CashTokens: native tokens arrive on Bitcoin Cash

Source: ElBitcoin
Original Title: CashTokens: Native Tokens Arrive on Bitcoin Cash
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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 white paper laying the foundations of this protocol with that very 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 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 jeopardize the ability to use BCH as money or to scale its system so that more people can adopt it as such.

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

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 cryptocurrency world are usually called “tokens,” very popular in many crypto ecosystems, add extra economic activity to the networks they run on, and when combined with features like smart contract implementation, 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 actually implemented on the Bitcoin Cash (BCH) network through several protocols, the most well-known and long-lived 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 for those transactions to be considered valid. Due to these weaknesses, “colored coins” are 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 simple terms, CashTokens represents a superior solution compared to the “Simple Ledger Protocol” of SLP tokens, differing, among other things, in the following characteristics:

• The infrastructure supporting “SLP tokens” required running “SLP nodes,” i.e., additional software to validate such transactions based on the metadata included. In the case of CashTokens, their 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’s reasonable to accept transactions without confirmations for amounts less than $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 of self-custody 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 system maintenance.

CashTokens: Token Primitives

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

However, CashTokens are not only compatible with smart contracts written in the Bitcoin Cash 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.”