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What is Bitcoin Cash (BCH)? Is it Halal?

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What is Bitcoin Cash?

bitcoin money is a crypto-currency that is both a store of value and a payment network accessible on a daily basis. It is a spin-off of Bitcoin, except that Bitcoin Cash has a larger block size, which allows it to process more transactions and has lower transaction fees. As it is a derivative of Bitcoin which is considered by many researchers to be halal, we believe that Bitcoin Cash would also be halal by extension. Read on for a much deeper dive into Bitcoin Cash itself and Islamic views on it.

What does Bitcoin Cash do?

Bitcoin Cash is a decentralized digital currency that aims to be “a low-cost peer-to-peer global electronic cash system”. The network is intended to be fast and cheap to be accessible to all.

In 2017, the bitcoin community, including developers, investors, users, and businesses, was divided over the future of bitcoin. Some believed that bitcoin needed to have greater network capacity to fulfill what they saw as Bitcoin’s original purpose of “a low-cost, peer-to-peer electronic payment system.”

The others thought the network capacity should stay the same. As a result of this standoff, Bitcoin was transformed into Bitcoin Cash by those who supported greater network capacity. To do this, they increased the maximum block size to 32MB from Bitcoin’s original 1MB.

How does Bitcoin Cash work technically?

Bitcoin Cash uses a blockchain (public ledger) to keep track of all transactions made on its network. It uses a proof-of-work consensus mechanism to approve transactions and add them to the blockchain. This is where miners compete to solve problems to earn the right to certify blocks of transactions and earn a block reward of tokens in the process as well as transaction fees.

Bitcoin Cash is similar to Bitcoin in all aspects except its block size. Bitcoin Cash has a maximum block size of 32MB compared to 1MB for Bitcoin. This theoretically allows it to process more transactions. Which in turn lowers transaction fees as there is less competition to get your transactions in a block.

What are the use cases for Bitcoin Cash?

Its two main use cases are to be a store of digital value and to facilitate fast and cheap payments on the Internet.

Bitcoin Cash also has some secondaries features which includes:

  • Smart contract capabilities that open the possibility of building decentralized financial applications on its network
  • A protocol that supports non-fungible tokens (NFTs). NFTs are digital tokens that can represent a unique asset, allowing them to be traded, supporting markets from digital artwork to digital ticketing. To learn more about NFTs and why we’re optimistic about them, watch Ibrahim’s video here.

However, these features have yet to take off.

Are people using Bitcoin Cash right now?

Yes at the time of this writing there has been ~ 58k Bitcoin Cash network transactions over the past 24 hours with an average transaction value of 10.58 BCH ($2,550). This is significantly less than the ~277,000 transactions recorded daily by Bitcoin during the same period.

What are the strengths and weaknesses of Bitcoin Cash?

Strengths

  • Fast processing times
  • Low transaction fees
  • Widely available on crypto exchanges
  • Open source and decentralized
  • Secure thanks to its encryption and proof-of-work consensus mechanism
  • Hasn’t had any major reliability issues since launch

Weaknesses

  • Bitcoin’s adoption and price movement has far exceeded it
  • There are faster and cheaper alternatives
  • It hasn’t delivered on its bigger block size promises, with its block sizes being steadily smaller than bitcoin block sizes
  • Lost some of its community and developers after a dispute led to the forking of Bitcoin SV from Bitcoin Cash
  • Bitcoin Cash has high price volatility and is therefore a high risk investment

Is Bitcoin Cash a good investment?

Bitcoin Cash (BCH) is one of the most established cryptocurrencies and is currently the 23rd largest cryptocurrency by market cap. BCH can be purchased on most exchanges, including Coinbase and Binance.

Its price reached an all-time high of $4,355.62 in December 2017. However, it has yet to reach those highs, peaking at $1,635 in May 2021 and is currently trading around $240 at the time of writing.

This contrasts with Bitcoin which is trading at $32,000 and hit a new all-time high in 2021 of $68,789. The price action shows that the market has voted Bitcoin as the winner and Bitcoin Cash is rapidly losing relevance.

The ratio of BTC to BCH was 5 when Bitcoin Cash forked and it is now trading at 132. This shows that Bitcoin has won the store of value argument. There are also faster and cheaper alternatives to Bitcoin Cash that threaten its market position, which we will discuss below.

Alternatives to Bitcoin Cash

Bitcoin (BTC)

The original Bitcoin has significantly outperformed Bitcoin Cash since its fork, showing that the market has picked it as the winner. Bitcoin is now widely regarded as digital gold and the undisputed king of cryptocurrency.

Its Lightning Network is a layer 2 scaling solution that strives to increase Bitcoin’s transaction processing capabilities while offering low fees. These developments could make Bitcoin Cash obsolete.

Litecoin (LTC)

Another bitcoin fork, Litecoin has taken a different approach to staggering payments. Instead of increasing block size, Litecoin reduced the time it takes to generate a new block (from 10 minutes to 2.5). Litecoin also has higher adoption rates with twice the number of daily transactions in Bitcoin Cash (123k against 58k).

Dogecoin (DOGE)

Dogecoin is an open source, decentralized and peer-to-peer cryptocurrency. Doge was made famous by the internet meme culture and endorsed by none other than Elon Musk.

Initially started as a joke to poke fun at other cryptos, Doge has started to see widespread adoption and could theoretically become a real competitor to Bitcoin Cash. However, Doge is not as scarce as Bitcoin Cash due to its theoretical infinite supply.

Is Bitcoin Cash Halal?

Sharia analysis

When it comes to cryptocurrency in general, our view is that investing in crypto is halal as long as the project itself is halal. We view cryptocurrency as a type of digital asset (with the potential for some to become currencies in their own right).

We find nothing problematic from an Islamic point of view about blockchain technology and cryptocurrency which is a use of blockchain and seeks to profit from it. To learn more about our approach to crypto, check out this article.

You want to avoid projects where:

  • the technology behind the project is intrinsically linked to a haram transaction (e.g. an interest-based loan)
  • the ecosystem they create is so inextricably linked to illicit/immoral activities that it would be inappropriate to support such an ecosystem (e.g. a project focused solely on gambling)

The case for yes and why

Bitcoin Cash is a decentralized payment network similar to Bitcoin except for the increased maximum blocking limit. Bitcoin is a simple cryptocurrency and has been deemed acceptable by many scholars. There is also no overt association between Bitcoin Cash and prohibited activities. Therefore, by extension, Bitcoin Cash is halal due to a similar analysis to BTC.

The case for no and why

If you follow the opinion that crypto is not allowed, then Bitcoin Cash by extension would not be allowed either.

Conclusion

In summary, Bitcoin Cash is a fork of Bitcoin but failed to gain the necessary traction to overtake its predecessor. We are convinced that it is indeed a halal asset and therefore it is permissible for Muslim investors to buy it.


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