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How Does Bitcoin Cash Work?

In this article, we shed light on how does bitcoin cash works, its origin, and how to buy bitcoin cash.

Bitcoin Cash was created in August 2017 from a hard fork or a split from Bitcoin as a decentralized peer-to-peer electronic cash system. It does not rely on a central authority such as a financial institution or a government. When launched, Bitcoin Cash expanded the size of blocks (a permanent record of transactions) which multiplied the number of transactions by a considerable margin and even improved the scalability aspect. But, you must be wondering, how does bitcoin cash work? And, how did it split from Bitcoin? Let’s dive in and find out.

Connecting your Bitcoin Cash Address to ZenLedger For Your Crypto Tax Forms

  • To import your Bitcoin Cash transactions into ZenLedger for your crypto tax forms, all we need is your public address.
  • Select the proper blockchain or wallet from the dropdown list.
  • Paste your address into the address field in ZenLedger.
  • Select if the wallet is based in the USA or not.
  • Then hit ADD COIN button

How Does Bitcoin Cash Work?

Technically speaking, Bitcoin Cash (BCH) and Bitcoin (BTC) work identically. Both of them have 21 million assets hard cap, validate the transactions with nodes and have a PoW consensus algorithm. This also means that miners can validate the transactions using computational power and get rewarded in BCH.   

However, BCH distinguishes itself from BTC with speed. Like we mentioned before, Bitcoin Cash has a larger block size (up to 4-8 times) than its predecessor depending on the use of Segregated Witness (SegWit). It is a process of removing signature data from Bitcoin transactions, which increases the size of a block. Simply put, it frees up space and adds more transactions to the network.  

With faster transactions, you can use BCH to make a grab-and-go purchase such as grocery shopping. However, if you wish to buy a car or a large purchase of a similar nature then a slower and more secure cryptocurrency like BTC is advisable. Ergo, both digital currencies have different roles to fulfill. It must be acknowledged that every cryptocurrency has different roles and they all can’t be used as a store of value and they all don’t need to perform quick data processing. Think of it as using a credit card for groceries and a bank transfer to buy a car.  

To summarise, Bitcoin Cash is faster and costs lower processing fees than Bitcoin. Despite this, it doesn’t have the same popularity as Bitcoin, but some experts believe that with technological improvements and greater awareness, Bitcoin Cash will be the leading cryptocurrency in the future.  

With a better understanding of how does Bitcoin Cash works, let's try and understand how Bitcoin Cash came to be. 

The Origin of Bitcoin Cash Explained: The Split

The fundamental difference between BTC and BCH is philosophical. According to Satoshi Nakamoto, the Bitcoin inventor, Bitcoin was supposed to be a peer-to-peer cryptocurrency that was meant to be used as a vehicle for daily transactions. However, as it gained popularity over the years, investors used it for investment rather than a currency. With increased transactions on the network, scalability issues arose and it wasn’t able to handle the increased number of transactions. The main reason behind it is the 1MB block size limitation. It caused transactions to wait for confirmation and queuing up because the blocks weren’t able to handle the number and size of transactions. 

Enter Bitcoin Cash. The hard fork or the split was brought forth by various miners and developers within the Bitcoin network to get rid of its limitations. People who were against the fork continued to operate under the same rules whereas others branched off to generate a new blockchain with an updated software setup. Thus, Bitcoin Cash was born in 2017. The hard fork resolved slow transactions with increased block sizes, which were between 8 to 32 MB. At the time of the fork, the transactions proposed on BCH were 1000-1,500. However, today it can support around 25,000 transactions per block. 

With the Bitcoin Cash explained properly, let’s find out how you can buy your first BCH token.

How to Buy Bitcoin Cash?

The Bitcoin holders at the time of the hard fork were awarded BCH tokens. Today, however, you can buy and sell BCH tokens all thanks to the internet and easily available open-source programs. There are two main ways to buy BCH:

1. Cryptocurrency Exchanges 

Crypto exchanges are arguably the go-to platforms among beginners to buy, sell, and trade in crypto tokens such as BCH. As per the platform and the jurisdiction, the token can be bought with just a few clicks with fiat currency or other tokens. Here are the steps to buying BCH tokens:  

  • Setting up your wallet: Crypto exchanges offer a built-in wallet with the ability to store various tokens. First, you need to choose an exchange and deposit fiat currency on the platform to buy/trade cryptocurrency. In jurisdictions where debit and credit cards are prohibited to deposit money on crypto exchanges, investors can use a third-party app such as Cash App. 
  • KYC: Even though KYC goes against the ethos of Satoshi Nakamoto (the unknown inventor of Bitcoin), the increasing rules and regulations have led many crypto exchanges to collect government-issued documents like a driver’s license or a Social Security card before allowing users to trade cryptocurrency. You need to disclose these documents to be able to trade cryptocurrency
  • Buy BCH: Once you have finished the KYC, you are eligible to buy BCH Coins, which are stored in your wallet.  

2. Peer-to-Peer 

Peer-to-peer (P2P) means buying/selling the cryptocurrency from another person. You have to find a service that connects you to people who want to sell their tokens. This method is faster and costs less transaction fees. Generally, in a P2P trade, you have to deposit fiat currency with a platform like a crypto exchange and the platform will enable a peer-based transaction with a suitable seller who wants to sell their tokens. It is safeguarded by escrow service protection, making it one of the safest ways to buy tokens. 

One of the ways is to go old school and meet people to exchange BCH tokens in person. Different forums and blogs enable offline traders to meet people. The parties can use a QR code for exchanging the tokens. However, you must be cautious about the credibility of the seller. 

Cryptocurrency Exchanges Vs Peer-to-Peer

Cryptocurrency Peer-to-Peer
Settlement Speed Slower Faster
Payment Options Fiat and Cryptocurrencies Fiat and Cryptocurrencies
Transaction Fees Expensive Cheaper
Security Features In-built Escrow and Chargebacks
Availability Online Online and Offline

The Takeaway

Even though they have similar names, Bitcoin and Bitcoin Cash are unique cryptocurrencies. Bitcoin Cash was designed to get rid of Bitcoin’s scalability issues and become a transactional cryptocurrency in everyday life. It is also designed to be spent instead of holding it as a store of value.

Bitcoin Cash FAQs

1. How Does Bitcoin Cash Work?

Bitcoin Cash was created from a hard fork Bitcoin in 2017. It was designed with increased block sizes for faster and cost-effective transactions. It increased the block sizes from 1 MB to 8-32 MB. This resulted in faster transactions and it can be used in everyday life like grocery shopping and buying a cup of coffee.

2. Is Bitcoin Cash good to buy?

Bitcoin Cash has great utility. It can be used for hassle-free instant processing and it serves as a great medium for daily transactions. This has led to increased adoption and popularity. With constant development in technology, the popularity is growing day by day.

3. What is the difference between Bitcoin and Bitcoin Cash?

The biggest difference between Bitcoin Cash and Bitcoin is the lower transaction cost and faster data transfer. BCH can be used by a lot of people at the same time. The maximum size of a Bitcoin block is 1 MB and Bitcoin Cash’s is 32 MB.

4. Is it better to invest in Bitcoin or Bitcoin Cash?

At the time of this writing, BCH costs around $393, while BTC costs more than $42,000. Bitcoin Cash is not widely accepted but its popularity is slowly increasing.


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