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21 July 2023 6 min read
6 min read
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IFG Staff Writers
Bitcoin Cash is a cryptocurrency that aims to be both a store of value and an accessible everyday payment network. It is a spinoff of Bitcoin, with the difference being that Bitcoin Cash has a larger block size, allowing it to process more transactions and have lower transaction fees. As it is a spinoff of Bitcoin which is seen by many scholars to be halal, we believe Bitcoin Cash would also be halal by extension. Read on for a much deeper dive into Bitcoin Cash itself and the Islamic views on it.
Bitcoin Cash is a decentralized digital currency that aims to be ‘a low fee, peer-to-peer electronic global cash system’. The network aims to be fast and cheap to be accessible for all.
In 2017, the bitcoin community including developers, investors, users, and businesses were divided on the future of bitcoin. Some believed that bitcoin needed to have a larger network capacity to fulfil what they saw as Bitcoin’s original purpose ‘a low fee, peer-to-peer electronic cash system’.
The rest believed that the network capacity should remain the same. As a result of this deadlock, Bitcoin was forked into Bitcoin Cash by those who supported a larger network capacity. They did this by increasing the maximum block size to 32MB compared to bitcoin’s original 1MB.
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 win the right to certify blocks of transactions and obtain a block reward of tokens in the process as well as the transaction fees.
Bitcoin Cash is similar to Bitcoin in all aspects bar one, its block size. Bitcoin Cash has a maximum block size of 32MB compared to Bitcoin’s 1MB. This theoretically allows it to process more transactions. Which in turn lowers the transaction fees as there is less competition to get your transactions into a block.
Its two main use cases are to be a digital store of value and facilitate fast and cheap payments across the internet.
Bitcoin Cash also has some secondary functionalities which include:
However, these functionalities are yet to take off.
Yes at the time of writing, there have been ~ 58k transactions on the Bitcoin Cash network over the last 24 hours with an average transaction value of 10.58 BCH ($2,550). This is significantly less than Bitcoin’s ~277k daily recorded transactions over the same period.
Bitcoin Cash (BCH) is one of the most established cryptocurrencies and currently is the 23rd largest cryptocurrency by market cap. BCH can be bought from most exchanges including Coinbase and Binance.
Its price reached an all-time high of $4,355.62 in Dec 2017. However, it has yet to reach those heights again, hitting a peak of $1,635 in May 2021 and is currently trading around $240 at the time of writing.
This is in contrast to Bitcoin which is trading at $32k and reached 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 quickly losing relevance.
The ratio of BTC to BCH was 5 when Bitcoin Cash forked and it now trades at 132. This shows that Bitcoin has won the store of value argument. There are also faster and cheaper alternatives to Bitcoin Cash out there that threaten its market position which we’ll cover below.
The original Bitcoin has vastly outperformed Bitcoin Cash since its fork, showing that the market has selected 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 is working to scale up Bitcoin’s transaction processing capabilities as well as offering low fees. These developments could make Bitcoin Cash obsolete.
Another fork of bitcoin, Litecoin took a different approach to scale payments. Instead of increasing the block size, litecoin reduced the time taken to generate a new block (from 10 minutes to 2.5). Litecoin also has greater adoption rates with twice the number of daily transactions as Bitcoin Cash (123k vs 58k).
Dogecoin is an open-source, decentralized, peer-to-peer cryptocurrency. Doge has been made famous by Internet meme culture and backed by none other than Elon Musk.
Initially started as a joke to poke fun at other cryptos, Doge has begun to see some mainstream adoption so could theoretically go on to become a genuine contender to Bitcoin Cash. However, Doge is not as scarce as Bitcoin Cash due to its theoretical infinite supply.
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 see cryptocurrency as a type of digital asset (with the potential for some to become fully-fledged currencies).
We don’t find there to be anything problematic from an Islamic perspective about blockchain technology, and cryptocurrency which is a use of blockchain and seeking to profit from it. For more on our approach to crypto, check out this article.
You want to avoid projects where:
Bitcoin Cash is a decentralised payment network akin to Bitcoin except for the increased maximum block limit. Bitcoin is a straightforward cryptocurrency and has been deemed permissible by many scholars. There is also no overt association between Bitcoin Cash and impermissible activities. Therefore, by extension, Bitcoin Cash is halal due to a similar analysis to BTC.
If you follow the opinion that crypto isn’t permissible, then Bitcoin Cash by extension would also not be permissible.
In summary, Bitcoin Cash is a fork of Bitcoin but has failed to garner the necessary traction to overtake its predecessor. We are satisfied that it is indeed a halal asset and thus permissible for Muslim investors to buy.