Bitcoin (BTC) and Bitcoin Cash (BCH) share similarities that go beyond their names. Bitcoin is the first cryptocurrency to have ever been created and is often seen as digital gold, or “gold 2.0.” The cryptocurrency is treated as a store of value and inflation hedge.
Bitcoin Cash, on the other hand, is a cryptocurrency meant to serve as digital cash, with its supporters trying to ensure that it’s cheap and easy to use. BCH was created through what’s called a hard fork of BTC, which means both assets share a transaction history, common code base and more.
A hard fork is a radical upgrade to the open-source software behind the blockchain of cryptocurrencies like Bitcoin. It occurs when a permanent divergence from a blockchain’s latest version is created and some of the computers running the network no longer meet consensus. This creates a fork on the blockchain, where one side keeps following the old rules and the second side follows a new set of rules.
This is what happened to the Bitcoin blockchain in August 2017. To understand why a portion of the community decided to alter the blockchain in such a way, it’s worth taking a step back and look at Bitcoin’s scaling debate.
The Bitcoin scaling debate
Since its inception, questions surrounding Bitcoin’s ability to scale effectively and become a widespread global currency have been floating around. The cryptocurrency’s use of blockchain technology allows it to be decentralized and censorship-resistant. Still, the novel technology has a significant tradeoff: the volume of transactions that the Bitcoin blockchain can process per second — its transaction throughput.
Payments provider Visa, for example, currently processes 150 million transactions per day, which leads to an average of 1,700 transactions per second. The company says its capability would even allow it to go as far as 24,000 transactions per second.
The Bitcoin blockchain, in its current state, manages to handle around seven transactions per second. The difference is staggering and was understood as the number of users on the network grew since each transaction essentially consists of data.
That data is stored on the blockchain, which can be seen as a chain of blocks of data. Each block on the Bitcoin network is limited to 1 MB of data. As demand on the network grows, a backlog of unconfirmed transactions looking to be included in blocks starts forming.
This backlog had at some points over 100,000 transactions waiting to be confirmed. The way the network determines which transactions go through and which don’t is based on the fee attached to each transaction. The higher the fee, the faster the transaction is processed.
When the network is clogged and competition for the limited space grows, transaction fees surged to the point that one transaction could set a user back as much as $58, pricing some users out of the network.
To solve Bitcoin’s scalability issues, the community split into two major solutions: One was to increase the block size to allow more transactions to fit into each block, while the other was to maintain a 1 MB block size and scale via layer-two solutions.
Both solutions have trade-offs, and the division their proposals created in the community only grew over time as each side started accusing the other of some form of manipulation. The debate ultimately led to the hard fork.
The Bitcoin Cash hard fork
On May 23, 2017, a number of Bitcoin business owners and miners representing over 85% of the computing power securing the network held a meeting behind closed doors to decide the future of BTC. What came out was what’s known as the SegWit2x upgrade.
SegWit2x was designed to help Bitcoin scale by implementing Segregated Witness (SegWit), an upgrade that “segregates” some data outside of the limited block space and adjusts the block sizes to 2 MB, which would be implemented through a hard fork. The proposal was met with opposition from the community as the main codebase of Bitcoin wasn’t represented and it was seen as a centralizing force.
In the scaling debate, those who defended small blocks were against a block size increase, as it would increase the size of the blockchain. They believe this would make it harder to host a full node, potentially centralizing the cryptocurrency and making it more vulnerable. On the other hand, those who supported larger blocks argued for a faster solution, fearing BTC’s rising transaction fees would harm the cryptocurrency’s growth.
The debate ultimately led to a hard fork, as those supporting bigger blocks decided to fork the Bitcoin blockchain on August 1, 2017. The fork created Bitcoin Cash, a cryptocurrency whose supporters saw it as a continuation of Satoshi Nakamoto’s original vision.
How Bitcoin Cash differs from Bitcoin
Over time, the number of differences between Bitcoin and Bitcoin Cash kept growing as developers working on each network had different goals in mind. The difference between both cryptocurrencies became so big they are now seen as completely different assets in the community.
Difficulty adjustment
One of the main differences between Bitcoin and Bitcoin Cash is the difficulty adjustment algorithm added to BCH. Because both networks use the same SHA-256 hashing scheme, Bitcoin miners can move to the Bitcoin Cash network when it becomes more profitable for them to mine on it.
This means that, given the fluctuations in the market, the computing power behind the network can vary wildly. The difficulty adjustment algorithm ensures that blocks are generated at a stable rate every 10 minutes, by either cutting difficulty in half if they are behind schedule, or doubling it if they are ahead of schedule.
Block size differences
The main difference is related to the block size of each network. While Bitcoin maintains its 1 MB block size, with Bitcoin Cash, block sizes have grown to 32 MB. This means that transactions on BCH now cost less than a penny and it can process as many as 200 transactions per second.
Since Bitcoin Cash hasn’t been processing enough transactions to fill up its extra block space, the size of the blockchain hasn’t grown exponentially, as was predicted. Bitcoin SV (BSV) — a cryptocurrency created through a fork of Bitcoin Cash — is looking to raise its block size to 1 TB and the size of its blockchain is now much larger than Bitcoin’s.
Smart contracts and decentralized finance
Bitcoin does not support smart contracts, although work is being done to help build decentralized finance (DeFi) services on top of it, as Square CEO Jack Dorsey revealed. Meanwhile, Bitcoin Cash has started using smart contract languages like Cashscript to enable more complex functions on it.
Cashscript aims to bring DeFi to Bitcoin Cash to help it compete with Bitcoin and Ethereum (ETH). Some of the tools already developed include CashSuffle and CashFusion, meant to improve privacy on the network.
Token issuance
To issue tokens on top of the Bitcoin blockchain, projects have to use the Omni layer, a platform “for creating and trading custom digital assets and currencies.” Omni transactions are Bitcoin transactions with “next-generation features,” but the layer’s adoption has mostly centered around stablecoins.
Bitcoin Cash has, on the other hand, created the Simple Ledger Protocol (SLP). The protocol allows developers to issue tokens on top of BCH, similar to the way tokens are issued on top of the Ethereum blockchain.
Some assets have been issued on both the Omni layer and as SLP tokens. Existing on different blockchains makes it easier for users to choose the network they prefer. The adoption of both solutions has been somewhat lackluster, however.
The SLP protocol also supports nonfungible tokens (NFTs), which are distinguishable from each other. However, their use on BCH has been limited compared to their use on Ethereum or other blockchains.
Replace-by-fee
Replace-by-fee (RBF) is a feature on the Bitcoin network that allows someone to get a transaction that is “stuck” without being processed, replacing that unconfirmed transaction with a different version of it with a higher transaction fee attached.
RBF can be used when transactions need to be processed as fast as possible, but its critics claim it may make it easier for malicious actors to spend the same funds twice. They argue that an attacker can send a transaction with a very small fee as a payment for a good or service using RBF. If the recipient does not wait for enough confirmations on the network, they can then send that same transaction with a higher fee to a wallet that they control.
The network would confirm this second transaction first and drop the transaction paying the merchant for their goods or service. Most versions of RBF require that the transaction include all of the same outputs to prevent this. Moreover, if the recipient waits for a few network confirmations, RBF becomes impossible because the transaction has been confirmed.
Bitcoin Cash has nevertheless dropped this feature, making unconfirmed transactions irreversible on its network. Given its higher transaction throughput, double spending with RBF would nonetheless become a lot harder because transactions are confirmed faster.
Different visions, same monetary policy
Bitcoin Cash was created with an 8 MB block size at the time of the hard fork and has since quadrupled it. The network openly embraces new hard forks and takes steps to innovate as much as possible to increase its usability and be used as cash.
On the other hand, Bitcoin is more careful in pushing out upgrades and is seen more as an inflation hedge and store of value. Its scaling plans have seen the implementation of SegWit and the creation of the Lightning Network.
The Lightning Network essentially creates an extra layer on top of the cryptocurrency’s blockchain where transactions are fast and fees are minuscule. That layer consists of user-generated payment channels. It’s estimated to be able to handle up to 15 million transactions per second, but its adoption has been relatively slow.
Bitcoin has also sought to preserve users’ pseudonymity through upgrades like Taproot, which allows complex transactions including timelock releases or multi-signature components to be seen as simple transactions. With Taproot, a transaction creating a Lightning Network channel or a simple transaction is indistinguishable from one another.
Bitcoin supporters value decentralization and censorship-resistance more than they value a higher transaction throughput. Bitcoin’s role as a store of value is dependent on its ability to thwart attacks from any entity imaginable.
Bitcoin Cash’s vision as peer-to-peer electronic cash depends on its low transaction fees and faster speeds. Some projects built on top of BCH, which include social media platforms where every post is published on the blockchain, would be unfeasible on Bitcoin.
Privacy on Bitcoin Cash is preserved through a different method: coin mixing. Coin mixing sees numerous BCH users’ transactions get bundled together to obscure the origin of users’ coins. This is a controversial practice believed to help cybercriminals hide their tracks.
The monetary policy of both networks remains the same. Only 21 million coins will ever be created on each blockchain, and the issuance of new coins is halved every 210,000 blocks or roughly every four years. The last BTC and BCH are projected to be mined in 2140.
Both cryptocurrencies were designed to protect against monetary confiscation, censorship and devaluation through higher-than-expected inflation. Both blockchains are transparent and publicly accessible and cannot be altered by a single entity.
Bitcoin has long been a byword for cryptocurrency, but many would consider it far from a model. In fact, in 2017, a group of developers proposed changes to how Bitcoin works, and after arguments and counterarguments, there was a fracture — a fork, technically — and Bitcoin Cash was born.
The key differences between Bitcoin and Bitcoin Cash are speed, security and cost. Bitcoin transactions move more slowly because of stricter rules around validation, and their fees are higher. Bitcoin Cash transactions are faster and cost significantly less, but that velocity may also mean more vulnerability.
Why are there two versions of Bitcoin?
Bitcoin was launched in 2009 as a digital currency powered by blockchain technology. Transactions, or “blocks,” are validated by other users on the network through a process called Bitcoin mining. Once a transaction is validated, it is “chained” to previous blocks and becomes a permanent record.
Currencies enable transactions, and that was to be an aspect of Bitcoin as well. (Indeed, the story goes, the first retail transaction involving Bitcoin occurred in 2010, when a Florida man spent 10,000 BTC to have two pizzas delivered to his home.) But as Bitcoin’s popularity grew, it presented some problems for the community, and the biggest revolved around scalability.
Differences in block size, transaction speed
Bitcoin’s protocol placed limits on how transactions are processed. On average, a new one-megabyte block of transaction records is produced every 10 minutes, and each block can contain over a thousand transactions. The Bitcoin network typically processes somewhere between three and seven transactions per second — which might seem pretty fast, but processing systems like Visa can handle upward of 24,000 per second. The fear was that transaction speeds would suffer as Bitcoin became more popular, leading to a loss of users and, ultimately, the network failing.
Bitcoin was built using open-source software, essentially meaning anyone can access, view, or propose changes to the software. In 2017, a group of network developers proposed a code change that would allow for larger block sizes and increased capacity for processing transactions.
Users who opposed this change argued that by increasing the size of each block, the blockchain would be making itself more centralized. Hackers prefer to target networks that handle many transactions simultaneously because it’s harder for security systems to spot anomalies. By handling more transactions, they argued, the network might look more attractive to potential hackers.
While some users agreed with the call to allow faster transactions, the large majority did not. This split within the community prompted those seeking changes to initiate a hard fork — a change to the Bitcoin protocol and rules that effectively forced a split in the blockchain. In this instance, Bitcoin follows the old protocol, while the hard fork created a new chain with its own crypto: Bitcoin Cash.
BTC vs. BCH: Which is better?
Cryptocurrencies are prone to value fluctuations and therefore carry risk. Bitcoin and Bitcoin Cash can be found on most major exchanges, but the high price of Bitcoin might be a barrier to entry for some investors. Bitcoin Cash might be a good option if you’re looking to start small with an investment that, in many ways, is similar to Bitcoin.
However, the difference in philosophies between the two coins should also be a factor. Bitcoin may be a better option for investors looking for a longer-term store of value, while Bitcoin Cash is better suited for those who wish to use crypto as a medium of exchange for day-to-day purchases.
If you’re looking at buying cryptocurrency, it’s important to note that these are not the only two options available. Bitcoin has performed a hard fork more than once, resulting in other cryptocurrencies such as Bitcoin SV and Bitcoin Gold, and there are numerous coins to choose from, each with its stratagem and purpose. So if you’re thinking about buying some crypto, be sure to explore all of your options.
Bitcoin (BTC) remains the most popular cryptocurrency, but it’s not without flaws. Specifically, it allows a relatively low volume of transactions per second, limiting its utility for payments.
Bitcoin Cash (BCH) came into being in 2017 to address this issue, offering a cheaper, faster way to process payments. Since that time, Bitcoin Cash has grown into one of the top 25 coins in the market today.
What Is Bitcoin Cash?
Bitcoin Cash is a cryptocurrency built on the same blockchain as Bitcoin. The coin launched on Aug. 1, 2017 through a so-called “hard fork” of the Bitcoin blockchain.
Some Bitcoin blockchain participants proposed altering the rules to allow Bitcoin to process a greater volume of transactions. Most nodes voted against changing the rules, which resulted in the hard fork, creating two blockchain paths with a common origin: Bitcoin and Bitcoin Cash.
“It felt almost like the fracturing of a religion,” said Henrik Gebbing, co-founder and co-CEO of Finoa, a digital asset custodian. “Miners had to decide which chain to allocate their efforts toward, exchanges had to decide whether or not to support trading of this newly forked currency, and market participants had to decide whether they had any interest in the new currency and what its fair price should be. ”
How Does Bitcoin Cash Work?
Bitcoin Cash uses a larger block size than Bitcoin—blocks are groups of transactions added to the blockchain at the same time.
Bitcoin limits blocks to 1 megabyte (MB), which allows only about seven transactions per second. Bitcoin Cash expanded the block size to 8 MB initially, and later to 32 MB, which allows it to process over 100 transactions per second.
Beyond block size and transaction speed, Bitcoin Cash works very similarly to Bitcoin. It’s an open-source, decentralized digital ledger. Miners confirm and add transactions to the blockchain by using cryptography to solve equations, receiving Bitcoin Cash tokens as reward for their work. They can then sell the coins to others. Bitcoin Cash will only release a total of 21 million coins, just like Bitcoin.
Bitcoin vs. Bitcoin Cash
As noted, the key difference between Bitcoin and Bitcoin Cash is the block size. Because of this adjustment, Bitcoin Cash can have faster and less expensive transactions. A Bitcoin transaction costs $59 on average while Bitcoin Cash costs less than a penny.
The downside to processing everything more quickly though is that it’s potentially less secure than Bitcoin. There are fewer miners needed to process and confirm transactions, which could make it easier for the Bitcoin Cash security to be compromised.
“Bitcoin cash would be better for something like a cup of coffee, while a larger purchase, such as a car or house, may warrant a slower and more secure cryptocurrency like Bitcoin,” said Daniel R. Hill, president of Hill Wealth Strategies in Virginia.
Another difference is market size. As of writing, Bitcoin Cash has a total market capitalization of around $7.1 billion. This is a fraction of Bitcoin’s $881 billion market cap.
Advantages of Bitcoin Cash
- Faster, less expensive transactions. With a transaction cost of less than one penny and the potential to process over 100 transactions per second, Bitcoin Cash could be a viable payment platform. Still, the Visa network processes 2,000 transactions per second, so Bitcoin Cash still has a way to go.
- More scalable than Bitcoin. Bitcoin Cash’s larger blocks allow for a blockchain with increased scalability, resulting in lower fees for users and therefore making it more transactable.
- Decentralized money. For those worried about too much centralized control in the financial system from banks and central governments, Bitcoin Cash offers a currency-like system that is decentralized and not controlled by any one entity.
- Accessibility. Of the thousands of cryptocurrencies out there, Bitcoin Cash is one of the more popular and can be purchased through most major exchanges, unlike lesser-known competitors. The BCH/USD price is only about $370 per coin, so it’s also more affordable than trying to buy a single Bitcoin.
Disadvantages of Bitcoin Cash
- Relatively low rate of adoption. “While most of the debate has focused on such technological debates around processing times and security, I think there is one big factor overlooked but perhaps most important with emerging technologies: adoption,” said Russell Star, head of capital markets at DeFi Technologies. “The success of any type of network, currency or technology depends on the users using it.” With fewer people using Bitcoin Cash than Bitcoin, it may struggle to grow as an accepted investment or medium of exchange.
- Weaker security. Bitcoin Cash processes transactions more quickly and at a lower cost than Bitcoin because it requires less mining power to verify new blocks. This makes the system less secure than Bitcoin.
- Branding trouble. After the fork, there was a battle to see which coin would become more popular. Bitcoin has been the clear winner, which makes it hard for Bitcoin Cash to distinguish itself, especially since they share such a similar name.
- Environmental impact. Bitcoin Cash still uses a blockchain proof of work system, where miners must run computers to solve cryptographic equations to process transactions, something that uses considerable energy. Even though Bitcoin Cash uses less electricity than Bitcoin, this system still comes at a high environmental cost.
How to Buy Bitcoin Cash
Bitcoin Cash is widely available on major cryptocurrency exchanges like Coinbase and Kraken. You set up an account, deposit cash, and then use that to buy cryptocurrencies like Bitcoin Cash. You could also buy Bitcoin Cash on platforms like PayPal.
Once you’re purchased Bitcoin Cash, hold your coins as an investment in a crypto wallet, exchange them for other coins, or use them for transactions.
Note that Bitcoin Cash has run into some issues due to branding trouble. For example, the crypto exchange OKCoin delisted Bitcoin Cash in early 2021 because they thought it might confuse investors offering both Bitcoin Cash and Bitcoin on the same system.
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