What is Bitcoin Cash (BCH) and how did it emerge?

The danger of a hard fork—that is, the network splitting into several separate blockchains—had seemed to recede. In recent days, however, the issue has returned to the centre of the Bitcoin community’s agenda. What happened, and why is this ominous-sounding hard fork threatening Bitcoin again?

To understand that, recall how the scaling debate unfolded in recent months. The main improvement championed by much of the community was Segregated Witness (SegWit). But activating it required support from at least 95% of miners. Guided by their economic interests, not all agreed. The standoff among several camps led to deadlock, and SegWit2x appeared to offer a way out. It had two parts: first, activating SegWit; second, increasing the block size to 2MB.

That, too, ran into problems: many in the community objected that the plan had been agreed behind closed doors by a group of miners and companies. The response was UASF—a user-activated soft fork. It also aimed to activate SegWit, but via node operators, depriving miners of an economic advantage.

UASF is slated for 1 August 2017, but it also carried the risk of a hard fork. That risk was averted with BIP 91, which is compatible with both SegWit2x and UASF. It activated on 22 July, clearing the way for SegWit.

Amid all this, a group of industry participants—chiefly Chinese miners who favour bigger blocks—announced plans to launch a separate client called BitcoinABC. It was initially presented as a backstop in case the second phase of SegWit2x was not implemented. A separate coin, Bitcoin Cash (BCC), was assigned to the client.

To the surprise of many, the BitcoinABC developers said they would launch the protocol on 1 August, the same day UASF is due to activate.

First, it is a permanent fork of the current Bitcoin network. Although it preserves the prior ledger history, it is incompatible with the solutions described in SegWit2x and UASF. Even so, many in the industry put the likelihood of it happening at close to 99%.

The project’s FAQ states:

— Is Bitcoin Cash different from Bitcoin?

— Yes. Bitcoin Cash is a continuation of the Bitcoin project as a peer-to-peer digital currency. It is a fork of the Bitcoin blockchain with updated consensus rules that allow its further growth and scaling.

The Bitcoin Cash fork means that if a user holds a given amount of bitcoin at 12:20 UTC on 1 August 2017, when the new client is expected to activate, he or she will thereafter hold the same number of BCC coins.

Yes—but on one condition: the user must personally control the wallet’s private keys. If funds are held with a third-party provider (for example, on an exchange or in an online wallet), there is a high chance the user will not be able to claim the BCC due. For instance, the popular wallet Coinbase has already said it will not support Bitcoin Cash because it is incompatible with the current version of Bitcoin.

A number of exchanges and wallets say they will distribute BCC to users, but there is no certainty they will be technically ready to do so.

All hard forks carry the risks of replay attacks and wipeout attacks. According to the Bitcoin Cash developers, replay protection is already built into the new software. As for the risk of a wipeout attack, it may be insignificant because this is an entirely new blockchain.

First, Bitcoin Cash offers a much larger block size—8MB versus 1MB in today’s Bitcoin. In Bitcoin Cash, the block size is intended to be configurable as needs dictate.

Second, as noted, the new software has built-in protection mechanisms (though some Bitcoin developers dispute this), as well as a somewhat different transaction-signature structure.

Third, Bitcoin Cash promises a faster difficulty adjustment than Bitcoin’s current 2016-block retarget.

This is the hardest question, and answering it at this stage is far from simple. Some in the community see the Bitcoin Cash hard fork as nothing more than the creation of a new altcoin with its own blockchain and ticker—BCC, not BTC.

Yet questions remain about which pools will mine BCC and which chain will have the higher hashrate. Would it be right to call BCC Bitcoin if that chain’s hashrate were to surpass that of the current version? What will be the respective sizes of the two chains and the price ratio between the two coins? Finally, how might the launch of Bitcoin Cash affect the second phase of SegWit2x—ie increasing the block size to 2MB—and which chain will projects built on top of Bitcoin (CounterParty, Omni, etc.) choose?

It makes sense to ask your providers how they are preparing for a likely hard fork; otherwise, the best course is to withdraw funds to a wallet whose private keys you control. In that case, once the hard fork occurs and new coins appear, you will be able to take the necessary steps and claim coins on both chains.

There are not many yet; information is available on the official website of the project. As of 26 July, exchanges mentioned include ViaBTC, OKex (OkCoin), BitHumb and Huobi. Wallets include BitcoinABC, Ledger and Electrum Cash (the team behind the popular Electrum wallet has already said it has nothing to do with the latter).