Grease and flour an 8x8 baking pan, or spray it with a flour based baking spray (recommended).
Mix flour, sugar, baking powder and salt in a large bowl. Add butter and milk; mix on low speed with an electric hand mixer. Add vanilla and raise speed to medium, beat for 2 minutes.
Reduce speed to medium low and gradually add the egg whites in two additions. Beat at medium speed for 2 minutes. Scrape batter into the prepared pan and smooth the surface with a rubber spatula.
Bake the cake for 35-45 minutes, or until the top is golden brown and a toothpick tester comes out clean. Let cake cool in the pan before turning it out onto a wire rack to cool completely. When cake is cool, place on a cake board or serving platter. Designate the top of the cake and round those two corners using a serrated knife. Carve away cake pieces a little at a time until a bread slice shape is achieved (see pictures).
For the frosting, combine the butter and confectioners' sugar in a large bowl. Beat on medium speed until combined. If frosting is stiff, add milk 1 tablespoon at a time until a spreadable consistency is achieved. Beat at high speed for 2 minutes until fluffy. Spread frosting onto the surface of the cooled cake; leave a 1-inch unfrosted border around the top edge of the cake. Pour sprinkles and nonpareils onto the frosting. Use a pastry brush to sweep away any stray sprinkles or crumbs from around the cake.
Knead the fondant until pliable. Roughly shape it into a rope between your palms, then roll it out flat with a rolling pin. Cut one 16-inch long x 1 1/2-inch wide strip. Re-roll scraps and cut another strip of the same size. Frost the sides of the cake with some of the remaining frosting (you will have leftover frosting) Apply fondant strips to the sides of the cake. Trim away excess with a small plain-edge knife. Store cake loosely covered in plastic wrap.
Adapted from Roses' Heavenly Cakes; Sprinkle Bakes frosting and design
Keyword american buttercream, fairy bread, rainbow sprinkles