One of the most popular cryptocurrencies out there is Bitcoin. It’s well-known, has the largest market cap of cryptocurrencies, and is also the most widely used and accepted. However, Bitcoin isn’t the only cryptocurrency to use similar technology. A few years ago, developers created Bitcoin Cash as a fork from the main Bitcoin blockchain. Here’s what you need to know about Bitcoin vs Bitcoin Cash.
Table of Contents
What is Bitcoin (BTC)?
As we have already covered this subject in several posts before (See: What Is Bitcoin & How Does It Work?) We’ll recap and run through most terms for it here.
BTC is a cryptocurrency that was launched in 2009. In the Bitcoin white paper, Satoshi Nakamoto (BTC’s creator) mentioned that his vision with BTC was to give the world a P2P version of transmitting electronic cash without any financial intermediaries. So far, BTC’s journey has been remarkable, but it’s had a rocky path on its way up.
Despite it not being legal tender in most parts of the world (the exemption being El Salvador), Bitcoin became very popular and was trending with a great number of people showing interest in the blockchain sector.
It has triggered the launch of hundreds of other cryptocurrencies like Ethereum, Dogecoin and Litecoin – all collectively referred to as altcoins. Bitcoin is commonly abbreviated as “BTC”.
Though at the top of the crypto-verse, Bitcoin isn’t easy to transact. On top of the usual concerns about volatility, the Bitcoin blockchain processes transactions rather slowly. This is why Bitcoin’s original purpose seems to have been sidelined. At this point, most people are putting money into BTC in hopes of capital appreciation (As it retains a store of value), just like other capital assets like gold.
A group of Bitcoin miners set out to bring BTC’s purpose back to the blockchain by improving its transaction processing speed. This is where a new cryptocurrency was the answer to this very question… Bitcoin Cash (BCH) comes into the scene.
What is Bitcoin Cash (BCH)?
Bitcoin Cash emerged as a hard fork from the Bitcoin blockchain in 2017. BTC miners that held 85% of the computing power met on May 23, 2017, to chalk out the path for the SegWit2x upgrade, which was aimed at helping Bitcoin scale by segregating data outside of BTC’s block size to 8MB.
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.
Bitcoin: Pros & Cons
We’ve done something similar explaining Bitcoin in our Ethereum Vs Bitcoin post (It’s a very good read)
In a sense, investors view bitcoin the same as gold. However, unlike gold, bitcoin is not backed by any physical commodity and can therefore lead to bigger swings in value. It’s virtually impossible to break Bitcoin’s source code and manipulate the currency’s supply.
Although it was preceded by other virtual currencies, Bitcoin is known as the first modern cryptocurrency and is an official currency in El Salvador. That’s because Bitcoin is the first to blend certain key features shared by most subsequently created cryptocurrencies. So now let’s explore those pros and cons.
Potentially high returns – Bitcoin tends to peak at extremely high prices.
Security – You always know where your bitcoin comes from and where it goes.
Very accessible – Cryptocurrency exchanges like Coinbase make it easy to start to buy Bitcoin.
Very liquid – As the most traded digital currency, It’s easy to cash out and sell your bitcoin if you need capital.
Independence From Central Authority – Bitcoin is a decentralized currency, meaning it’s not regulated by a single government or central bank. This means that authorities will likely not freeze and demand your coins.
Unregulated – The use of bitcoin itself is unregulated, leaving you legally unprotected should anything go wrong.
Huge amounts of energy to mine – Bitcoin uses more electricity than the entire country of the Philippines.
Limited practical use – You cannot use your bitcoin to buy things (Unless you live in El Salvador). It must be converted to regular money first.
Extremely volatile – Bitcoin prices can drop very quickly and reach very low prices.
Now let’s take a look at the pros and cons of Bitcoin Cash.
Bitcoin Cash: Pros & Cons
Bitcoin Cash was designed to help the original Bitcoin resolve its scaling problems and improve its speed and effectiveness. Bitcoin Cash’s blocks were designed to be eight times (8 MB) larger than Bitcoin’s (1 MB) and were then further increased to 32 MB per block.
In contrast, Bitcoin has blocks of 1 MB, which aims to improve security instead of speed. The problem is that Bitcoin processes only about seven transactions per second, with 1-MB blocks added every 10 minutes.
The last block that Bitcoin and Bitcoin Cash shared was Block 478558. From that point onwards, they have been different projects.
Bitcoin Cash Pros
Decentralized – Bitcoin Cash’s value lies in the fact that the network is decentralized, eliminating the need for central banks and taking monetary supply out of the hands of authorities.
Scalable – As of November 2020, Bitcoin Cash has a block size of 32 MB. High scalability means that Bitcoin Cash’s future potential for adoption is also high.
Efficient – With much larger blocks than Bitcoin, Bitcoin Cash can record more transactions in each block and make payments faster and at lower costs compared to Bitcoin.
Low Transaction Costs – The average transaction is $0.008306. In comparison, the average transaction fee for Bitcoin is $1.79.
Highly Popular – Bitcoin Cash was the 11th most traded cryptocurrency, with a 24-hour trade volume of $1.32 billion in mid-2021.
Bitcoin Cash Cons
Branding Issues – Bitcoin Cash is struggling to distinguish itself from Bitcoin and has also had several splits itself with Bitcoin SV.
Lower Liquidity Than BTC – BCH has lower liquidity compared to BTC, with BCH pairs being traded less than BTC pairs – a drawback that may affect future prices and mass adoption.
Mining Is Less Profitable – Bitcoin Cash mining is highly similar to Bitcoin mining but the main difference is that Bitcoin Cash miners get less profit, which may affect their motivation to continue.
Not As Highly Valued As Bitcoin – While Bitcoin Cash arguably does a better job at being Bitcoin than Bitcoin does in that it facilitates transactions cheaply and quickly, Bitcoin has become the digital equivalent of gold.
Now let’s move on to the key differences between two bitcoins.
Difference #1: Block Size
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.
The Bitcoin block size limit is a parameter in the Bitcoin protocol that limits the size of Bitcoin blocks, and, therefore, the number of transactions that can be confirmed on the network approximately every 10 minutes. Although Bitcoin launched without this parameter, Satoshi Nakamoto added a 1-megabyte block size limit back when he was still the lead developer of the project. This translated into about three to seven transactions per second, depending on the size of transactions.
The maximum block size of Bitcoin Cash is 32MB compared to Bitcoin’s 1MB. This makes it more scalable, and able to carry out more transactions per second, reducing its environmental impact, and increasing its viability as a currency, in theory. On its website, Bitcoin Cash claims that it has the capacity to process as many as 200 transactions per second, thereby also reducing the cost of transactions.
Difference #2: Issuing Tokens
Token issuance is one of the most important processes in the world of blockchain technology and cryptocurrencies. Essentially, token issuance is the process of creating new tokens that are then added to the total supply of the cryptocurrency.
Depending on the blockchain and cryptocurrency, token issuance may take different forms. Usually, token issuance is regulated by complex algorithmic calculations that determine the number of tokens necessary for the blockchain ecosystem to function properly.
The total supply of tokens for Bitcoin and Bitcoin Cash is different. The amount of tokens comprising the total supply is also calculated through complex algorithmic functions.
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 centred 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. 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.
Difference #3: Transaction Speed
Transaction speed is the rate at which data is transferred from one account to another. The faster a transaction is confirmed, the better the transaction speed is said to be. The transaction speed of a blockchain is one of the prime parameters through which viability of a blockchain is gauged. Transaction speed in turn hinges upon numerous other factors like block size, block time, traffic on the network, transaction fees, etc.
You know that Bitcoin’s transaction processing speed is relatively slow; let’s talk about how slow. For context, think of credit cards or Visa Inc. The company processes roughly 150 million transactions every day, which translates to about 1,700 each second. This is just its utilized capacity, though. The company’s actual capacity is a whopping 65,000 transactions a second. BTC’s transaction processing speed is close to 7 transactions per second.
The primary reason for the fork of Bitcoin was to increase the number of transactions that could take place each second, which is reflected in BCH’s increased block size. In addition, developers took measures to reduce the total amount of data that needed to be verified in each transaction, which further sped up the process of faster transactions.
BCH’s transaction speed is a significant improvement at about 200 transactions per second, but still inferior to Visa’s. However, BCH does charge lower transaction fees.
Difference #4: Transaction Costs
Bitcoin Cash’s larger block size makes the block space a lot less competitive and helps reduce transaction costs dramatically. Transacting BTC could set you back roughly $3 every time. In the past, BTC transaction fees have gone as high as $60 per transaction. In comparison, BCH’s highest transaction fee until now hasn’t crossed $1 and hovers around 28 cents (at the time of writing).
The Transaction cost with Bitcoin is based on the data volume of a transaction and the congestion of the network. A block can contain a maximum of 4 MB of data, so there is a limit to how many transactions can be processed in one block. A larger transaction will take up more block data. Thus, larger transactions typically pay fees on a per-byte basis.
Bitcoin transaction fees have spiked as high as $60, according to Coindesk. And bitcoin cash’s transaction fee is currently just $0.28, according to BitInfoCharts. Transaction fees apply any time you transfer coins, either to someone else as a payment or to your own wallet
BCH also does away with the RBF (replace-by-fee) feature. RBF involves replacing a transaction that’s stuck as unconfirmed on the blockchain with a different version of the same transaction—and a higher fee to go with it.
Difference #5: Smart Contracts
Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss.
They can also automate a workflow, triggering the next action when conditions are met. Both Bitcoin and Bitcoin Cash have recently started to implement smart contracts within their blockchains
The enhancement to the bitcoin network was implemented in 2021 called Taproot. It was the most significant change to the bitcoin protocol since the SegWit (Segregated Witness) in 2017.
This allows smart contracts to be created both on Bitcoin’s core protocol layer and on the Lightning Network, a payments platform built on Bitcoin, which enables instant transactions. Smart contracts executed on the Lightning Network typically lead to faster and less costly transactions.
BCH has already made a move with smart contract languages such as Cashscript. Cashscript allows writing cash contracts in a more straightforward way. It’s essentially BCH’s ticket to face-off with BTC and ETH on the DeFi front.
Another way to create smart contracts (and issue tokens) on BCH is with the Wormhole protocol. The Omni Layer protocol also makes it possible to issue BCH tokens and create NFTs, similarly to the ERC-721 and ERC-777 standards.
Now Over to You
Bitcoin and Bitcoin Cash are two separate cryptocurrencies. Bitcoin Cash was created thanks to a hard fork of the Bitcoin blockchain in 2017, and it was designed with the capacity for a much larger block size than Bitcoin’s, with the hope that bigger blocks with the capacity for more data would speed up transaction times.
While this is still a possibility, Bitcoin Cash has not dramatically improved upon the Bitcoin protocol and remains the 24th largest crypto by market cap — far behind Bitcoin’s place at number one. Of course, the size and popularity of different types of crypto can change by the day.
We hope you enjoyed this edition of the knowledge crunch blog just as much as we enjoy writing them! Stay tuned for more and be sure to check out our other helpful blogs with advice and tips to reach your investment goals with ZuluTrade.
Disclaimer: The views expressed do not constitute investment or any other advice/recommendation/suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in this article do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number is a result of a past performance which does not constitute a promise or a certainty for a future one.