Even if you’re new to cryptocurrency, you’ve probably heard of Bitcoin before. Many people wanting to get involved or invest in digital currency come to the space with a vague knowledge of Bitcoin. Whilst all noobs have heard of Bitcoin, not everyone has of Bitcoin Cash. This short article aims to introduce the most successful fork of Bitcoin, Bitcoin Cash, the differences between Bitcoin (BTC) and Bitcoin Cash (BCH), and finally, look at whether BCH can realistically outperform BTC in the long term.
The Difference Between Bitcoin and Bitcoin Cash
For most laymen the main difference between two coins is in the price - as of today, April 6, the
BCH to USD rate is $620, while 1 BTC costs $6,660. In fact, principal difference between Bitcoin and Bitcoin Cash is the size of blocks comprising their blockchain. Both currencies are (for the most part) identical in all other respects. Bitcoin retains the original 1MB block size. Meanwhile, Bitcoin Cash has a larger block of 8MB. We’ll explain why shortly.
The History of the Split
The problem with blockchains is that they can only store a certain volume of transaction data in each block. For practical terms, this means that they can only process so many transactions per second. This wasn’t a huge issue for a long time because Bitcoin wasn’t popular enough (there weren’t enough transactions) for the original blocks to reach their capacity. However, during 2017, the number of users increased dramatically. With more users, more transactions were being made. This meant that there was too much transaction data for every block and some had to wait to be included in one.rnThe result was that users were forced to increase the fees they paid to the network’s miners. Miners are the computer systems that check each transaction on the network. They decide (automatically) which transactions to include in the blocks. Since running mining hardware is expensive, when presented with more transactions than they can contain in a block, they favour the ones that include the largest fees. Such a situation results in users paying much higher fees than are feasible for a “peer-to-peer electronic cash system”.rnFor many years, the Bitcoin community debated how to “scale” (allow more transactions) the network. Two main camps emerged: those that wanted to see the size of the blocks increased and those that saw issues with such a solution (more on this later). This second group sought a fix that didn’t involve increasing the size of the blocks. rnMost of the original developers who have worked on Bitcoin since the early days were in favour of finding an alternate solution to increasing the blocks. These are often referred to as the “Core Developers”. A splinter group of developers and business interests emerged who were adamant that the only solution was to increase the blocks. These are often referred to as “big blockers” and would later become those behind Bitcoin Cash. rnThe debate came to a head in August 2017. Despite a compromise between the two groups seemingly occurring, those miners in favour of big blocks started using a different set of rules to the original Bitcoin protocol. This created a
“hard fork” in the software. A second version of Bitcoin that had 8MB blocks, rather than the original 1MB blocks was born. This became known as Bitcoin Cash (sometimes referred to as B-Cash). rnDuring August, the original Bitcoin (BTC) chain received the upgrade that the Core Developers had been working on. This was known as SegWit (or Segregated Witness). It represented a way of artificially increasing the block size by reducing the amount of data that was needed to be stored on the blockchain.
Advantages and Disadvantages of a Larger Block Size
The advantage of a larger block size is obvious – it can fit more transaction data within it, resulting in a greater number of transactions being processed per second. With fees on the original Bitcoin blockchain rising to the point they did during the latter part of 2017, it was no longer usable as a means of transfer for all but the very largest transactions. For the Bitcoin Cash crowd, this was unacceptable. rnThere is no doubt that the block size increase solution should work in theory. However, it has yet to be tested since the popularity of the forked cryptocurrency BCH hasn’t reached a point that the blocks are anywhere near full. It currently handles almost 17,000 transactions each day. This is miniscule in comparison to Bitcoin’s almost 150k. Given this current popularity versus BTC, there is little to suggest it will reach a stage where the block size limit is tested soon. rnTo those unfamiliar with the space, the block size increase probably sounds like the perfect solution. So, the entire community should be united under the original name Bitcoin with the smaller blocked original chain being left to die off.rnHowever, there are some crucial disadvantages to the approach. The main one is down to storage space. To run a mining unit, the entire blockchain must be downloaded. This is very memory intensive. If each block is larger, the size of the entire blockchain is by default larger too. Since computer memory is in short supply around the world and is very expensive, the larger the blocks get (and they would need to continually be increased for Bitcoin Cash to scale to a global level), the fewer people can run mining hardware. This results in less decentralization, while decentralization is kind of the revolutionary quality of Bitcoin to begin with. It’s for this reason that the core developers working on Bitcoin (BTC) are seeking alternatives to scale the network. It might take a little longer to achieve global scale, but when they do, the network will be as robust and secure as the original Bitcoin blockchain has been for the best part of a decade now.
Bitcoin’s Network Effect
Technical provisos aside, Bitcoin Cash has an absolute mountain to climb in terms of network effect. The original Bitcoin has a wealth of different software options, wallet providers, and ATMs around the world. This network effect, plus the fact that the original Bitcoin retained the original ticker on exchanges - BTC, makes it look and feel like the real McCoy to Bitcoin Cash’s beta coin. rnWhilst certainly not impossible to overcome, now that SegWit seems to be reducing transaction fees back to a tolerable level on the original Bitcoin chain, and additional second layer scaling solutions (like Lightning Network) are being programmed by the best coders and some of the smartest cryptographers on the planet, it seems highly doubtful that Bitcoin Cash will replace Bitcoin any time soon.