What Caused Bitcoin Cash and Bitcoin to Split?

Bitcoin Cash (BCH) and Bitcoin (BTC) shared a history until August 1, 2017. That’s when a “hard fork” happened which deliberately caused a network split. A hard fork is simply a change in the rules of the network to either add new features or to fix a bug. Some people refer to hard forks as “upgrades” and they don’t have to lead to network splits.

In this case, though, there was a longstanding disagreement over what network rules should be in place. Bitcoin had started to hit a scaling ceiling in 2015 and transaction fees were starting to creep up because of the congested network. Everyone agreed a solution was sorely needed.

The cause of the congestion was due to a 1MB limit on the “blocksize” (the space available for transactions every 10 minutes or so). Bitcoin didn’t start out with an explicit blocksize limit but a 1MB limit was implemented early on to protect the young network from spam attacks that could overwhelm it (transactions were free in those days). The original design by Satoshi Nakamoto (creator of Bitcoin) called for simply expanding the blocksize as the network grew larger and more resilient.

However, the core group of developers that had managed to gain control of Bitcoin development by 2015 were unwilling to expand the blocksize. They claimed to believe that code workarounds and second-layer solutions could provide Bitcoin with the necessary scaling solutions.

Many of these “small blockers” expressed the belief that high fees were actually good and desirable as a sign of Bitcoin’s high demand. An additional reason given to keep blocks small was to allow people with extremely limited hardware to run a Bitcoin full node (a full node maintains the entire history of the Bitcoin blockchain). The small blockers claimed that, unless anyone of basically any means could run a full node, Bitcoin could not be decentralized as only a few big players could run nodes.

On the other side of the scaling debate, a significant portion of the Bitcoin community still believed in the original design plan of expanding the blocksize as the network matured, hardware became more capable and cheaper, and the userbase grew.

This group of “big blockers” believed that Bitcoin could only fulfill its original purpose of being peer-to-peer electronic cash if blocks can easily accommodate current demand and transactions can remain extremely cheap. They also argued that second-layer solutions can only function well on a base layer that can be used inexpensively. Big blockers also took issue with the decentralization argument, maintaining that continual hardware advancements and other innovations would allow Bitcoin full nodes to be run affordably by anyone interested in doing so (while also making the point that users can just be users and do not have to run full nodes to use Bitcoin).

The major Bitcon discussion forums were controlled by small blockers and became extremely censored, favoring arguments for keeping blocks small. Therefore, the mainstream narrative of Bitcoin ended up integrating those ideas.

Bitcoin developers had been working on an upgrade called “Segregated Witness” (SegWit), a code workaround that would purportedly allow some additional transactions to be processed without raising the blocksize limit. SegWit would also allow for second-layer solutions to be implemented.

While Bitcoin was preparing to upgrade to SegWit, a group of big blockers decided to hard fork a version of Bitcoin that would remain SegWit-free and follow Satoshi’s original scaling design. This version, designated Bitcoin Cash (BCH), hard forked on August 1, 2017 at block height 478559 and introduced a completely adjustable blocksize with an initial soft limit of 8MB.