What is BCH?
Bitcoin Cash (also: BCH) is a fork of Bitcoin that was created in 2017. In 2018 Bitcoin Cash forked again into Bitcoin Cash and Bitcoin SV.
The main difference between BCH and Bitcoin is the block size. Currently, BCH supports each block to a size up to 32M, which is characterized by a large reduction in transaction costs.
Where does BCH come from?
Due to transaction frequency and block size restrictions, Bitcoin (short: BTC) can handle roughly one 7 transactions per second.
When bitcoin transaction fees in 2016 and 2017 were getting higher and higher, some developers in the Bitcoin community, including Roger Ver and other investors, believed that if the block size would not increase, BTC will become a digital investment product and cannot be used as a payment method for ordinary people.
To solve the problem of high transaction fees, Bitcoin Core chose to implement both SegWit + Lightning. Other camps in the blockchain community however insisted that an expansion of block size was the only viable solution.
Roger Ver as well as many investors and miners were dissatisfied with the SegWit proposal, and finally decided to hard fork bitcoin.
In August 2017, at bitcoin’s block number 478559, BCH was released featuring a block size limit of eight megabytes.
Currently BCH holds the position of developing a block size limit of 32 megabytes.
How does SegWit and Lightning help with scaling?
While SegWit solves the problem of TxID scalability, and Lightning Network solves the problem of high relative transaction fees for small payments.
Segregated Witness, or SegWit, is a change of transaction format in bitcoin that effectively increases block size.
With SegWit added to bitcoin, each block is split into two segments. The "witness" data (i.e. the unlocking signature) is appended at the end of the block, leaving more space in the rest of the block within the existing 1 megabyte limit.
Lightning Network is a so-called “Layer 2” payment protocol. After a participant locked bitcoin she can send money in form of promises to other participants. While the locked bitcoin enjoy the blockchain’s security, the promises can be sent around just like an email: Fast and at minimal cost. Participant can receive the locked bitcoin back at any time, at which point the final balances with other participants will be settled.
How does BCH mining work?
The main feature of BCH is the dynamic difficulty adjustment. For BCH, the difficulty is being adjusted at each block while BTC’s difficulty is adjusted every two weeks. Both blockchains calculate the adjustment in the same way using sha256.
If you have 10% of the computing power of the entire network, you usually mine BTC to reach the BTC difficulty adjustment time, when mining gets less lucrative.
When, after the adjustment, the mining revenue of BTC decreases sharply, you switch to BCH mining. With the difficulty for BCH mining, your income gets lower and you switch back to mining BTC again.
To put it simply, miners can adjust the time difference between the two chains’ difficult adjustments to dynamically calculate their mining revenue, and automatically switch to the blockchain that promises a higher income.