Bitcoin (BTC) remains the most popular cryptocurrency, but it’s not without its flaws. In particular, it allows a relatively low volume of transactions per second, limiting its usefulness for payments.
Bitcoin Cash (BCH) was born in 2017 to solve this problem by offering a cheaper and faster way to process payments. Since that time, Bitcoin Cash has become one of the top 30 coins on the market today.
If you are one of the more than a million Australians who now own cryptocurrencies, you may be wondering what the real difference is between the two and what are the pros and cons of each cryptocurrency.
What is Bitcoin Cash?
Bitcoin Cash is a cryptocurrency built on the same blockchain as Bitcoin. The coin was launched on August 1, 2017 through a so-called “hard fork” of the Bitcoin blockchain.
Some participants in the Bitcoin blockchain have proposed changing the rules to allow Bitcoin to process a larger volume of transactions. Most nodes voted against the rule change, which led to the hard fork, creating two blockchain paths with a common origin: Bitcoin and Bitcoin Cash.
“It almost felt like the fracture of a religion,” said Henrik Gebbing, co-founder and co-CEO of Finoa, a custodian of digital assets. “Miners had to decide which chain to allocate their efforts to, exchanges had to decide whether or not to support trading in this newly forked currency, and market participants had to decide if they had any interest in the new currency and what its own should be. fair price 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 only allows around seven transactions per second. Bitcoin Cash expanded the block size initially to 8MB and later to 32MB, which allows it to process over 100 transactions per second.
Beyond the block size and transaction speed, Bitcoin Cash works in a very similar way to Bitcoin. It is a decentralized and open source digital ledger. Miners confirm and add transactions to the blockchain using cryptography to solve equations, receiving Bitcoin Cash tokens as a 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.
How they differ
As noted, the key difference between Bitcoin and Bitcoin Cash is the block size. Thanks to this adjustment, Bitcoin Cash can have faster and cheaper transactions. A Bitcoin transaction costs on average $ US59 while Bitcoin Cash costs less than a US cent.
The downside to processing everything faster is that it is potentially less secure than Bitcoin. There are fewer miners needed to process and confirm transactions, which could make Bitcoin Cash’s security compromise easier.
“Bitcoin cash would be better for something like a cup of coffee, while a bigger purchase, like a car or a house, could justify a slower and safer cryptocurrency like Bitcoin,” said Daniel R. Hill, president of Hill. Wealth Strategies in Virginia.
Another difference is the size of the market. At the time of writing, Bitcoin Cash has a total market capitalization of around $ 2 billion. This is a fraction of Bitcoin’s $ 392 billion market cap.
Advantages of Bitcoin Cash
- Faster and less expensive transactions. With a transaction cost of less than a US cent and the ability to process more than 100 transactions per second, Bitcoin Cash could be a viable payment platform. However, the Visa network processes 2,000 transactions per second, so Bitcoin Cash still has a long way to go.
- More scalable than Bitcoin. The larger blocks of Bitcoin Cash allow for a blockchain with greater scalability, resulting in lower fees for users and therefore more negotiable.
- Decentralized money. For those concerned about too much centralized control in the financial system by central banks and governments, Bitcoin Cash offers a currency-like system that is decentralized and not controlled by any entity.
- Accessibility. Of the thousands of cryptocurrencies out there, Bitcoin Cash is one of the most popular and can be purchased through most major exchanges, unlike lesser known competitors. The BCH / USD price is only around $ 105 per coin, so it’s also cheaper than trying to buy a single Bitcoin.
Disadvantages of Bitcoin Cash
- Relatively low adoption rate. “While most of the debate has focused on such technology debates about processing time and security, I think there is a big overlooked but perhaps more important factor with emerging technologies: adoption,” said Russell Star, lead of capital markets at DeFi Technologies. “The success of any type of network, currency or technology depends on the users who use 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 faster 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 problems. After the fork, there was a battle to see which coin would become more popular. Bitcoin was the clear winner, which makes it difficult for Bitcoin Cash to stand out, especially since they share a similar name.
- Environmental impact. Bitcoin Cash still uses a proof-of-work blockchain system, where miners have to run computers to solve cryptographic equations to process transactions, which uses a lot of energy. Even though Bitcoin Cash uses less electricity than Bitcoin, this system still has a high environmental cost.
How to buy Bitcoin Cash
Bitcoin Cash is widely available on major cryptocurrency exchanges such as Coinbase and Kraken. You open an account, deposit money and then use it to buy cryptocurrencies like Bitcoin Cash. You can also buy Bitcoin Cash on platforms like PayPal.
Once you have purchased Bitcoin Cash, keep your coins as an investment in a crypto wallet, exchange them for other coins, or use them for transactions.
Note that Bitcoin Cash ran into some issues due to branding issues. For example, cryptocurrency exchange OKCoin canceled Bitcoin Cash in early 2021 because they thought it might confuse investors offering both Bitcoin Cash and Bitcoin on the same system.
Should you buy Bitcoin Cash or Bitcoin?
Whether you should buy Bitcoin Cash or Bitcoin depends on whether you are looking for a long-term investment or something to use for transactions.
“When measured in BTC, the price of BCH has been steadily declining since its inception. It makes sense that the original Bitcoin should act as a safer investment, ”Gebbing said.
“If you choose a blockchain to transact with, however, BCH is accepted in many of the same places that accept BTC and can be used for near-zero fees due to the larger block size and less use of that chain,” Gebbing added.
As with any cryptocurrency investment, Star warns you should be careful. “Anyone considering investing in Bitcoin or Bitcoin Cash should consider whether he can handle a volatile asset class, which is what cryptocurrency is.” He also noted that those looking to learn more about cryptocurrencies and emerging technologies could benefit from expanding their horizon beyond popular options like Bitcoin and Ethereum.
The Australian Investment and Securities Commission (ASIC) also notes that cryptocurrencies are largely unregulated, highly volatile, and that many Australian investors have been scammed.
While the concept behind Bitcoin Cash has some potential, it has not yet achieved its lofty goal of replacing the original Bitcoin. If it starts to take off as a more accepted medium of exchange, it could give its big and big brother a run.
This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency as an investment class.