Bitcoin Cash is considered to be a close alternative to Bitcoin. It is currently the sixth most valuable cryptocurrency in the world, based on its market capitalization. This digital currency came into existence on August 1st, 2017, to offset the rise in transaction wait-times and fees. Bitcoin Cash raises the bar for transactions that can be processed per block.

The Problem: Why Create Bitcoin Cash?

Most market participants know that Bitcoin has a scalability problem; with its rise in popularity, the number of transactions taking place via the Bitcoin network has also increased and as it was pushing beyond the limits of the protocol, an alternative has been created.

The major problem is that Bitcoin forces a hard limit on the size of every block which miners are calculating; currently, blocks on the Bitcoin blockchain are limited to a size of 1 MB.

Why does Bitcoin limit the number of transactions that the network can process?

Since Bitcoin makes use of a distributed ledger, every user on the network has to download and store a copy of the entire Bitcoin transaction history. Given this, unlimited transactions are not allowed; otherwise, the ledger would grow to an enormous size and create problems for ordinary users, who do not possess the sufficient computing power and storage to use the network.

However, if unlimited transactions were allowed, Bitcoin would be the domain of a few centralized organizations that have sufficient processing power to handle loads of new transactions, every second. Since the whole idea of creating Bitcoins was to avoid any centralized feature, this option was not that appealing.

Currently, the Bitcoin block size has a 1 MB limit, which means that the transaction ledger doesn’t expand too large, nor too quickly; new entrants can easily download the transaction history and join the Bitcoin network. However, this block limit implies that more transaction demand exists and the available space is not sufficient to fit them all.

As a result, bitcoin miners started to charge higher fees to prioritize transactions and have them processed with priority when compared to those bidding lower. Meanwhile, as of November 2017, free services (without the fees to the miners) took a little over 2 hours on average to get the transaction confirmed.

Although the founders of the Bitcoin Cash community believe that the block size needs a limit, the 1 MB limit is just arbitrary. They suggested a system with a block size of 8MB, reasonable enough for the new users to download their transaction history. Also, it would be large enough to accommodate the number of transactions per second several times, similar to the original Bitcoin blockchain, into the new system.

While both cryptocurrencies are identical, the two networks are not at all interchangeable. Bitcoin Cash has implemented replay protection to create a hard obstacle between itself and its older counterpart; whereas Bitcoin aims to conduct transactions within the fork and not across networks. However, the two currencies shared a common history only up until August 1 2017, when their paths diverted completely.

Due to this, Bitcoin Cash is a separate cryptocurrency with a different exchange rate, when compared to Bitcoin. Whilst the new network was not supported by many wallets and exchanges at the time of its launch, by the end of launch day, it stood as the third most valuable crypto by market cap.