What is bitcoin cash?

Bitcoin cash (BCH) is both a cryptocurrency and payment network. It was created as a result of a hard fork with bitcoin in December 2017, with the aim of increasing the number of transactions that could be processed. 

Bitcoin cash gold coin

The official bitcoin cash website describes the cryptocurrency as a "peer-to-peer electronic cash for the internet. It is fully decentralised, with no central bank and requires no trusted third parties to operate."

Forks within bitcoin and other cryptocurrencies are not uncommon, however, a common consensus will usually be reached over which blockchain to use. Where no consensus is reached and both blockchains remain, a new token or coin is created. In this case it was bitcoin cash.

The hard fork occurred because there was a disagreement around how best to increase the block size limit. One group of influential miners, developers and investors favoured a protocol called SegWit2x, which was due to be implemented to the bitcoin network in August 2017. Those who disagreed with this protocol were involved in the creation of bitcoin cash. Advocates of bitcoin cash believed it more closely resembled the original vision of Satoshi Nakamoto, the unknown person or persons who created bitcoin, and who it’s thought implemented a 1MB limit in secret. However, Nakamoto also said "we can phase in a change later if we get closer to needing it", as he (or they) predicted that with increased internet speeds and decreased storage costs, blockchains could be increased in size without adversely affecting the concept of a decentralised currency.

Since its launch, bitcoin cash has become one of the most successful bitcoin offshoots. Roger Ver, a prominent investor and early bitcoin adopter, is an advocator of bitcoin cash, previously describing it as ‘the real bitcoin’. Commonly referred to as the ‘bitcoin Jesus’, Ver was a prominent supporter of bitcoin as early as 2011, as a means of promoting economic freedom. He has since moved to support bitcoin cash, favouring its lower transaction costs and times.

What are the differences between bitcoin and bitcoin cash?

As we have seen, bitcoin cash was created as a result of a hard fork with bitcoin. This means that while there are similarities, there are also some key differences between the cryptocurrencies.

Block size

One of the problems with bitcoin was that as it became more popular, transactions were processed more and more slowly. This was a result of a 1MB limit for the size of every block. The SegWit2x protocol was intended to increase the block size limit to 2MB. Comparatively, bitcoin cash does not have a SegWit, and originally had a block size limit of 8MB in 2017, allowing it to process transactions much faster. This limit increased as of May 2018 to 32MB, and could increase further if cash blocks near capacity.

Interestingly, the much anticipated Segwit2x was not implemented on bitcoin as planned, which led to a significant rally in bitcoin cash at the expense of bitcoin.

Algorithm

Bitcoin cash has a different hash algorithm to bitcoin. This means that replay between the two blockchains is no longer possible. If bitcoin cash splits in future, there is a replay and wipeout protection plan in place. With this, it’s thought that if a fork occurs, both chains could coexist with minimum disruption to all involved.

Emergency difficulty adjustment (EDA)

Bitcoin cash uses a new algorithm which helps to ensure the blockchain functions as normal should the number of miners change dramatically. It helps to provide an additional stability to the cryptocurrency.

How to trade bitcoin cash

When you buy bitcoin cash on an exchange, the price is usually quoted against the US dollar (USD). In other words, you are selling USD in order to buy one unit of bitcoin cash. If the price of bitcoin cash rises, you will be able to sell for a profit, because it is now worth more USD than when you bought it. If the price falls and you decide to sell, then you would make a loss.

With CMC Markets, you trade bitcoin cash via a spread bet or CFD account. This allows you to speculate on bitcoin cash price movements without owning the actual cryptocurrency. You aren’t taking ownership of the cryptocurrency. Instead, you’re opening a position which will increase or decrease in value depending on its price movement against the dollar.

CFDs are leveraged products. This means you only need to deposit a percentage of the full value of a trade in order to open a position. You won’t have to tie up all your capital in one go by buying bitcoin cash outright, but can instead use an initial deposit to get exposure to larger amounts. While leveraged trading allows you to magnify your returns, losses will also be magnified as they are based on the full value of the position.

What factors affect bitcoin cash’s price?

Bitcoin cash’s volatility is driven by several factors, including:

  • Scalability problems with bitcoin: bitcoin cash was created from a bitcoin hard fork to offer an alternative to some of the slow transaction problems seen by bitcoin. If bitcoin continues to see problems with scalability, this could have a positive impact on bitcoin cash’s price.
  • Regulation: like other cryptocurrencies, bitcoin cash is currently unregulated by both governments and central banks. There are questions about how this may change over the next few years and what impact this could have on its value.
  • Supply: bitcoin cash has a total supply of 21 million (the same as bitcoin). Limited supply could have an impact on its value.
  • Competition: bitcoin cash is in direct competition with bitcoin, as well as several other cryptocurrencies. This may limit the popularity of bitcoin cash.
  • Press: prices can be affected by public perception, security and longevity.
  • Adoption: currently it hasn’t been widely adopted by businesses or consumers as a method of payment. But, some see potential in the blockchain technology and think this could become more widely adopted in the future.

​*​Please note we may, at our sole discretion, restrict your ability to go short.

Disclaimer

​​CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

​CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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