Bitcoin without any doubt is one of the incredible innovations of the recent past. But, it has also come under a lot of criticism for the scalability issues which gave rise to a lot of debates which were politically and ideologically motivated.
At last, on August 1, 2017, bitcoin went through some changes called a hard fork which gave birth to the Bitcoin Cash. Coming to a conclusion on which side is right and which side is wrong, totally depends on the users. This guide provides about all the incidents which has led up to the creation of the Bitcoin Cash.
Bitcoin which was introduced by an unknown man or by the pseudonym, Satoshi Nakamoto in there, known legendary called a research paper “Bitcoin as a Peer-to-Peer Electronic Cash System”.
What actually bitcoin provided was a peer-to-peer decentralized and a digital currency system. The entire system of this bitcoin purely functions on the work done by a group of people called as miners. The two biggest activities that the miners do are:
Mining for blocks
All these miners use their computing power and sources to look for the new blocks so as to add them to the blockchain.
This process follows the protocol called proof of work and once a new block is discovered, the miners who are responsible for the discovery will be rewarded, currently a set of 12.5 bitcoins are given and this is halved after every 210,000 blocks are added, but this is not the only incentive that the miners earn.
Adding transactions to the blocks
When a set of miners discover and mine a new block, they become the temporary dictators of that new block.
For Example, A has to send 5 bitcoins to B, she is actually not physically sending him any kind of money, the miners need to add this transaction to the blocks in the chain available and only then the transaction is deemed to be complete.
In order to add the transactions to the blocks, a fee is charged by the miners. If the user wants his transaction to be added quickly to the blocks, then he can give the miners a high fee so as to cut in line and so to speak.
In order for a transaction to be valid, it needs to be added to the block in the chain.
But, this is where the problem arises, a block in the chain has a size limit of only 1 mb and therefore only so many transactions can go at once, which was actually manageable before, but then something went wrong which made this a huge problem and then bitcoin became famous.
Yes, bitcoin became popular and also with that came the own series of problems, where the number of the monthly transactions are increasing rapidly and the current block size limit is 1mb,due to which bitcoin can handle only 4.4 transactions per second.
The developers actually put the 1mb size limit by design when the bitcoin was first created, because they wanted to cut down the spam transactions which can clog up the entire bitcoin network.
But, as the number of transactions increased by the leaps and bounds, the rate at which these blocks were filled was also increasing as well.
Most often, the people actually had to wait till the new blocks were created so that their transactions will be able to go through.
This resulted in a backlog of transactions, in fact the only way was to get their transactions prioritized by paying a high enough transaction fee so as to attract and incentivize the miners and prioritize their transactions.
This therefore introduced a “replace-by-fee” system. Basically, how the system works is, For Example A is sending 5 bitcoins to B, but the transaction is not taking place because of the backlog.
She has no chance to delete the transaction because the bitcoins which are spent can never come back or be returned. But, she can go for another transaction of 5 bitcoins with B but this time with a transaction fees which is high enough so as to incentive the miners.
The moment the miners put her transaction in the block, it will overwrite the previous transaction and makes it null and void.
But this “replace-by-fee” system is profitable for the miners, and is pretty inconvenient for the users who may not afford to pay high fee.
If the user has paid the lowest possible transaction fees, then he will have to wait for a median time of at least 13 mins for their transaction to take place.
To solve this inconvenience, a solution was provided to increase the block size from 1mb to 2mb. As simple as this solution sounds, but it is not so easy to be implemented, and this gave rise to a numerous debates and conflicts with the team 1mb and the team 2mb which were ready to go at each other with the pitchforks.
The Arguments against block size increase were;
The Miners may lose their incentive because of transaction fees decrease, as the block sizes will increase the transactions will be easily placed and this will significantly lower the transaction fees.
There are few fears that this can de incentivize the miners and therefore they can move on to the greener pastures. If the count of miners decreases then it will decrease the overall hashrate of the bitcoin.
Bitcoins are not meant to be used for the everyday purposes, few people of the community do not want bitcoin to be used for the regular and everyday transactions. They feel that bitcoins have a much higher purpose than just being a currency for regular or everyday use.
It can split the community, the increase in block size will inevitably cause a fork in system which may make two parallel bitcoins and hence a split in the community can be seen. This may also destroy the harmony in community.
It can also cause an increased centralization, since the network size increases, the amount of processing the power which is required to mine will also increase gradually.
This will indirectly take out all the mining pools which are small and give the powers of mining exclusively to the larger scale pools and this will in turn increase the centralization which goes against the very basic feature of bitcoins.
Block size increase if observed carefully actually works to the benefit of miner’s, Increased block size means an increase in transactions per block which will again increase the amount of transaction fees that the miner can make from mining the block.
Bitcoin actually needs to grow more and also be accessible to the “common man”. If the block size does not change then it has a very real possibility that the transaction fees can go higher and higher.
When this happen, then the common man will never be able to use it and indirectly it will be used exclusively by the rich and the big corporations. And this was never the purpose or aim of bitcoin.
As said the changes will not happen at once, they will be gradually seen over time. The biggest and major fear the people have when it comes to the changes in block size is that too many things will be affected at the same time and this will cause a major disruption.
However, the people who are in favor of block size increase think that it is an unfounded fear because most of the changes will usually be dealt with over a period of time.
There is actually a lot of support for block size increase going on and the people who do not go with the time may be left behind.
Therefore to solve the scalability issues the committee came up with two suggestions and they are:
- A soft fork.
- A hard fork.
What is A Soft Fork?
Whenever the blockchain needs to be updated it is done through two ways: a soft fork or a hard fork. If soft fork is considered as an update in the software then it is backwards compatible.
What does this mean? Suppose the user is running MS Excel 2005 in his laptop and he wants to open a spreadsheet which is built in MS Excel 2015, then he can still open it because MS Excel 2015 is a backwards compatible.
But, having said this there is a difference too. All the updates that he can enjoy in the newer version will not be visible to him in the older version.
Going back to the MS excel analogy again, suppose if there is a feature which allows putting the GIFs in the spreadsheet in 2015 version, then he will not be able to see those GIFs in the 2005 version, which means he will see all text but not the GIF.
What is A Hard Fork?
The primary difference between the two that is soft fork and the hard fork is that it is not backwards compatible. If once it is utilized then there is absolutely no going back whatsoever be the situation.
If the user does not join the upgraded version of the blockchain then he may not get access to the new updates or can interact with the users of the new system or whatsoever.
Think of PlayStation 3 and PlayStation 4, where he cannot play the PS3 games in the PS4 and also cannot play the PS4 games in the PS3.
Andreas Antonopoulos describes the difference between hard fork and soft fork in his words like this: If a vegetarian restaurant will choose to add the pork to their menu then it would be considered to be a hard fork and if they would decide to add the vegan dishes, everyone who is a vegetarian can still eat vegan, they do not have to be vegan in particular to eat there, If the client is still a vegetarian to eat there and the meat eaters can also eat there then that’s a soft fork.
However, for any major changes to take place in bitcoin, the whole system needs to come to the consensus. But the point,On how does a decentralized economy can come to an agreement upon anything? At present the two biggest ways which are achieved:
Miner Activated, which means the changes are voted on by the miners.
User Activated, means the changes which are voted by people with the active nodes.
This is how the Bitcoin Cash is defining itself: “Bitcoin Cash is a peer-to-peer electronic cash for Internet. It is a fully decentralized, with no central bank or requires any trusted third parties to operate it.”
The emphasis on the words “peer-to-peer electronic cash.” If noticed. It is done by a design where the primary motivation of the bitcoin cash’s existence solely depends on carrying out more transactions.
As BCH is a result of the hardfork, anyone who possessed the BTC will get equal amount of coins in BCH, provided they do not have the BTC in the exchanges and are in possession of the private keys at the time of hardfork.
The best feature of the Bitcoin Cash is that how it circumnavigates one of the biggest problems that any cryptocurrency will face post the forking called as the replay attack.
A replay attack is the data transmission which is maliciously repeated or delayed. In the context of the blockchain, it is taking a transaction which happens in one blockchain and maliciously repeating it in the other blockchain.
For Example; A is sending 5 BTC to B, then under the replay attack she will send him 5 BCH as well along with 5 BTC, even though she does not mean to do that.
Any cryptocurrency depends majorly on its miners to run the system smoothly. And lately, bitcoin cash has attracted a lot of miners which significantly improved the hash rate.
Bitcoin cash has defined itself a set rule as to when to decreases its difficulty. Before getting into the rule it is important to understand what the Median Time Past (MTP) means.
It is the median calculated of the last 11 blocks which have been mined in the blockchain. Basically, this means to line up the last 11 blocks one after the another and the time at which this middle block is mined is the median time past of the set of blocks. The MTP helps to determine the time at which the future blocks can be mined as well too.
Future of Bitcoin Cash
In Brief, there is no clear picture and no idea on how the bitcoin cash is going to turn out in the near future nor there is any clue on the long term repercussions that it will take place on the BTC.
What is known is that this is the first time where anyone has successfully hard forked from BTC while keeping the records of the existing transactions and not making any changes.
What is available is a very interesting experiment which teaches a lot of lessons going forward. And at the same time, this 8 mb block size is definitely an alluring aspect and it remains to be seen as how this affects the miners in the long run future.
But, the Hash War has created a very intriguing situation. With its sheer number of Bitcoin forks available there and it may dilute the value of Bitcoin to a less one.
The current market crash has largely been attributed to the Hash war. The sad part of it is that the hash war has become a really ugly one.
But yes, over the time the answer for Bitcoin Cash can be obtained and its results will be either mark able or the vice versa.