Last Saturday, everyone part of the cryptocurrency world was taken by surprise with Bitcoin Cash announcing that they will moving forward with a fork on the 1st of August. Here at Itsblockchain, we felt that this was the time to bring out an article explaining what Bitcoin Cash (BCC) exactly is, how it affects us investors in the digital currency arena and how we can prepare for this major amendment.
According to the project website, “Bitcoin Cash brings sound money to the world. Merchants and users are empowered with low fees and reliable confirmations. The future shines brightly with unrestricted growth, global adoption, permissionless innovation, and decentralized development.These ideals can be achieved, but it depends on you to succeed. We need the support of miners, investors, and users like you. Join us to help achieve Satoshi’s original vision of Bitcoin as Peer-to-Peer Electronic Cash.”
From the project website’s FAQ:
Bitcoin Cash is peer-to-peer electronic cash for the Internet. It is fully decentralized, with no central bank and requires no trusted third parties to operate.
The project announcement on Bitcointalk said, “Bitcoin Cash is a split from Bitcoin with a protocol upgrade to fix on-chain capacity. If Bitcoin Cash gets majority of PoW then it becomes de-facto Bitcoin. It will be a Bitcoin without segwit as soft fork, where upgrades of the protocol are done mainly through hard forks, without changing the economic rules of the Bitcoin. Since, this will be a fork of the Bitcoin blockchain, 1:1, so no-premining and no ICO will be held.”
The prominent use of “peer-to-peer electronic cash” is purposeful here. After all, Bitcoin Cash is seeking to be a cryptocurrency that’s completely focused on transparent, transaction capacity.
Why has this fork come as a surprise?
It was assumed by most Bitcoin enthusiasts that this fork would only trigger if BIP 148 were able to split the network. In simpler terms, Bitcoin Cash and it’s client Bitcoin ABC was just thought of as a credible threat to prevent a contentious user-activated soft fork (UASF) by most people around the world. After all, Bitmain had stated that the Segwit2x i.e. the New York Agreement would be more preferable.
As a matter of fact, their future roadmap mentioned “We wish that New York agreement will be developed and carried out well. It is the last hope for Bitocin to scale unitedly in the face of the BIP148 threat. We will try our best to deploy and activate it as soon as possible.”
Hence, when the first part of the Segwit2x – BIP91 was locked-in and was activated ahead of the BIP148 (which was originally scheduled for August 1), naturally it was assumed that this was for the prevention of the so-called user-activated hard fork (UAHF) from being triggered.
But not, the current situation is proff of the fact that Bitcoin Cash supporters had an entirely different plan of action in mind.
Should You Care?
Well given that Bitcoin Cash will be a permanent fork of Bitcoin, yes, you should care very much.
As the Project Website FAQ states, Bitcoin Cash is the continuation of the Bitcoin project as peer-to-peer digital cash. It is a fork of the Bitcoin blockchain ledger, with upgraded consensus rules that allow it to grow and scale.
This means that Bitcoin Cash is different from Bitcoin. It also means that if you own Bitcoin prior to the fork on 12:20 UTC, 1st August, 2017 – you will be the owner of the same amount of Bitcoin AND Bitcoin Cash both after this fork.
And just before you deem Bitcoin Cash entirely worthless for you, know that BCC futures are trading at about $475 at the moment. (As quoted on ViaBTC)
What do you need to know?
First of all, you should be aware of the fact that most exchanges – even those as big as Coinbase – are not prepared for this event.
The website mentions has made it clear that if you own bitcoins you will automatically own Bitcoin Cash as well, but they have also mentioned that if your Bitcoins are stored by a third party such as an exchange, then you must inquire with them about your cash.
This means that exchanges or third-party bitcoin storage providers may or may not give you your Bitcoin Cash. It’s likely that third party services will try to do the right thing, but there’s no way to know if they can get everything set up in time to be able to give you the Bitcoin Cash you’re entitled to.
Second of all, any hard fork presents two potent risks: replay and wipeout attacks. A wipeout is not as much as a risk in this case since this is a permanent fork . And, replay protection is provided as part of the Bitcoin Cash release as explained in the FAQ:
Bitcoin Cash transactions use a new flag SIGHASH_FORKID, which is non standard to the legacy blockchain. This prevents Bitcoin Cash transactions from being replayed on the Bitcoin blockchain and vice versa.
So as long as you control your own private keys, you should be able to use those keys to create transactions on either chain safely, securely and without any hassles.
So what features does Bitcoin Cash have?
As the website has declared, Bitcoin Cash offers three new features:
First, it offers a much larger block size of 8MB in the release which is a much needed relief to all of it’s users.
Second, it offers replay and wipeout protection. The transaction signature is slightly different and the forking block has to be greater than 1MB. Should two chains persist, Bitcoin Cash minimizes user disruption, and permits safe and peaceful coexistence of the two chains, with well thought out replay and wipeout protection.
Third, it offers a way to adjust the proof-of-work difficulty quicker than the normal 2016 block difficulty adjustment interval found in Bitcoin. A new transaction type has been offered. As part of the replay protection technology, Bitcoin Cash has offered a new transaction type with additional benefits such as input value signing for improved hardware wallet security, and an elimination of the quadratic hashing problem.
From the project announcement on Bitcointalk:
“REQ-7 Difficulty adjustment in case of hashrate drop-
In case the MTP of the tip of the chain is 12h or more after the MTP 6 block before the tip, the proof of work target is increased by a quarter, or 25%, which corresponds to a difficulty reduction of 20% .
RATIONALE: The hashrate supporting the chain is dependent on market price and hard to predict. In order to make sure the chain remains viable no matter what difficulty needs to adjust down in case of abrupt hashrate drop.”
In other words, the difficulty will adjust pretty quickly should there be a low hash rate.
What does this mean for Bitcoin?
As Bitcoin developer Jimmy Song has put it, this is the hardest thing to answer. It may mean nothing, it may mean a lot. Some obvious things that we’ll now need to think about are:
- Who will mine Bitcoin Cash?
- Who will have the larger hash rate? Both coins will use double-sha256 as the proof-of-work.
- What will the price ratio be?
- What will the volumes on both coins be like?
- How will hash rate react to price? How will price react to hash rate?
- How will this affect the 2x HF part of Segwit2x?
- What chain will coins that operate on top of Bitcoin like Omni and CounterParty choose?
Unfortunately, the Bitcoin Cash announcement has brought along more questions than answers. One thing is for certain: if you want to maximize your holdings, it’s in your best interest to get your Bitcoin off third-party services and control your own private keys before the 1st of August. Consider it essential to safe-guard your existing investment and vital for future profits.