If you’re just starting to invest in digital currency, chances are you went ahead and bought some Bitcoin or are planning to start there. Naturally, your next step would be to check out the other top cryptocurrencies and which have the largest market cap.
In the cryptocurrency market, you find Bitcoin at the top, then slightly well-known Ethereum, Ripple, then ... wait, what, Bitcoin Cash?! What’s the difference between Bitcoin and Bitcoin Cash?
Many new digital currency investors might be confused by the two Bitcoin cryptocurrencies and which one they should be buying. We’re here to clear up the confusion, explain the tokens’ differences, and outline the pros and cons of each to give you the best understanding when evaluating the two in the largest cryptocurrency exchange.
What is Bitcoin Cash?
In simple terms, Bitcoin Cash is another version of Bitcoin. The two tokens are not synonymous, but Bitcoin Cash is an alternative cryptocurrency created to solve Bitcoin’s scalability issues. You might recall our previous discussion about Litecoin, and how it was a ‘fork’ from Bitcoin’s software. Bitcoin Cash is similar and is the result of a different Bitcoin fork in August 2017.
At a basic level, Bitcoin Cash allows for more transactions to be processed in every block on the blockchain technology. Each block size is 8MB compared to Bitcoin’s 1MB, meaning a much higher number of transactions can be processed per second on the Bitcoin Cash blockchain. The resulting effects: quicker and cheaper transaction times for Bitcoin Cash.
To understand the purpose and scope of Bitcoin Cash, it’s important to touch on the specific scalability issues with Bitcoin and explain how Bitcoin Cash aims to solve them.
Bitcoin’s recent rise in popularity has created a lot of buzz about the software’s ability to handle the massive influx of new transactions. The scalability issues with the Bitcoin blockchain refer to the limited amount of transactions it can process due to the hard-capped size and frequency of new blocks added to the ledger.
As mentioned above, each block added to the Bitcoin blockchain is limited to 1MB. The ensuing bottleneck in the market leads to higher transaction fees and longer processing times as the demand for transactions goes up. Many people in the Bitcoin community have raised questions over the block size and proposed alternate solutions.
However, the small block size exists for a reason. Bitcoin’s blockchain ledger is distributed to each user on the network, requiring those users to download and store a copy of the entire ledger on their computer. If block sizes were larger, the overall size of the ledger could be massive and infeasible for a majority of users due to computing and bandwidth constraints.
Proponents of the current Bitcoin methodology raise their own concern over the possible ramifications of expanding the block size and allowing unlimited transactions. In that case, there would only be a few organizations capable of handling that level of processing power to compute thousands of transactions per second, effectively creating a centralized cryptocurrency mining network, which is counter towards Bitcoin’s core objective of a decentralized point of control.
Because there is much greater demand for Bitcoin transactions than there is block space to hold them all, Bitcoin Cash advocates proposed a larger block size, which we know from above is 8MB. In theory, that would be large enough to handle many more transactions per second, while still allowing new users a reasonably-sized ledger to download and store.
There is not much difference between Bitcoin and Bitcoin Cash. They share the same characteristics of a distributed, immutable ledger creating a reliable and sustainable record of transactions. The defining factor to separate Bitcoin Cash from Bitcoin is the block size and the subsequent impact that has on the mining and transactional process.
Knowing that Bitcoin Cash is very similar to Bitcoin, you’re probably wondering how Bitcoin Cash can simply be created from the Bitcoin blockchain and how these ‘forks’ we have been discussing come about.
A Fork in the Bitcoin Road
For years now, part of the Bitcoin market has continually pointed to the inevitable issues with network scalability. Various proposals have been tossed around to more effectively scale cryptocurrency, many of which pushed for an increase in block size to accommodate the rapidly growing user base. That’s what led to the creation of Litecoin, and what ultimately drove the community to develop Bitcoin Cash last year.
Among the pressure to change block sizes, a majority of miners were opposed to the idea because it would effectively lower overall transaction fees and discourage mining. If miners started dropping off, the security of a decentralized market would be in jeopardy. And again, increasing block sizes would result in a substantially larger blockchain, creating a barrier for the average user in terms of bandwidth and computing requirements.
So what ultimately happened was the two opposing parties decided to part ways with a ‘hard fork’ on the Bitcoin blockchain. A hard fork splits the blockchain into two separate chains at a predetermined point, which in this case was August 1, 2017. Prior to the fork date, both blockchains share the same ledger and transactional history. However, each block since that date is unique to each blockchain. Bitcoin continues its journey using the 1MB block limit, while Bitcoin Cash has its own blockchain with 8MB block limits.
Because they are different blockchains, and therefore different cryptocurrencies, Bitcoin Cash is a completely separate token and trades at its own exchange rate. Now the question is, how can Bitcoin Cash perform next to the dominant Bitcoin and other competing cryptocurrencies like Litecoin.
What is the Future of Bitcoin Cash?
The real variable that will determine the success of Bitcoin Cash might be the miners. With two separate blockchains, there is competition for mining power to process transactions. When the fork happened, miners had to decide whether they would switch over and mine Bitcoin Cash, or stick with the old reliable Bitcoin network. As the community grew in the first few weeks of August, mining Bitcoin Cash increasingly became a profitable activity, causing a wave of miners to make the switch.
In terms of performance, Bitcoin Cash has become less appealing to investors due to recent negative changes. Despite the segment which aired on CNBC, in which the cryptocurrency was featured, it has seen a 10% dip in price. Q2 of 2018 saw most major cryptocurrencies undergo bearish runs of up to 5% loss in value on the weekly price charts. However, Bitcoin Cash saw the most dramatic decrease of all the major coins. The price of the coin dipped from a $1,301.55 high to $1,233.70 on the 21st of May, 2018 and fell further to $820.90 by the end of July, 2018. This dip was unexpected as the coin’s earlier performance hinted at a steady rise.
Another factor that has made Bitcoin Cash less appealing is the fact that several high profile personalities in the cryptocurrency ecosystem have shown distrust towards it, due to its recent behaviour.
One of such personalities is Charles Hayter, Co-founder and CEO of CryptoCompare, who described the cryptocurrency as “all standard noise”. Jeff Koyen, CEO of 360 Blockchain USA also voiced negative sentiments and compared the coin to Ripple, calling it one of the most controversial coins in the cryptocurrency industry.
Another personality who showed his distrust for the coin is Marshal Swatt, founder of Swatt Exchange. Swatt predicted that the Bitcoin Cash decline may be due to the discussion concerning developer rewards at the recent Bitcoin Cash miners meet. The negative sentiments expressed by these experts and many others within the space has led to further decline in the price of the cryptocurrency.
The Bitcoin vs Bitcoin Cash situation is very similar to the Bitcoin vs Litecoin scenario. If Bitcoin continues to struggle and can’t overcome the mounting scalability concerns, alternate cryptocurrencies like Bitcoin Cash are ready at the helm. The question about which cryptocurrency is better is entirely dependent on how the crypto markets and mining efforts develop moving forward.
Bitcoin Cash certainly has its advantages with quicker, cheaper transactions. However, the issues that were raised about expanding bitcoin’s block size and creating a more centralized mining environment also apply to Bitcoin Cash. If the blockchain ledger becomes too burdensome, it could have ripple effects throughout the mining market and cryptocurrency.