Bitcoin Cash for beginners 2022: Ultimate guide to trading BCH

Publish Date 01 Jan 0001
Blockchain / 7 Min Read
Alex Lielacher / Last Update 20 Jan 2022

Bitcoin Cash (BCH) is an altcoin created as a fork of Bitcoin (BTC) to provide features that a subsection of the Bitcoin community wanted to see realised.

Created on August 1st in 2017, BCH has a fixed supply of 21 million coins similar to BTC but a larger block size limit, enabling faster transactions and lower fees.

In this guide, we cover everything you need to know about Bitcoin Cash, including how you can trade the cryptocurrency with crypto CFDs.

What's in this guide?

What is Bitcoin Cash and how does it work?

Bitcoin Cash (BCH) is a peer-to-peer digital cash that runs on a distributed ledger without relying on financial intermediaries or any form of central authority. 

Like its predecessor Bitcoin, Bitcoin Cash uses a Proof-of-Work protocol to reach consensus concerning the state of its ledger. Moreover, all transactions on the network are visible on the BCH blockchain for anyone to audit. 

Bitcoin Cash was created when a faction of the Bitcoin community wanted to introduce bigger blocks to the Bitcoin blockchain as a scaling solution. Bigger blocks would enable fast and cheaper on-chain transactions than the Bitcoin blockchain. However, bigger blocks would likely lead to centralisation, which is why in the end, the Bitcoin community chose to stick with smaller blocks (enhancing decentralisation) and big block supporters went on to fork Bitcoin to create Bitcoin Cash in 2017.

Bitcoin coin

The main ethos behind Bitcoin Cash is that it’s a peer-to-peer electronic cash system that anyone across the globe can use to send and receive near-instant payments at a very low cost. 

As a hard fork of Bitcoin, Bitcoin cash inherited some of its characteristics. For example, just like Bitcoin, Bitcoin Cash’s maximum supply is capped at 21 million with a block reward halving every four years.

When was Bitcoin Cash created?

Bitcoin Cash started as a hard fork of Bitcoin in August 2017, following disagreements in the Bitcoin community on how to best scale the Bitcoin network. 

In the early days of Bitcoin, block sizes were less than 100KB. Transaction fees cost almost nothing. However, this made its blockchain susceptible to spam attacks. Block sizes later increased to 1MB with an interval of 10mins between blocks to ensure the network is safeguarded from attacks. Since this update, the Bitcoin network has exploded in adoption rate as many became aware of its underlying framework and features, leading to a surge in transactions.

Bitcoin's popularity exposed the scalability issues of its network. Transactions piled up as its block size and time could only allow for the validation of seven transactions per second (TPS). This also saw transaction fees on the network increase as miners prioritised transactions with high fees, crumbling the original vision for a payment currency laid down by Satoshi Nakamoto, the creator(s) of Bitcoin. It was from these issues that Bitcoin Cash was born.

In July 2017, Bitcoin developers implemented a software upgrade that will implement a feature known as Segregated Witness on the network via a soft fork. Segregated Witness would allow Bitcoin to scale through layer 2 solutions like the Lightning Network. Some nodes rejected the idea of SegWit and pushed for another alternative, which will see block sizes increased between 8 to 32MB. They argued that SegWit favours people who view Bitcoin as a store of value instead of a payment currency.

This group later performed a hard fork of the Bitcoin network at block height 478,559 on August 1, 2017. The hard fork saw block sizes increase from 1MB to 8MB, meaning the network could handle up to 25,000 transactions per block while Bitcoin could only manage 1,500 per block. It is this forked network that is now referred to as Bitcoin Cash. 

All holders of BTC received an equivalent of their holdings in BCH. Moreover, nodes that implemented the hard fork via updating their software could no longer participate in the Bitcoin network.

Bitcoin vs Bitcoin Cash: What’s the difference?

Bitcoin (BTC) is the world’s first cryptocurrency that was introduced through the now infamous Bitcoin whitepaper in October 2008. In contrast, Bitcoin Cash (BCH) is a fork of the original Bitcoin protocol. 

Bitcoin Cash inherited the same architecture as the Bitcoin network and has almost all the features of Bitcoin. However, the major difference between both protocols lies in their block sizes.

Bitcoin's block size is just 1MB and can only contain 1,500 transactions. Bitcoin Cash, on the other hand, initially had a block size of 8MB during its hard fork but has since expanded to 32MB. The increase in block size has made Bitcoin Cash faster than Bitcoin. 

However, more processing power is also needed to validate such large block sizes. That means miners with less computing power can't contribute to network security. It led to the centralisation of mining power with large institutions and organisations, resulting in criticism that Bitcoin Cash only profited the rich. 

What’s more, because of its bigger blocks, the Bitcoin Cash blockchain will eventually become too big for individuals to run full nodes, further increasing the centralisation of the network.

There are some positives to bigger block sizes. It enables smaller transactions to be easily managed on-chain. Conversely, on the Bitcoin network, small on-chain transactions are slow and relatively expensive. The cheap transaction fee of BCH is a beneficial option for tipping online creators and making donations. 

People who use cryptocurrencies as an alternative asset to store value against inflation or as an investment asset, however, prefer Bitcoin over Bitcoin Cash, considering that the market has decided that Bitcoin is the only “real” Bitcoin, and Bitcoin Cash is just one of many altcoins

In regards to mining, Bitcoin mining has been more profitable to miners as its price is by far higher than that of its most prominent fork. 

How does BCH mining work?

Bitcoin Cash mining works similarly to that of Bitcoin with a few modifications. BCH mining is carried out through a proof of work (PoW) consensus mechanism. In this system, miners solve cryptographic puzzles to bundle transactions into a block. The first miner to successfully solve the puzzle receives a block reward of 6.25 BCH. 

Like Bitcoin, block rewards are halved every four years until all BCH in existence has been released into circulation. The next halving will take place in 2024 at block 840,000.

Considering the large block size of Bitcoin Cash, more computing power is required to process transactions. That means miners must utilise energy-intensive hardware. Also, miners pool computing power together, known as mining pools, to enable them to achieve block rewards faster.

The mining difficulty of the network is slashed in half when blocks are behind schedule for two consecutive days. When blocks are ahead of schedule, on the other hand, the difficulty doubles. This keeps block production at a stable rate even when the network's hash power is higher or lower, as the case may be.

Bitcoin Cash price history

Having shown signs of stability in recent months, many may consider Bitcoin Cash to have always had a quiet time in the market. However, BCH has experienced several price swings in the past. Below are some of the most notable price events over the years.

  • 2017: Bitcoin Cash debuted on cryptocurrency exchanges at $900. Later, in December, amidst the crypto market mania, the price skyrocketed over 450% to $4,355.62, a height it has never seen again since then.
  • 2018: After an impressive run in 2017, BCH received its fair share of the bear trend that ravaged the crypto market, crashing about 94% from $2,359.30 on January 1, 2018, to $148.66 on December 31, 2018. A part of this crash can also be traced to the suspension of BCH on Coinbase due to rumours of insider trading.
  • 2019: Bitcoin Cash maintained a stable price movement and saw a little price rise. Like most top ten cryptocurrencies in 2019, BCH had a quiet year progressing quietly.
  • 2020: The odds seemed to be in the favour of Bitcoin Cash as it was rising steadily, reaching a 12 month high of about $500 in February, until the pandemic happened. The global economy was shaken by the impact of the COVID-19 pandemic as the price of BCH crashed to about $149. It later recovered slightly with the entire crypto market, ending the year at around $340.
  • 2021: In the second quarter of 2021, BCH soared in prices, along with other cryptocurrencies, reaching a two-year high of $1,635.15. However, the crypto market crash of May affected its bull run. BCH recovered between September and October but couldn't push further as it ended the year at $430.94.

What is the market capitalisation of Bitcoin Cash?

As of January 13, 2022, Bitcoin Cash has a market capitalisation of $7,345,521,789.73, making it the 27th largest cryptocurrency in the world.

Where can I view Bitcoin Cash transactions?

One of the exciting features Bitcoin Cash inherited from Bitcoin is its transparency. Anyone can access the complete records of Bitcoin Cash transactions since its inception using a Blockchain explorer.

It's possible for anyone to verify the transactions on the network without revealing the identity of users. You can track transactions in the network through the transaction ID or via a Bitcoin Cash wallet's public address.

Bitcoin Cash Trading Guide

This section provides a step-by-step guide to trading and investing in Bitcoin Cash (BCH).

How to trade Bitcoin Cash

Considering the volatility of cryptocurrencies, Bitcoin Cash offers several trading opportunities. Bitcoin Cash is available for trading on crypto exchanges and online brokerages like Axi, where you can trade crypto CFDs.

You can trade Bitcoin Cash with the following steps:

  • Conduct in-depth research on Bitcoin Cash.
  • Choose a trading strategy while paying attention to risk management.
  • Choose a crypto exchange or online broker to trade Bitcoin Cash.
  • Open an account and make a deposit using fiat currency or cryptocurrency.
  • Execute your trading strategy.
  • Monitor your trades to optimise your strategy.

Learn more about how to trade cryptocurrency CFDs.

How to buy Bitcoin Cash

To buy Bitcoin Cash you will need to have an account with a crypto exchange, a Bitcoin Cash wallet, and fiat currency to use for your purchase. Below are some simple steps to buy BCH.

  • Register with a crypto exchange. 
  • Deposit your fiat currency to the exchange.
  • Create an order for the amount of BCH you intend to purchase.
  • Once your order is filled, you'll receive the BCH in your exchange wallet.
  • To gain full control over your BCH, transfer it to a personal wallet where you hold the private keys.

How to invest in Bitcoin Cash

Bitcoin Cash serves more as a payment currency, but its architecture also presents investment opportunities. You can invest in Bitcoin Cash by simply following the steps above to buy the currency and then securely storing it - ideally by transferring it to an offline cold wallet for greater security.

How to store Bitcoin Cash

Cryptocurrencies, like Bitcoin Cash, are stored in a digital wallet. Bitcoin Cash wallets include hardware wallets, software wallets, paper wallets, mobile wallets, and wallets offered by cryptocurrency exchanges. Your wallet choice is dependent on your purpose for purchasing Bitcoin Cash.

With these steps below, you can store your Bitcoin Cash:

  • After purchasing BCH from a crypto exchange, choose a wallet type based on your needs and preferences. 
  • If you plan on holding long-term, use a hardware wallet like Ledger Nano S or Trezor.
  • Set up the wallet and ensure you backup your private keys.
  • Send the BCH to your wallet.
  • Keep the currency in your wallet until you intend to use it.

Advantages of Bitcoin Cash

Discover the advantages and disadvantages of the Bitcoin Cash cryptocurrency below:

  • Bitcoin Cash processes fast transactions.
  • Offers very low transaction fees
  • Anyone can download a wallet and start using BCH
  • Provides transparency as anyone can publicly verify the legitimacy of transactions.

Disadvantages of Bitcoin Cash 

  • The cryptocurrency has a low adoption rate.
  • Centralisation risk due to its block size.
  • Bitcoin Cash has branding issues as many often confuse it with other cryptocurrencies that are also named after Bitcoin.

What price is BCH expected to reach?

Coming up with price targets for cryptocurrencies is incredibly difficult, given that the crypto markets largely defy traditional valuation methods. However, looking at the historical performance of a digital asset and the developer community backing it can give us some insight into what to expect next.  

There were lots of lofty price expectations for Bitcoin Cash during its earlier days. However, BCH has had unconvincing price movements since hitting an all-time high of $4,355.62 in its early days.

Like with Bitcoin, Bitcoin Cash’s price performance will depend on its adoption rate. Standing in Bitcoin’s shadow, however, has made it difficult for BCH to stand out as an open, borderless digital currency, slowing down its adoption rate.

Especially in light of recent developments in the Bitcoin ecosystem with the success of the Lightning Network (which enables instant, ultra-low-fee transactions), Bitcoin Cash has struggled to gain acceptance among merchants and retailers who tend to adopt Bitcoin as opposed to other cryptocurrencies. 

Bitcoin Cash may, therefore, struggle to move past its 2017 all-time high, which makes it more of a trading asset than a long-term investment asset.

 

Cryptocurrency trading course banner

Looking to learn more about other cryptocurrencies:

We hope that this guide will help you on your journey to buying, owning, and trading Bitcoin Cash. To start trading Bitcoin Cash CFDs with Axi today, click here.

 

 

 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.


More on this topic

See More News

Open your account. Trade within minutes.

Start your trading journey with a trusted, multi-award winning broker.

Open Account Try a Free Demo