CashTokens: native tokens arrive on Bitcoin Cash

CashTokens: Native Tokens Come to Bitcoin Cash

Introduction and Background

At the end of 2008, the idea of Bitcoin was presented as “a peer-to-peer electronic cash system.” In fact, Satoshi Nakamoto titled the whitepaper that laid the foundation for the protocol with that phrase. In Satoshi’s own words, electronic cash means direct payments between people “without having to go through a financial institution,” a premise that served as the foundation for Bitcoin-BTC until 2017, the year when supporters of “Bitcoin as cash” had to migrate to a separate network called Bitcoin Cash (BCH)—“Bitcoin Cash” in English. Thus, the concept of digital money is the starting point of all Bitcoin technology, especially in the case of BCH, which claims this feature as non-negotiable.

This feature is not incompatible with the incorporation of other use cases, as long as their integration does not endanger the ability to use BCH as money or to scale its system so that more and more people can adopt it as such.

In this sense, Bitcoin Cash (BCH) has a process for presenting, debating, and standardizing ideas called “CHIP” (acronym for: Cash Improvement Proposals), which, similar to Bitcoin-BTC’s “BIP” or “Bitcoin Improvement Proposals,” allows the community to discuss and evaluate the suitability of ideas to develop for adding new features to applications, and even to the protocol on which the currency runs.

One of the features that has been pursued for years is the ability to transfer other assets through the Bitcoin Cash blockchain. Assets that in the world of cryptocurrencies are usually called “tokens,” which are very popular in many crypto ecosystems, provide extra economic activity to the networks they run on, and when coupled with functionalities like the ability to implement smart contracts, can be traded on decentralized exchanges or used on DeFi platforms.

When BCH had just split from BTC, there were several proposals to incorporate tokens based on the concept of “colored coins,” which refers to transactions (the sending of a very small amount of Bitcoin Cash, for example) that contain metadata to transfer a token. In other words, it consists of using BCH transactions as a vehicle for other assets, requiring a protocol that can interpret those attached metadata as a token, the amount transferred, etc.

This idea was implemented on the Bitcoin Cash (BCH) network through various protocols, the most well-known and long-standing being the “Simple Ledger Protocol” or “SLP tokens.”

However, the “colored coins” model has certain limitations, such as the need to run additional software to validate the information they contain, as well as having to wait at least 1 confirmation to validate such transactions. Due to these weaknesses, “colored coins” represent a viable alternative for sending and receiving tokens but do not match the qualities of payments with the base currency.

New Standard: A Better Model

On May 15, 2023, Bitcoin Cash (BCH) will incorporate, through an upgrade, among other new features, the ability to transfer tokens without the limitations imposed by “colored coins” protocols. This new feature, whose technical specification has been assigned the identifier “CHIP-2022-02,” is called “CashTokens: Token Primitives for Bitcoin Cash.” In plain terms, CashTokens represents a superior solution compared to the SLP token “Simple Ledger Protocol,” differing among other things in the following characteristics:

• The infrastructure supporting “SLP tokens” required running “SLP nodes,” meaning additional software to validate those types of transactions based on the metadata included within them. In the case of CashTokens, support only requires a Bitcoin Cash node, so miners and full node operators can attest to their validity.
• SLP token transactions are not compatible with 0-conf, so it can be risky to accept transactions without waiting for the first confirmation. Transactions with CashTokens are compatible with 0-conf, so it is reasonable to accept transactions without confirmations for amounts under $200.
• Although the Bitcoin Cash network is based on the “UTXO” model, SLP token transactions are verified using the “DAG” model. CashTokens transactions are based on the UTXO model, which provides greater efficiency in validating transactions of this standard.

These advantages, among many others, allow CashTokens to provide a better user experience and reduce friction in expanding compatibility for self-custodial wallets and trading platforms with sending and storing tokens. On the other hand, transactions with CashTokens pay fees to miners denominated in Bitcoin Cash, so their eventual popularization will contribute to system maintenance.

CashTokens: Token Primitives

The CashTokens technical specification features the term “Token Primitives for Bitcoin Cash” as its formal name. This expression can be a bit confusing for a Spanish-speaking audience, since one might (mistakenly) think it refers to something “primitive,” unsophisticated, or limited in its compatibility with DeFi.

However, CashTokens are not only compatible with smart contracts written in Bitcoin Cash’s scripting language, but the term does not seek to evoke simplicity. The expression “primitives” in this context refers to a fundamental function of a protocol—a native function of the protocol—so a much clearer translation of the concept could be “Native Tokens for Bitcoin Cash.”

Update: Originally, the article stated that CashTokens (unlike SLP tokens) did not require the use of two address formats. A correction has been added because the native Bitcoin Cash (BCH) tokens allow the use of token-aware addresses (token-aware) which can receive both BCH and CashTokens, and normal format addresses, which only receive BCH. The use of two formats is intended to prevent users from sending tokens to wallets that do not reflect this type of asset. On the other hand, the translation of token primitives as primitive tokens has been corrected. The correct translation is token primitives or, alternatively, to convey the same idea, native tokens.