Bitcoin (BTC) remains the most popular cryptocurrency, but it is not without its flaws. Specifically, it allows for a relatively low volume of transactions per second, limiting its usefulness for payments.
Bitcoin Cash (BCH) emerged in 2017 to solve this problem, providing a cheaper and faster way to process payments. Since then, Bitcoin Cash has become one of the top 30 coins in the market today.
If you are one of over a million Aussies who now own cryptocurrencies, you might be wondering what the real difference between the two is 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 have proposed changing the rules to allow Bitcoin to process a greater volume of transactions. Most nodes voted against the rule change, resulting in the hard fork, creating two blockchain paths with a common origin: Bitcoin and Bitcoin Cash.
“It almost felt like the splitting of a religion,” said Henrik Gebbing, co-founder and co-CEO of Finoa, a digital asset custodian. “Miners had to decide which channel to allocate their efforts to, exchanges had to decide whether or not to support trading in this new forged currency, and market participants had to decide if they had an interest in the new currency and what its 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 about seven transactions per second. Bitcoin Cash initially expanded the block size to 8MB 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, 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 mentioned, the main difference between Bitcoin and Bitcoin Cash is the block size. Thanks to this adjustment, Bitcoin Cash can perform faster and cheaper transactions. A Bitcoin transaction costs an average of US$59 while Bitcoin Cash costs less than a US penny.
The downside of 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 it easier to compromise Bitcoin Cash’s security.
“Bitcoin cash would be better for something like a cup of coffee, while a larger purchase, like a car or a house, may justify a slower, more secure cryptocurrency like Bitcoin,” said Daniel R. Hill. , president of Hill Wealth Strategies in Virginia.
Another difference is the size of the market. As of this writing, Bitcoin Cash has a total market capitalization of around $2 billion. This is a fraction of Bitcoin’s US$392 billion market capitalization.
Advantages of Bitcoin Cash
- Faster and less expensive transactions. With a transaction cost of less than a US penny and the ability to process over 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 ways to go.
- More scalable than Bitcoin. Bitcoin Cash’s larger blocks allow for a blockchain with increased scalability, which results in lower fees for users and therefore makes it more transactional.
- Decentralized currency. For those concerned about overly centralized control of the financial system by banks and central governments, Bitcoin Cash offers a currency-like system that is decentralized and not controlled by a single entity.
- Accessibility. Of the thousands of cryptocurrencies in existence, 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 US$105 per coin, so it is also more affordable than trying to buy a single Bitcoin.
Disadvantages of Bitcoin Cash
- Relatively low adoption rate. “While much of the debate has focused on such technology debates around processing times and security, I think there is an important overlooked but perhaps most important factor with emerging 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 cheaper than Bitcoin because it requires less mining power to verify new blocks. This makes the system less secure than Bitcoin.
- Brand issue. After the fork, there was a battle to see which piece would become the most popular. Bitcoin was the big 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 blockchain proof-of-work system, where miners must run computers to solve cryptographic equations to process transactions, which consumes considerable 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 like Coinbase and Kraken. You create an account, deposit some money, 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 has encountered issues due to branding issues. For example, crypto exchange OKCoin pulled Bitcoin Cash in early 2021 because they thought it might 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.
“When measured in BTC, the price of BCH has steadily declined since its inception. It stands to reason that the original Bitcoin should serve 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 close to zero fees due to the larger block size and lower usage. of this channel,” Gebbing added. .
As with any crypto investment, Star warns you to be careful. “Anyone considering investing in Bitcoin or Bitcoin Cash should consider whether they can support a volatile asset class, which is crypto.” He also noted that those looking to learn more about crypto and emerging technologies could benefit by broadening their horizons beyond the more popular options like Bitcoin and Ethereum.
The Australian Investment and Securities Commission (ASIC) also notes that cryptocurrencies are largely unregulated, highly volatile, and many Australian investors have been scammed.
Although the concept behind Bitcoin Cash has some potential, it has still not achieved its lofty goal of replacing the original Bitcoin. If it starts to take off as a more accepted medium of exchange, then it could give its older big brother a hard time.
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.