What Is Bitcoin Cash (BCH), and How Does It Work?
Bitcoin, created by the pseudonymous Satoshi Nakamoto in 2009, introduced the world to blockchain technology and decentralized digital currency. However, as Bitcoin grew in popularity, its network faced scalability challenges. The original Bitcoin blockchain has a block size limit of 1 megabyte (MB), which restricts the number of transactions that can be processed per block, leading to slower confirmation times and higher fees during periods of high demand.
By 2017, the Bitcoin community was divided over how to address these issues. One faction supported increasing the block size to allow more transactions per block, while others favored solutions like Segregated Witness (SegWit) and the Lightning Network, which optimize transaction processing without altering the block size. The disagreement culminated in a hard fork on August 1, 2017, resulting in the creation of Bitcoin Cash.
Bitcoin Cash adopted a larger block size—initially 8 MB, later increased to 32 MB—to enable faster and cheaper transactions. The fork allowed BCH to diverge from Bitcoin’s codebase while retaining its transaction history up to that point. Since its inception, Bitcoin Cash has focused on usability as a medium of exchange, emphasizing low-cost, everyday transactions.
How Bitcoin Cash Works
Bitcoin Cash operates on a decentralized blockchain, similar to Bitcoin, but with key technical differences that enhance its functionality. Below, we break down its core components and mechanisms.
Blockchain and Consensus Mechanism
At its core, Bitcoin Cash uses a distributed ledger called a blockchain, which records all transactions in a transparent and immutable manner. The blockchain consists of blocks, each containing a batch of transactions linked to the previous block through cryptographic hashes.
Like Bitcoin, Bitcoin Cash employs a Proof-of-Work (PoW) consensus mechanism. Miners compete to solve complex mathematical puzzles to validate transactions and add new blocks to the blockchain. In return, they earn block rewards in the form of newly minted BCH and transaction fees. The PoW system ensures security by making it computationally expensive to alter the blockchain, as any attempt to rewrite history would require re-mining all subsequent blocks.
Bitcoin Cash’s larger block size allows it to process more transactions per block, reducing congestion and enabling faster confirmations. As of April 2025, BCH blocks typically process within 10 minutes, though this can vary depending on network activity.
Transactions and Fees
A Bitcoin Cash transaction involves transferring BCH from one wallet to another. Each transaction is broadcast to the network, verified by nodes (computers running the BCH software), and included in a block by miners. Once confirmed, the transaction is permanently recorded on the blockchain.
BCH transactions are designed to be low-cost, often costing less than a cent, compared to Bitcoin’s fees, which can spike during peak times. The larger block size reduces competition for block space, keeping fees stable even during high transaction volumes. This makes BCH particularly suitable for microtransactions, such as buying coffee or tipping online.
Difficulty Adjustment
Bitcoin Cash uses a Dynamic Difficulty Adjustment (DDA) algorithm to maintain consistent block times. Unlike Bitcoin, which adjusts mining difficulty every 2016 blocks (approximately two weeks), BCH recalibrates difficulty after every block. This ensures that block times remain close to 10 minutes, even if miners switch between BCH and BTC due to profitability fluctuations. The DDA has been crucial in maintaining network stability, especially during periods of volatile hash rate distribution.
Wallets and Addresses
To use Bitcoin Cash, individuals need a digital wallet, which can be software-based (e.g., mobile apps like Bitcoin.com Wallet or desktop clients like Electron Cash) or hardware-based (e.g., Ledger or Trezor). Wallets store private keys, which are cryptographic codes that grant access to a user’s BCH funds.
BCH addresses typically start with a “1” or “3” (legacy format) or use the CashAddr format, which begins with “bitcoincash:” for clarity and to prevent confusion with BTC addresses. For example, a CashAddr might look like bitcoincash:qp3wjpa3hejqfaw7v5znu7p4f9mzf7g50v7z3k2m. Users must ensure they send BCH to the correct address, as transactions are irreversible.
Key Features of Bitcoin Cash
Bitcoin Cash distinguishes itself through several features that align with its goal of being a practical digital currency.
Larger Block Size
The most significant difference between BCH and BTC is the block size. As of 2025, Bitcoin Cash supports blocks up to 32 MB, allowing thousands of transactions per block compared to Bitcoin’s few hundred. This scalability reduces bottlenecks and keeps transaction fees low, making BCH viable for everyday purchases.
Low Transaction Fees
Bitcoin Cash’s low fees—often less than $0.01—make it attractive for merchants and users. Businesses can accept BCH payments without worrying about high processing costs, and individuals can send small amounts without losing a significant portion to fees. This aligns with Nakamoto’s vision of a currency for small, frequent transactions.
Decentralization and Security
Like Bitcoin, BCH is fully decentralized, with no central authority controlling the network. Its PoW consensus and large mining community ensure robust security. As of April 2025, Bitcoin Cash benefits from a global network of miners, making it resistant to 51% attacks, where a single entity attempts to control the majority of the hash rate.
Smart Contract Capabilities
While primarily a currency, Bitcoin Cash supports basic smart contracts through its scripting language. Features like OP_CHECKDATASIG and larger op_return data limits allow developers to build simple applications, such as tokenized assets or escrow services, directly on the BCH blockchain. However, BCH’s smart contract functionality is less advanced than platforms like Ethereum.
Privacy Enhancements
Bitcoin Cash offers optional privacy features, such as CashFusion and CashShuffle, which mix transactions to obscure their origins. While not as private as coins like Monero, these tools provide a degree of anonymity for users who prioritize it.
Use Cases for Bitcoin Cash
Bitcoin Cash is designed for real-world adoption, with use cases spanning payments, remittances, and more.
Peer-to-Peer Payments
BCH excels as a medium of exchange for everyday transactions. Merchants worldwide, from restaurants to online retailers, accept BCH through payment processors like BitPay. For example, a customer can pay for groceries with BCH using a mobile wallet, with the transaction confirming in seconds.
Cross-Border Remittances
Bitcoin Cash’s low fees and fast confirmations make it ideal for remittances. Migrant workers can send money to their families overseas without intermediaries like banks or Western Union, which often charge high fees. For instance, sending $100 in BCH might cost $0.01, compared to $5–10 for traditional services.
Microtransactions and Tipping
BCH’s low fees enable microtransactions, such as tipping content creators or paying for digital goods. Platforms like Memo.cash and Yours.org allow users to tip or monetize content with tiny BCH payments, fostering new models for online interaction.
Store of Value
While Bitcoin is often touted as “digital gold,” some investors view BCH as a store of value due to its fixed supply of 21 million coins and inflation-resistant design. However, its focus on usability sets it apart from BTC’s store-of-value narrative.
Bitcoin Cash vs. Bitcoin: Key Differences
Understanding the distinctions between BCH and BTC is crucial for grasping their respective roles.
- Block Size: BCH’s 32 MB blocks allow more transactions than BTC’s 1 MB (or ~4 MB with SegWit).
- Fees: BCH fees are consistently lower, often under $0.01, while BTC fees can exceed $1 during congestion.
- Scalability: BCH prioritizes on-chain scaling, while BTC relies on off-chain solutions like the Lightning Network.
- Philosophy: BCH emphasizes practical use as cash, whereas BTC leans toward being a store of value.
- Development: BCH has a smaller developer community but focuses on simplicity and usability.
As of April 2025, Bitcoin remains the dominant cryptocurrency by market cap, but Bitcoin Cash holds a loyal user base for transactional purposes.
Challenges and Criticisms
Despite its advantages, Bitcoin Cash faces challenges that impact its adoption.
Market Volatility
Like all cryptocurrencies, BCH is subject to price volatility. Its value can fluctuate significantly, affecting its reliability as a currency. For example, in 2023, BCH saw price swings of over 50% within months, posing risks for merchants and users.
Adoption Hurdles
While BCH is accepted by thousands of merchants, it lags behind Bitcoin and fiat payment systems in mainstream adoption. Many consumers remain unfamiliar with BCH, and integrating crypto payments requires technical knowledge for businesses.
Competition
Bitcoin Cash competes with other low-fee cryptocurrencies, such as Litecoin, Dash, and stablecoins like USDT. These alternatives offer similar benefits, challenging BCH’s market share.
Community Divisions
The BCH community has faced internal conflicts, including a 2018 fork that created Bitcoin SV (BSV). These splits can confuse users and dilute development efforts, though the core BCH network remains stable.
The Future of Bitcoin Cash
As of April 2025, Bitcoin Cash continues to evolve, with developers working on features like improved privacy, faster confirmations, and enhanced smart contract capabilities. The upcoming “ChipNet” testnet aims to streamline upgrades, potentially attracting more developers.
Global economic trends, such as inflation and banking restrictions, could drive BCH adoption in regions with unstable currencies. For example, in countries like Venezuela and Zimbabwe, cryptocurrencies have gained traction as alternatives to fiat. BCH’s low fees position it well for such markets.
However, regulatory scrutiny poses a risk. Governments worldwide are tightening rules on cryptocurrencies, and compliance could affect BCH’s decentralized ethos. Balancing regulation with innovation will be key to its long-term success.
Conclusion
Bitcoin Cash (BCH) is a cryptocurrency born from a vision to create a scalable, low-cost alternative to Bitcoin. By prioritizing larger blocks, low fees, and usability, BCH has established itself as a practical digital currency for everyday transactions, remittances, and microtransactions. While it faces challenges like volatility, competition, and adoption barriers, its commitment to decentralization and peer-to-peer cash keeps it relevant.
