Bitcoin (BTC) and Bitcoin Cash (BCH), though similar in connotation, differ primarily in terms of scalability and transaction costs.
This article takes a much deeper dive into Bitcoin vs. Bitcoin Cash.
BTC and BCH are both cryptocurrencies, but both (at least effectively) play a different role in the crypto-verse. BCH was forked through BTC in 2017 in an attempt to stay true to BTC’s original intention of acting as a quick mode of transferring cash electronically.
Let’s look at the lay of the land to understand why BCH was forked out of Bitcoin and the Bitcoin vs. Bitcoin Cash conundrum.
What is Bitcoin?
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.
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, 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 BCH comes into the scene.
What is Bitcoin Cash?
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.
The proposal divided the BTC community into those who supported a larger block size to keep increasing transaction fees under check and opposers who expressed concerns regarding the difficulty in hosting a full node and centralization.
On August 1, 2017, those in favor of a larger block size forked the Bitcoin blockchain to create a new cryptocurrency, Bitcoin Cash. BCH’s maximum block size was subsequently increased four times to 32MB in 2018, though the actual block size is much smaller.
Bitcoin vs. Bitcoin Cash
Both BTC and BCH use a proof-of-stake mechanism that requires miners to mine blocks for confirming transactions on the blockchain in exchange for coins.
Both coins also use a DAA (Difficulty Adjustment Algorithm). The network difficulty for BTC is adjusted every 14 days (or after every 2016 blocks), while for BCH, it’s adjusted every 10 minutes (or after every block). In simpler terms, the difficulty tells us how much computing power the miner will require for each block.
Though there are some similarities, there are several marked differences between the two coins.
#1. Transaction Processing Speed
You know that Bitcoin’s transaction processing speed is relatively slow; let’s talk about how slow.
For context, think of 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. Scalability is indeed a real problem. 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.
#2. Transaction fees
BCH’s larger block size makes the block space a lot less competitive and helps reduce transaction fees dramatically. Transacting BTC could set you back roughly $3 every time (as of this writing). 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 (again, as of this writing).
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.
Critics argue that some can misuse RBF for spending the same funds multiple times. For instance, suppose a person transfers funds for a small fee in exchange for a product or service to the vendor using RBF. If the vendor doesn’t allow enough time for confirmations to go through, the person can route the transaction to a different wallet (to which they’re a beneficiary), only with a higher fee.
However, most RBF versions mandate that the outputs of both transactions must match. Plus, if the recipient does hold off until confirmations go through, RBF isn’t possible since the original transaction would be executed.
#3. Block size utilization
Block size has been mentioned several times here, and sure, BCH has larger blocks (1MB blocks on Bitcoin vs. Bitcoin Cash’s 32MB blocks). The caveat here, though, is that BCH hasn’t been able to utilize the block space.
Even with its better transaction processing speed, there haven’t been enough transactions to fill up the marginal block space. This has contributed to BCH’s limited growth.
Speaking of block size, another cryptocurrency was forked out of the BCH blockchain in 2018. It’s called the BSV (also referred to as Bitcoin Satoshi Vision). BSV aims to increase its block size to 1TB, and it’s already larger than the Bitcoin blockchain in accumulated data size.
#4. Smart Contract Capability
The Bitcoin blockchain doesn’t support smart contracts inherently, but Bitcoin DeFi services are in the works. 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.
Bitcoin vs. Bitcoin Cash: Which Coin Should You Invest in?
Before discussing these coins from an investment perspective, it’s essential to realize that demand and perceived value drive the price of these assets. You aren’t buying something that’s backed by something more fundamental like you do when investing in equities and gold.
So, it’s best only to invest money that you can afford to lose. For instance, this year, BTC’s price breached the $60,000 for the first time, and soon after, dropped to below $30,000.
If this gives you nightmares, crypto isn’t for you. Should you decide to invest, experts recommend sticking only to BTC and ETH. BTC has been around for over a decade, while BCH has a very brief history.
BTC has reclaimed its all-time high again several times in the past, which provides some reassurance. However, BCH hit an all-time high of $3,785 soon after the launch but has since been hovering in the $500 to $1500 range.
Both BTC and BCH are volatile, but BTC enjoys a better brand value. It’s viewed as a safe haven for crypto investors and is far more well-positioned than BCH.