitcoin mining.
👉 At this point, the cryptocurrency world was ready for an alternative digital coin and we saw the roll-out of the next phase of cryptography; the hard fork.
What is Bitcoin Cash?
👉 Bitcoin Cash is what is known as a contentious hard fork of Bitcoin. It followed in the wake of a few successful Bitcoin challengers such as Litecoin, Ethereum Constantinople, and Ripple.
👉 A contentious hard fork happens when there’s an internal disagreement within the Bitcoin network and the disgruntled group breaks away to create a new chain in the blockchain technology. A hard fork is the outcome of a change in the underlying open-source code which creates an alternative coin in the process, known collectively as Altcoins.
👉 The hard fork that resulted in the creation of Bitcoin Cash was brought on by a community split over the issue of Bitcoin’s scalability. Part of the Bitcoin community wanted to see Satoshi’s secret 1MB block size increased to 8MB, while the rest were fervently against increasing the block size.
👉 Following on from a soft forthatch that resulted in SegWit, a few Bitcoin developers and users initiated a hard fork to bypass the protocol updates that SegWit created. The result was Bitcoin Cash.
👉 The split off from the main blockchain came about in August 2017 when Bitcoin cash wallets rejected Bitcoin transactions and blocks. Bitcoin Cash allows blocks of 8MB and did not adopt the SegWit protocol.
👉 The hard fork created a digital currency that could compete with traditional payment mechanisms such as EFTs, credit cards, and online payment services. Bitcoin Cash significantly increased the number of transactions that can be processed by the network. This allows Bitcoin Cash to compete more effectively with payment processing services such as PayPal and Visa.
👉 There have been several hard forks of the primary cryptocurrency but Bitcoin Cash is by far the most successful. This is mainly because it’s backed by many prominent players in the Bitcoin community and early Bitcoin adopters.
👉 Bitcoin Gold is a hard fork that followed in October 2017. The hard fork aimed to restore the mining functionality with basic graphics processing units (GPU). The creators felt that mining had become too specialized in terms of equipment and hardware requirements as well as high energy consumption.
What you can do with Bitcoin and Bitcoin Cash
👉 Cryptocurrencies such as Bitcoin and Bitcoin Cash are digital alternatives to fiat money. People can use digital coins to buy goods and pay for services, pay remittances and accept Bitcoin as payment for goods and services.
Pay for goods and services
👉 For the moment, Bitcoin is largely transacted online. There has been some uptake by major online merchants such as Microsoft and Spotify that now excepting Bitcoin as well as major players in the travel industry. This includes Expedia, Virgin Galactic, and Webjet.
👉 Unfortunately, Bitcoin hasn’t gained much traction among the major offline retailer outlets. Partly because the major offline retailers find there’s little demand for Bitcoin payments and because of the slow transaction times and costs.
👉 Most offline Bitcoin transactions are made with gift cards. For the moment, this is the easiest way to buy something at a shop using Bitcoin.
Invest in Bitcoin
👉 Bitcoin is a popular, if not volatile, investment asset. You can earn money buying, selling, and storing Bitcoin and miners earn Bitcoin as a reward for their efforts in validating and confirming transactions on the network.
👉 Satoshi Nakamoto created Bitcoin with the sole purpose of delivering a peer-to-peer cryptocurrency that could be used for daily transactions, bypassing any central financial authority. However, from the start, Bitcoin took off as an investment asset and failed to gain much traction as a currency.
👉 This was largely due to the 1MB block size limit that Satoshi secretly inserted in the code. With the best of intentions, Satoshi moved Bitcoin further off a currency positioning and created a gap for hard forks such as Litecoin. These Altcoins offer the market a faster and cheaper alternative tfiatit currencies. Bitcoin could not overcome its scalability issue and, as a result, it became stuck as an investment vehicle.
👉 The Bitcoin Cashard forkrk remedied the investment-versus-currency dilemma by increasing the size of blocks in the blockchain to between 8M AND 32Mb. In so doing, it dramatically increased the speed of transactions and the average number of transactions that could be processed.
👉 Where the average number of transactions per block on Bitcoin is between 1 000 and 1 500, a stress test on Bitcoin Cash in 2018 proved the cryptocurrency could process a whopping 25 000 transactions per block.
👉 Since the Bitcoin Cash hard fork, there have been other Bitcoin derivations. This includes Bitcoin SV which was created by the Satoshi Nakamoto purists who wanted to stay true to the mysterious man’s original vision for Bitcoin but make modifications to increase scalability and speed up transaction processing times.
👉 More hard forks no doubt will come and they’ll go. However, what is evident, is the world is ready to adopt cryptocurrencies as an alternative to fiat currencies for day-to-day transactions and not just as an investment vehicle.
Bitcoin Core versus Bitcoin Cash
👉 Bitcoin Cash offers cryptocurrency adopters a faster and cheaper alternative to what they now call Bitcoin Core. Bitcoin is more expensive than Bitcoin Cash. In fact, a hands-on test by Steemit conducted in December 2017 proved that a Bitcoin transaction was 99.56 percent cheaper than the same transaction on the original Bitcoin network.
👉 Critics of Bitcoihard forksks say the Altcoins go against the principle of immutability of Blockchain and contradict the ‘code of law’ principle.
👉 Immutability is defined as the ability of a blockchain ledger to remain unchanged, unaltered, and indelible. Satoshi’s vision was that the data in the blockchain could not be altered. The ‘code of law’ of Blockchain supports the idea that code has established itself as the predominant way to regulate the behavior of Internet users.
👉 The concern is that the computer power needed to process larger Bitcoin Cash blocks will price out the smaller Bitcoin miners. This exacerbates the surge of mining syndicates and puts the decision-making power in the hands of large Bitcoin mining corporations. They can afford to buy the bigger and more expensive equipment and cover the high electricity processing costs.
👉 It’s a battle on a principle where Bitcoin purists are fighting to uphold the vision of Satoshi Nakamoto and the disgruntled set is fighting to increase the cryptocurrency scalability and keep it alive.
👉 In terms of pricing, Bitcoin Cash operates independently of Bitcoin and its price is not dependent on market sentiment for Bitcoin. However, for the time being, Bitcoin still dominates as the world’s leading cryptocurrency and the general trend is when Bitcoin’s price moves up or down, the other cryptocurrencies are highly likely to follow in the same direction.
👉 With Bitcoin processing transactions at a speed of 7 transactions per second and the likes of Visa processing about 24 000 per second, it was clear that Bitcoin was failing to gain traction as a competitor currency. Bitcoin Cash appears to have plugged this gap and offers the market a cheaper and faster cryptocurrency.
👉 It remains to be seen whether Bitcoin Cash has addressed the issue of scalability sufficiently and whether we’ll see more merchants accepting the cryptocurrency as a payment currency. As the man-in-the-street realizes the cost-saving benefits of Bitcoin Cash, we should see exponential growth in the number of people using Bitcoin Cash for daily transactions.
Forex Trading Africa Disclaimer
Trading in Bitcoin and Bitcoin Cash in South Africa is associated with risks and can lead to merchants and traders losing money. The cryptocurrency market is highly volatile and you can expect prices to fluctuate dramatically.
The information in this article should only be used to educate yourself on how Bitcoin and Bitcoin Cash work and the benefits of trading in these cryptocurrencies in South Africa. Pay due caution to the risks involved in trading Bitcoin and take the necessary precautions to avoid losing money on Bitcoin transactions.