About Bitcoin

Bitcoin: Past to Present

In 2017, internal strife and differing views on Bitcoin’s fundamental value proposition caused the currency and its community to break off into several distinct groups, each with their own vision of what Bitcoin is and what it is meant to be. This article will explore the different “forks” of Bitcoin and make the case for why Bitcoin Cash is the coin most aligned with the original system laid out the in the Bitcoin whitepaper.

Introduced as a peer-to-peer electronic cash system, Bitcoin experienced explosive, exponential growth during its initial years. Users were drawn by properties of Bitcoin that allowed for cheap money transfers, instant confirmations, worldwide compatibility, round-the-clock operation, and no limitations on minimum or maximum transaction amounts. This electronic form of money quickly became popular with diverse groups of users all around the world. Merchants used Bitcoin to tap into a global marketplace. Migrant workers used it to send money back home for much less than Western Union. Charities and content creators used it as a “virtual tip jar,” collecting donations big and small from any country on Earth. Certain industries were even able to use Bitcoin to replace traditional payment methods altogether. This rapid rate of expansion continued for several years and led many to think that Bitcoin was well on its way to becoming an unstoppable revolution in financial technology.

Dawn of the Bitcoin Scaling Debate

But, as the case with all technologies, scalability inevitably became an issue. Since the very beginning of Bitcoin, people have contemplated and argued about how the system should scale, not just to millions of users, but to billions—how else could Bitcoin become accepted as a mainstream global currency? In fact, when Satoshi Nakamoto first introduced the concept of Bitcoin in 2008, the first question asked of him was about how the system would scale. Nakamoto replied:

The bandwidth might not be as prohibitive as you think. A typical transaction would be about 400 bytes (ECC is nicely compact). Each transaction has to be broadcast twice, so lets say 1KB per transaction. Visa processed 37 billion transactions in FY2008, or an average of 100 million transactions per day. That many transactions would take 100GB of bandwidth, or the size of 12 DVD or 2 HD quality movies, or about $18 worth of bandwidth at current prices. If the network were to get that big, it would take several years, and by then, sending 2 HD movies over the Internet would probably not seem like a big deal.

What started as an afterthought eventually turned into a hallmark debate among developers, before devolving into an all-out schism in the Bitcoin community.

Eventually, a small group of programmers calling themselves “Bitcoin Core” wrested control of the legacy development branch of Bitcoin and began to insist, counter-intuitively, that Bitcoin was incapable of scaling to more than 250,000 transactions per day, or about 4.5 cents worth of bandwidth at 2008 prices. As the network finally hit this imposed capacity limit in 2016, Bitcoin began to lose many of the features that made it so attractive in the first place.

Transaction fees skyrocketed, from fractions of a penny to a peak of nearly $9 in August, 2017. Transaction confirmation times became increasingly unreliable, and users could find themselves waiting hours or days for their payments to clear. This decline in usability caused many early retail adopters to abandon Bitcoin, either switching to competing digital currencies or returning to traditional payments entirely. New adoption slowed to a crawl, and in 2017 the number of transactions on the network began to decline for the first time in Bitcoin’s nine-year history.

Segwit Core is Born

The group calling themselves “Bitcoin Core” began to insist that Bitcoin was never meant to be money, after all, and was nothing other than a new speculative asset class. They also began to remove many of the defining features of Bitcoin, making transactions reversible (“replace-by-fee”) and stripping the digital signature data that mathematically guarantees one’s Bitcoins are safe with something called “Segwit”). Having achieved much of their contra-whitepaper goals, this group is no longer capable of representing fundamental Bitcoin ideals—nor are they able to advance any of the original payments-related value propositions. To be sure, those within this group are devoted, hard-working, and talented. But, given the above facts of the matter, it is impossible for such a group to rightfully use the word “bitcoin” in their name. “Segwit Core” seems much more appropriate.

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Segwit coins remove signature data from a transaction. Source: Peter Rizun, SegWit Coins are not Bitcoins

Enter Bitcoin Cash

These drastic changes being made to a proven and successful technology led a concerned group of longtime Bitcoin users to initiate a “fork,” or split, of the network on August 1st, 2017. From this fork, Bitcoin Cash was born, increasing the capacity limit of each block, removing replace-by-fee, and preserving a version of Bitcoin with digital signatures intact.

Bitcoin Cash, being distinct from the Segwit-chain descendant of Bitcoin, has its own market price, mining network, and unique transaction history from the common ancestor block onwards. Because the Bitcoin Cash fork was created by a minority group of miners, many services still regard the Segwit-chain as “Bitcoin,” although the two can be more accurately thought of as relatives sharing a common ancestor.

Although the Segwit-chain inherited the name “Bitcoin,” the Bitcoin Cash chain much more closely resembles the version of Bitcoin which sparked the entire digital currency boom by being an exemplary electronic payment system.

Despite the insistence of the Segwit Core group that such forks were “dangerous” and would completely undermine the entire Bitcoin system, the successful hard fork of Bitcoin Cash instead seems to have proven that network splits can be a viable way to resolve differences, experiment with new features, and allow various models to compete with one another in the free market.

More Bitcoin Forks to Come

As of October 2017, two new forks are planned to occur on the Segwit chain: SegwitGold is scheduled to split on or around October 25th, and the Segwit2x fork will happen at block number 494784, sometime in mid-November. The Segwit2x fork raises the block size to 2MB, in addition to using SegWit to strip digital signature data.

SegwitGold will be largely identical to the Segwit chain, with the most notable changes being a change in the proof-of-work algorithm (meaning it will lose the vast network of computers that secure the Bitcoin network) and that the developers of the fork are granting themselves many free coins as a “reward” for their work on the project.

The Segwit2x fork is a planned upgrade of the Segwit chain that is supported by a supermajority of the mining network and the businesses that depend on the Bitcoin network’s reliable operation. The primary change being made by this fork is to increase the block size from 1MB to 2MB, thereby increasing the capacity of the network from ~250,000 transactions per day to ~500,000 per day. The Segwit Core group remain adamantly opposed to any sort of native capacity increase, and have vowed to keep their own chain (Segwit1x) alive, although it is unclear if they will have enough miner support for the chain to survive.

The main differences between the different forks are outlined below.

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Bitcoin Cash

Ticker symbol: BCH

Mining algorithm: SHA-256

Block size (Daily transaction capacity): 8MB currently, scalable to 32MB without additional forks (2,000,000 to 8,000,000 transactions per day. Equivalent to 23-92 transactions per second)

Data used to achieve max capacity: 8MB

Average transaction fee: $0.07 USD

Average confirmation time: ~15 minutes (targets 10 minutes)

Transactions reversible?: No. Once a transaction is sent, it is final.

Contains Segwit?: No. Every transaction contains its own unique digital signature.

Notes: >10 minute average confirmation time is due to hash rate fluctuations. Fees of even $0.01 work for next-block confirmation, but some wallets use high fees by default.

Segwit2x (Planned)

Ticker symbol:  BTC (planned), potentially SW2 as this is no longer Bitcoin.

Mining algorithm: SHA-256

Block size (Daily transaction capacity): 2MB block size limit. Up to 3.4MB “effective” capacity, assuming 100% adoption of Segwit (currently ~10%). 500,000-850,000 transactions per day (5.8-9.8 transactions per second)

Data used to achieve max capacity: Up to 8MB

Average transaction fee: TBD

Average confirmation time: TBD (targets 10 minutes)

Transactions reversible?: Yes. After a transaction is sent, but before it is confirmed, the sender can change the destination address (including back to himself) using Replace-by-Fee.

Contains Segwit?: Yes. Digital signatures have been moved to a separate data structure.

Segwit Chain/Segwit1x

Note: “Segwit1x” is what this chain will be called after the Segwit2x fork.

Ticker symbol: Currently BTC, suggested is symbol “SW1” post Segwit2x split.

Mining algorithm: SHA-256

Block size (Daily transaction capacity): 1MB block size limit. Up to 1.7MB “effective” capacity, assuming 100% adoption of Segwit (currently ~10%). 250,000-425,000 transactions per day (2.9-4.9 transactions per second)

Data used to achieve max capacity: Up to 4MB

Average transaction fee: Currently ~$3, but fluctuates often.

Average confirmation time: Between 40-60 minutes (targets 10 minutes). Peak was more than 2,500 minutes wait on June 8th, 2017.

Transactions reversible?: Yes. After a transaction is sent, but before it is confirmed, the sender can change the destination address (including back to himself) using Replace-by-Fee.

Contains Segwit?: Yes. Digital signatures have been moved to a separate data structure.

SegwitGold (Planned)

Ticker symbol: SWG

Mining algorithm: Equihash (Not compatible with existing Bitcoin mining infrastructure)

Block size (Daily transaction capacity)1MB block size limit. Up to 1.7MB “effective” capacity, assuming 100% adoption of Segwit (currently ~10%). 250,000-425,000 transactions per day (2.9-4.9 transactions per second)

Data used to achieve max capacity: Up to 4MB

Average transaction fee: TBD

Average confirmation time: TBD (targets 10 minutes)

Transactions reversible?: Yes. After a transaction is sent, but before it is confirmed by miners, the sender can change the destination address (including back to himself) using something called “Replace-by-Fee”.

Contains Segwit?: Yes. Digital signatures have been moved to a separate data structure.

Bitcoin Cash is Bitcoin

Bitcoin’s intentional lack of central authority or governing body means that any serious discussion on the fundamental nature of “what Bitcoin is” must be based in rational arguments and data, rather than “because we say so” rhetoric.

Based on the above comparisons between the various versions of Bitcoin, the whitepaper, and the years of common understanding that Bitcoin was always meant to be an electronic cash system, it is the position of this website that Bitcoin Cash is the version of Bitcoin that most closely adheres to the original design.

The position that Bitcoin Cash is Bitcoin is based on its adherence to the design goals and intended purpose that Bitcoin was created to fulfill.

On October 13, 2017, Bitcoin Unlimited Chief Scientist Peter Rizun announced that their Gigablock Testnet Initiative successfully mined and propagated the first ever 1GB block. Such test results demonstrate that the Bitcoin network can scale to compete directly with mainstream payment processors (10,000 transactions per second and higher vs. Visa’s average 3,000 transactions per second). Bitcoin Cash, with its more realistic approach to scaling, is well-positioned to become a worldwide peer-to-peer electronic cash system.

Conclusion

Based on the arguments presented above, Bitcoin Cash (BCH) is the only fork of Bitcoin that resembles a natural continuation of the original Bitcoin invention. All Segwit chains have altered so many fundamental properties of Bitcoin that it seems a stretch to refer to any of them by the Bitcoin name.

Appendix

Mining

With the exception of SegwitGold, all current Bitcoin forks rely on the SHA-256 hashing algorithm for mining. Having specialized equipment is important, because it means that miners must make serious skin-in-the-game investments in order to take part in securing the network. A CPU-focused algorithm, like Equihash, means that botnets and server farms can easily mine on the network, while having no incentive to continue mining if a more profitable use of CPU time presents itself.

Capacity

The capacity of the network is not a fundamental feature of a currency, but it is important that the network have enough capacity to be able to handle all demand. Paper cash would not be very useful if there weren’t enough bills for everyone who wanted to use them. Both the original Bitcoin and Bitcoin Cash adhere to this notion, while the Segwit chain and the Segwit Core developers believe that capacity should be artificially limited, even if the demand to use the network is greater than the available capacity.

User Experience

Bitcoin is useful as digital money because it can be used to transact in any amount, big or small. When fees are low, it makes sense to use Bitcoin to pay for a cup of coffee, or to buy a song for $1, or to perform the digital equivalent of putting change in a tip jar. When capacity is restricted, fees rise dramatically (as we can see is the case with Segwit chain), and Segwit Coin is no longer useful for many kinds of commerce. High fees price out many potential users of Bitcoin and prevent many of the innovative business models that sprung up to take advantage of Bitcoin’s low-fee, fast confirmation model. This change in Segwit Coin’s “economic code,” under the direction of the group we are now calling Segwit Core, has caused business adoption of Segwit Coin to decline and many companies to abandon it for other, more functional cryptocurrencies. The most obvious place to go now is back to Bitcoin (BCH).

On Segwit and Replace-by-Fee

The Bitcoin whitepaper very clearly states:

We define an electronic coin as a chain of digital signatures.

With the introduction of the Segwit “feature” by the Segwit Core developers, a new transaction type was created that removes the digital signatures from the transaction and places them in a separate data structure, where they are only visible to users running certain versions of software. Other versions of Bitcoin software are “tricked” into thinking that these transactions-without-signatures are still valid through the use of a Bitcoin op-code called ANYONE_CAN_SPEND. Storing bitcoins in ANYONE_CAN_SPEND addresses relies on a fundamentally different security model than Bitcoin was designed with, and introduces the need for trust in what is meant to be a trustless system.

Replace-by-fee, another ill-conceived “feature” introduced by Segwit Core, makes it trivial for a user to reverse his transaction after it has been sent, but before it has been confirmed. Combined with a restricted capacity that frequently requires users to wait 24 hours or more for their transactions to confirm, replace-by-fee makes Bitcoin far less useful and secure. Credit card chargeback fraud is a real problem for merchants, but credit card companies have entire divisions of employees (read: expensive overhead) who help minimize this risk. Just like how paper cash, once spent, cannot be reversed, irreversibility is an important component of what makes Bitcoin “Bitcoin.”

First published on Bitcoin.com in collaboration with CoinGeek.com and Calvin Ayre Media Group