CashTokens: native tokens arrive on 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 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, 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 of Bitcoin’s technology, especially in the case of BCH, which claims this quality as non-negotiable.

This quality is not incompatible with the incorporation of other use cases, as long as integrating them does not put at risk 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 proposing, debating, and standardizing ideas called “CHIP” (short for: Cash Improvement Proposals) which, similar to “BIP” or “Bitcoin Improvement Proposals” in Bitcoin-BTC, allows the community to discuss and evaluate the suitability of ideas to develop for adding new features to applications, and even to the protocol that 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 that, in the world of cryptocurrencies, are usually called “tokens,” are very popular in many crypto ecosystems, bringing extra economic activity to the networks they run on. Accompanied by features such as the ability to implement smart contracts, these tokens can be exchanged 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 (for example, sending a very small amount of Bitcoin Cash) 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 eventually 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 validate those transactions. 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 imposed by “colored coin” protocols. This new feature, whose technical specification has been assigned the identifier “CHIP-2022-02,” is called “CashTokens: token primitives for Bitcoin Cash.” In simple terms, CashTokens represents a superior solution compared to the “Simple Ledger Protocol” of SLP tokens, differing, among other things, by the following features:

• The infrastructure supporting “SLP tokens” required running “SLP nodes,” i.e., 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 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 under $200 without confirmations.
• Although the Bitcoin Cash network is based on the “UTXO” model, SLP token transactions are verified through 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 the compatibility of self-custody wallets and trading platforms with the sending and storing of tokens. On the other hand, transactions with CashTokens pay fees to miners denominated in Bitcoin Cash, so eventual popularization will contribute to system maintenance.

CashTokens: Token Primitives

In the CashTokens technical specification, the expression “Token Primitives for Bitcoin Cash” appears as the formal name. This expression can be a bit confusing for a Spanish-speaking audience, since it could 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 isn’t meant 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.”