What is Bitcoin Cash and What's Its Difference vs Bitcoin

What is Bitcoin Cash

Bitcoin Cash is a peer-to-peer crypto system that aims to become sound global money. Despite the difference between Bitcoin and Bitcoin Cash, both of these networks use the same consensus mechanism and have 21 million coins hard cap. Being decentralized, Bitcoin Cash doesn't rely on any central authority like a government or financial institutions.

Bitcoin Cash appeared in August of 2017 as a solution to Bitcoin’s transaction speed and scalability issues, offering a faster and cheaper way to process payments. This was possible because of Bitcoin blockchain hard fork – a process that means splitting of the network in two at a certain block. After forks some participants continue to operate under the rules they used before, while the others branch off and generate a new blockchain with an updated software setup, often with its own cryptocurrency.

It all started from a disagreement between those believing in the potential of Bitcoin Cash vs Bitcoin’s adherents. The decision to fork was made by miners and developers who hoped that it would help them get rid of the blockchain limitations. The idea was to change the rules and allow Bitcoin to process a greater volume of transactions, increasing the size of the blocks within the blockchain.

Other participants of the network couldn't agree it was the right decision. They pointed to Bitcoin Cash having larger blocks, meaning a more complex mining process. This could be a real problem for those miners who didn't have enough computer power. In addition, this could centralize the platform among the most prominent miners, for example, corporations that can afford the most power for mining.

As a result of this disagreement, two blockchain paths with a common origin were created. Those who owned Bitcoin at the time of the fork received an equivalent amount of Bitcoin Cash. Despite the fact that this is a common phenomenon in hard forks, some people express the opinion that this was done for the quick enrichment of certain participants.

“It felt almost like the fracturing of a religion. Miners had to decide which chain to allocate their efforts toward, exchanges had to decide whether or not to support trading of this newly forked currency, and market participants had to decide whether they had any interest in the new currency and what its fair price should be.”

Henrik Gebbing, co-founder and co-CEO of Finoa

Bitcoin Cash eventually had its own forks in November 2018. It was split into Bitcoin Cash ABC (BCHA) and Bitcoin Satoshi Vision (BSV). Bitcoin Cash ABC in a way is more developer-centric and allows for reinvesting 8% of every block reward into innovating the network. In 2021, BCHA rebranded to eCash (XEC).

Bitcoin SV, in turn, is focused on ensuring stability by providing blocks larger than Bitcoin Cash. It has reached over 9,000 transactions per second and even placed an estimated 16.4 million transactions in one block in early 2021 on the platform's scaling test network.

How Does Bitcoin Cash Work?

Bitcoin Cash works very similarly to Bitcoin. Proof-of-work algorithm allows miners to confirm and add transactions utilizing computer power, and be rewarded in Bitcoin Cash tokens for their contributions. The network works on Bitcoin Cash Node – a blockchain created to enable users transacting in BCH.

As blocks are groups of transactions added to the blockchain at the same time, it is logical for BCH to operate faster because of the larger block size. Bitcoin Cash block size amounted to 8 MB initially and expanded later to 32 MB, allowing it to process over 100 transactions per second and have low fees.

Bitcoin Cash supports tokens, smart contracts, and private payments with tools like CashShuffle and CashFusion – the most popular dApps within its ecosystem. CashShuffle is a coin mixing protocol that some BCH holders use in certain wallets. It shuffles Bitcoin Cash with other holders’ coins before the transaction, making it much more difficult to track.

What matters here is that coin mixing isn’t always reliable. This process requires users to trust a third-party service, which, in turn, contradicts the idea of the autonomy of a cryptosystem. In addition, mixing can cost a fee, and that is not always suitable for those who make transactions frequently. Finally, funds coming to mixing platforms may come to the attention of jurisdictions that doubt the legality of such operations.

CashFusion, in turn, doesn’t mix transactions, but puts BCH into one large transaction that other CashFusion users have access to, and then sends this BCH back to the wallet. The exception is when a transaction is mixed up and combined with so many other transactions that no one can track the path to the user's assets.

What Is Bitcoin Cash Used For?

Bitcoin Cash is designed as a peer-to-peer payment method, and – being accepted by many merchants – it has several use cases.

It is available as a payment for e-commerce transactions, and purchased via PayPal as well. Bitcoin Cash can be used to pay participating merchants for goods and services in-store and online. Because of its low fees and fast transactions, Bitcoin Cash is effective for micro-transaction use cases like tipping content creators and rewarding app users.

Some merchants offer discounts when paying in BCH, as this eliminates the commission from credit cards and helps to expand the implementation of this payment system. Using BCH as a currency also reduces the fees and settlement times for remittances and cross-border trade.

Developers can issue new tokens that live on the Bitcoin Cash blockchain using the Simple Ledger Protocol. It is similar to how ERC-20 tokens live on the Ethereum blockchain. For example, Tether, the largest issuer of USD stablecoins, has issued USDT tokens that live on the Bitcoin Cash chain that enables people to send and receive USDT with a 1¢ transaction fee using a non-custodial digital wallet.

Bitcoin Cash vs Bitcoin. What's the difference?

“Bitcoin cash would be better for something like a cup of coffee, while a larger purchase, such as a car or house, may warrant a slower and more secure cryptocurrency like Bitcoin.”

Daniel R. Hill, president of Hill Wealth Strategies in Virginia.

Key differences between Bitcoin Cash and Bitcoin

• Bitcoin Cash has a larger maximum block size than Bitcoin. It increases the volume of transactions – up to 200 transactions per second vs Bitcoin's only 7. Bitcoin Cash transactions cost less than a penny, while median on-chain Bitcoin transaction fee is in the range of $1-15 ($1.325 at the time of writing)
• Transactions in BTC can be canceled or double-spent using the Replace-by-fee method. BCH protocol doesn't imply such a mechanism, and that makes Bitcoin Cash more secure. The convention here is that technically it is still possible to double-spend a Bitcoin Cash transaction. But doing so would require collusion with miners and/or bribing miners to accept a second transaction over the first by attaching a very high transaction fee.
• Bitcoin Cash protocol supports Schnorr signatures – a digital signature scheme that allows for more complex signing capabilities. Transactions that adopt Schnorr signatures consume less space, therefore are less expensive. When there is widespread adoption of Schnorr signatures, the network's privacy has the potential to enhance by improving the fungibility of tokens.
• Bitcoin Cash uses a difficulty adjustment algorithm helping to ensure new blocks are generated at a stable rate every 10 minutes, even if there is high price volatility and hash power elasticity. It means that if some miners move their hashing power from BTC to BCH and back, Bitcoin Cash's difficulty adjustment algorithm ensures blocks continue to be produced at the desired consistent rate. Bitcoin’s difficulty of mining is automatically adjusted approximately every two weeks in order to ensure the total blocking time remains at the level of 10 minutes.

Advantages of Bitcoin Cash

Fast and cheap transactions. Bitcoin Cash can become a viable payment platform with transaction costs of less than 1 cent and the ability to process more than 100 transactions per second. But while Visa processes 2000 TPS, Bitcoin Cash still has something to strive for.

Decentralization of assets. Bitcoin Cash system is decentralized and not controlled by any person or group of entities. It means much if you worry about centralized control from banks and central

governments.

Scalability. Increased scalability of a blockchain is provided by larger blocks of Bitcoin Cash that results in lower fees for users, hence it is more transactable.

Accessibility. Bitcoin Cash is one of the most popular among thousands of existing cryptocurrencies, and, unlike lesser-known competitors, it can be purchased on most major exchanges.

Disadvantages of Bitcoin Cash

Security. The downside to processing transactions more quickly is that it’s potentially less secure than Bitcoin. There is less mining power needed to process and confirm transactions, which could make it easier for the Bitcoin Cash security to be compromised.

Rate of adoption. Bitcoin Cash struggles to strengthen its position as an accepted investment and medium of exchange, still being used by fewer people compared to Bitcoin. But adoption of users is a very important factor, overlooked often because of focusing on processing time and security.

“The success of any type of network, currency or technology depends on the users using it.”

Russell Star, head of capital markets at DeFi Technologies

Branding. It was hard for Bitcoin Cash to distinguish itself in a battle over which coin would become more popular after the fork. Sharing such a similar name, Bitcoin has been the clear winner.

Environmental impact. Bitcoin Cash is a proof-of-work blockchain, meaning miners must use considerable energy to solve cryptographic equations to process transactions by computers. So it still comes at a high environmental cost even considering that Bitcoin Cash uses less electricity than Bitcoin.

Is Bitcoin Cash a Good Investment?

When buying Bitcoin Cash or Bitcoin, it should be understood whether you are looking for a long-term investment or something that can be used for transactions.

Despite the larger block size of Bitcoin Cash and the throughput of transactions aimed at helping it become accepted as a form of payment, the cryptocurrency has so far experienced volatility and has not yet become widespread among consumers.

“When measured in BTC, the price of BCH has fallen steadily since its inception. It stands to reason that the original Bitcoin should serve as a safer investment. If choosing a blockchain to transact with, though, 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 the lesser utilization of that chain,” – said Henrik Gebbing.

“Anyone considering investing in Bitcoin or Bitcoin Cash should consider whether they can stomach a volatile asset class, which is what crypto is.” – warns Russell Star.

Although the concept behind Bitcoin Cash has some potential, it has still not achieved its lofty goal of replacing Bitcoin, so BCH must gain momentum as a more acceptable medium of exchange.

Bitcoin Cash represents a fundamental redesign of the very nature of money and inspired many protocols and other projects, which expands the technology and makes it more accessible to everyone.

This article is for informational purposes only and is not to be considered financial, legal, or investment advice. Invest wisely and do your own research.