The Strategist

Bitcoin Cash: What you need to know about the new crypto currency

08/02/2017 - 14:45

Bitcoin, the most popular crypto currency in the world, is an electronic payment tool developed by a person or a group of people under the pseudonym of Satoshi Nakamoto. In 2008, Nakamoto published an article "Bitcoin: A Peer-to-Peer Electronic Cash System", which described a completely decentralized system of electronic cash. In May 2016, a citizen of Australia, Craig Wright, announced his claims to "the authorship of bitcoin."

BTC Keychain via flickr
BTC Keychain via flickr
A user must have an electronic wallet to own bitcoins. This currency can be bought or obtained it in the process of mining – using computing resources for performing a mathematical task to verify and implement a bitcoin transaction. This process is the basis of the blockchain technology, which allows creating a decentralized system, where each subsequent transaction depends on the previous one. Information about a transaction cannot be deleted or changed as the entire chain will be destroyed in the event of such actions.

Decentralization enables users to carry out transactions directly, without intermediaries in the form of payment systems. Among the benefits of bitcoin payments are publicity of transactions and their simultaneous anonymity (all users will see from which address and on what number of bitcoins listed, but the address itself cannot be associated with a particular person without his desire).

Bitcoin’s market capitalization exceeded $ 44.4 billion on August.

However, this crypto-currency has its own drawbacks, such as relatively high commission for transactions (the miners’ fee) and a low rate of payment that the bitcoin community expects to eliminate with new SegWit2x protocol.

What happened on 1 August?

To install the new SegWit2x protocol, it was necessary to update software used by miners and owners of bitcoins. After that, size of the bitcoin block (record of the last transaction) should have increased from 1 MB to 2 MB. The update was announced a few weeks ago. Some users, however, said that they did not intend to install it, since this could lead to separation of the bitcoin transaction chain into two branches. Technically, the process began on August 1 at 15:20 Moscow time. The new branch is called bitcoin cash and, in fact, became another crypto currency. Bitcoin cash’s block size is larger than that of bitcoin - 8 MB.

The separation allowed all owners of bitcoins to earn money. "They automatically received as many coins in bitcoin cash, as they had at the time of the split (in the middle of the day on August 1).

What is the difference between Bitcoin Cash and Bitcoin?
Bitcoin Cash’s block size has been increased to 8 MB.

Bitcoin Cash offers protection against repeated playback and erasure of data. Signature of transactions is slightly different, and the block’s size exceeds 1 MB.
Bitcoin Cash allows you to change complexity of proof-of-work more often than every 2016 blocks (standard bitcoin interval). If the hash rate decreases, the complexity will change quickly enough.

It does not imply SegWit, the change in code that can be activated in the blockchain by the end of August.

The project’s creators promise to support multiple versions of their software - they will take into account criticism towards Bitcoin Core.
Bitcoin Cash assumes separation of the blockchain’s registry and updating of the consensus rules, which will allow the crypto currency to grow and scale. However, one must understand that many exchanges, including Coinbase, are not ready for this development of events.

The project’s creators note that if your bitcoins are stored by a third party, for example, on the exchange, you should contact them to solve this issue. " In other words, there are no guarantees that exchanges and third parties storing your bitcoins will give you Bitcoin Cash. In addition, release of Bitcoin Cash includes protection against re-mining. Here's what the creators of the project write: "Bitcoin Cash transactions use the new SIGHASH_FORKID flag, which is not standard for the old blockbuster. This prevents possibility of re-mining Bitcoin Cash. "