Bitcoin (BTC) remains the most popular cryptocurrency, but it is not without its flaws. In particular, it allows a relatively low volume of transactions per second, which limits its usefulness for payments.
Bitcoin Cash (BCH) was created in 2017 to solve this problem, offering a cheaper and faster way to process payments. Since then, Bitcoin Cash has grown into one of the top 30 coins on the market today.
If you’re one of the more than one million Australians who now own cryptocurrencies, you might be wondering what the real difference is between the two and what the pros and cons of each crypto are.
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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 Bitcoin blockchain participants suggested changing the rules to allow Bitcoin to process a larger volume of transactions. Most nodes voted against changing the rules, resulting in the hard fork creating two blockchain paths with a common origin: Bitcoin and Bitcoin Cash.
“It almost felt like breaking a religion,” said Henrik Gebbing, co-founder and co-CEO of Finoa, a digital asset manager. “Miners had to decide which chain to allocate their efforts towards, exchanges had to decide whether to support trading in this newly forged currency, and market participants had to decide if 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 that are added to the blockchain at the same time.
Bitcoin limits blocks to 1 megabyte (MB), which only allows about seven transactions per second. Bitcoin Cash expanded its block size to 8MB initially, and later to 32MB, allowing it to process over 100 transactions per second.
Beyond block size and transaction speed, Bitcoin Cash works very similarly to Bitcoin. It is an open source, decentralized digital ledger. Miners confirm and add transactions to the blockchain using cryptography to solve equations, and receive Bitcoin Cash tokens as a reward for their work. They can then sell the coins to others. Bitcoin Cash will only issue a total of 21 million coins, just like Bitcoin.
How they differ
As mentioned, the main difference between Bitcoin and Bitcoin Cash is the block size. Because of this adjustment, Bitcoin Cash can have faster and cheaper transactions. A Bitcoin transaction costs an average of 59 USD while Bitcoin Cash costs less than one US dollar.
However, the downside to processing everything faster is that it is potentially less secure than Bitcoin. There are fewer miners needed to process and verify transactions, which can make it easier for 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 a house, might warrant a slower and more secure cryptocurrency like Bitcoin,” said Daniel R. Hill, president of Hill Wealth Strategies in Virginia.
Another difference is the market size. At the time of writing, Bitcoin Cash has a total market capitalization of around $2 billion. This is a fraction of Bitcoin’s market cap of $392 billion.
Benefits of Bitcoin Cash
- Faster, cheaper transactions. With a transaction cost of less than one US dollar and the potential to process more than 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 thus making it more transactable.
- Decentralized money. For those concerned about too much centralized control in the financial system by banks and central governments, Bitcoin Cash offers a currency-like system that is decentralized and not controlled by one entity.
- Availability. 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 around $105 USD 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 around processing times and security, I think there is one big factor that has been overlooked, but perhaps most important with new 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 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.
- Problems with branding. After the fork, there was a battle over which coin would become more popular. Bitcoin has been the clear winner, making it difficult for Bitcoin Cash to stand out, especially since they share 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, which consumes significant energy. Although 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 create an account, deposit money and 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 has had some issues due to branding issues. For example, crypto exchange OKCoin removed Bitcoin Cash in early 2021 because they believed it could confuse investors offering both Bitcoin Cash and Bitcoin on the same system.
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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.
“Measured in BTC, the price of BCH has fallen steadily since its inception. It is natural that the original Bitcoin should serve as a safer investment,” said Gebbing.
“However, if you choose a blockchain to transact with, BCH is accepted in many of the same places that accept BTC, and can be used for almost zero fees due to the larger block size and lower leverage of that chain,” Gebbing added.
As with any crypto investment, Star warns that you should exercise caution. “Anyone considering investing in Bitcoin or Bitcoin Cash should consider whether they can tolerate a volatile asset class, which is what crypto is.” He also noted that those looking to learn more about crypto and new technologies can benefit from expanding their horizons beyond the most 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 duped.
While the concept behind Bitcoin Cash has some potential, it still hasn’t reached 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 older, bigger brother a run for its money.
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.
