CashTokens: native tokens arrive on Bitcoin Cash

Source: ElBitcoin Original Title: CashTokens: Native Tokens Arrive on Bitcoin Cash Original Link: https://elbitcoin.org/cashtokens-tokens-primitivos-para-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 laying the foundation for the 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 underpinned Bitcoin-BTC until 2017, the year when proponents 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 considers this feature non-negotiable.

This feature is not incompatible with incorporating other use cases, as long as integrating them does not jeopardize BCH’s usability as money or the ability to scale its system so more people can adopt it as such.

In this regard, Bitcoin Cash (BCH) has a process to present, debate, and standardize 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 for developing new functions for applications or even the protocol itself.

One feature that has been pursued for years is the ability to transfer other assets via the Bitcoin Cash blockchain. These assets, commonly called “tokens” in the crypto world, are very popular across many crypto ecosystems. They bring extra economic activity to the networks they run on, and when combined with features like the implementation of smart contracts, can be traded on decentralized exchanges or used in 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 (such as sending a very small amount of Bitcoin Cash, for example) that include 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 the attached metadata as a token, the amount transferred, etc.

This idea was implemented on the Bitcoin Cash (BCH) network via several protocols, with the best-known and longest-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 and having to wait for at least 1 confirmation for those transactions to be considered valid. Because of these weaknesses, “colored coins” are a viable alternative for sending and receiving tokens, but do not match the qualities of payments made with the base currency.

New Standard: A Better Model

On May 15, 2023, Bitcoin Cash (BCH) will, through an upgrade, add the ability to transfer tokens without the limitations of “colored coin” protocols, along with other new features. This new feature, technically specified as “CHIP-2022-02,” is called “CashTokens: Token Primitives for Bitcoin Cash.” Simply put, CashTokens represent a superior solution compared to the Simple Ledger Protocol for SLP tokens, standing out in several ways, including:

• Infrastructure supporting “SLP tokens” required running “SLP nodes,” that is, additional software to validate such transactions based on the included metadata. With 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. CashTokens transactions are compatible with 0-conf, so it is reasonable to accept unconfirmed transactions 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 under this standard.

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

CashTokens: Token Primitives

The technical specification for CashTokens features the phrase “Token Primitives for Bitcoin Cash” as its formal name. This expression may be somewhat confusing for Spanish speakers, as it could be (mistakenly) interpreted as 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 does not intend to suggest 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.”

Originally, the article noted that CashTokens (unlike SLP tokens) did not require using two address formats. A correction has been made because the native tokens of Bitcoin Cash (BCH) allow for the use of token-aware addresses that can receive both BCH and CashTokens, and standard format addresses, which only receive BCH. The use of two formats is intended so users do not send tokens to wallets that cannot display these types of assets.