CashTokens: native tokens arrive on Bitcoin Cash

Source: ElBitcoin Original Title: CashTokens: Native Tokens Arrive on Bitcoin Cash Original Link:

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 laying the foundation of this protocol with that phrase. In Satoshi’s own words, electronic cash means direct payments between people “without going 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 for all Bitcoin technology, especially for BCH, which claims this quality as non-negotiable.

This quality is not incompatible with incorporating other use cases, as long as integrating them does not jeopardize 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 regard, Bitcoin Cash (BCH) has a process for proposing, debating, and standardizing ideas called “CHIP” (short for: Cash Improvement Proposals) which, similar to “BIP” or “Bitcoin Improvement Proposals” for Bitcoin-BTC, allows the community to discuss and evaluate the suitability of ideas to be developed to add new features to applications, and even to the protocol the currency runs on.

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

When BCH had just separated 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 several protocols, the most well-known and long-lasting 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 for at least 1 confirmation to consider such transactions valid. Due to these weaknesses, “colored coins” represent a viable alternative for sending and receiving tokens, but without matching 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 of “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 “Simple Ledger Protocol” of SLP tokens, differing among other things by the following characteristics:

• The infrastructure supporting “SLP tokens” required running “SLP nodes,” that is, additional software to validate such transactions based on the metadata included in 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 0-conf compatible, so it can be risky to accept transactions without waiting for the first confirmation. Transactions with CashTokens are 0-conf compatible, 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 means greater efficiency when validating transactions of this standard.

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

CashTokens: Token Primitives

In the technical specification of CashTokens, the phrase “Token Primitives for Bitcoin Cash” appears as the formal name. This phrase may be a bit confusing for a Spanish-speaking audience since it can be (mistakenly) thought to refer to something “primitive,” unsophisticated, or limited in its compatibility with DeFi.

However, CashTokens is not only compatible with smart contracts written in Bitcoin Cash’s scripting language, but the term is not meant to evoke simplicity. The term “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.”

Note: The article originally stated that CashTokens (unlike SLP tokens) did not require the use of two address formats. A correction has been included because Bitcoin Cash’s native tokens (BCH) allow the use of token-aware addresses that can receive both BCH and CashTokens, and regular format addresses that only receive BCH. The use of two formats is intended to prevent users from sending tokens to wallets that do not support such assets. On the other hand, the translation of “token primitives” as “primitivos de token” has been corrected. The proper translation is “primitivas de token,” or alternatively, to convey the same idea, “native tokens.”