Bitcoin (BTC) vs Bitcoin Cash (BCH), two coins that came from the same blockchain but offer distinct solutions. In 2017, Bitcoin experienced a “hard fork,” meaning that a group of developers decided to take the currency in an entirely new direction. What is Bitcoin and what is Bitcoin Cash? Do you know the difference between the two? Bitcoin (BTC) vs Bitcoin Cash (BCH) are far from the same thing. Learn the distinct differences in this guide.
Bitcoin vs Bitcoin Cash: Two Answers to One Problem
Before 2017, there was only one kind of Bitcoin (BTC), and it was facing a big problem: could it scale enough to be used as actual currency?
The issue of Bitcoin’s scalability, which gave us Bitcoin vs Bitcoin Cash, goes back to its structure. For a Bitcoin exchange to occur, i.e., for it to be added to the blockchain, another party has to verify it.
The verification process is called ‘consensus.’ When asking, “What is blockchain,” the most important thing to remember is that blockchain is decentralized. Transactions that occur on it are verified democratically by miners rather than by a centralized bank or credit card company.
Verifying Bitcoin Transactions
Both Bitcoin and Bitcoin Cash cryptocurrencies use Proof-of-Work as a consensus mechanism.
At its core, Proof-of-Work means solving complex, asymmetrical math problems. A Bitcoin miner must solve a Proof-of-Work problem to complete a Bitcoin block. A block is a record of a certain number of Bitcoin transactions. In exchange, the blockchain rewards miners with cryptocurrency.
Proof-of-Work calculations are deliberately difficult, though they’re getting easier with new mining technology. Processing a bitcoin transaction takes so much energy that bitcoin’s annual carbon footprint is bigger than Switzerland’s.
The advantage of Proof-of-Work is that it would take a ridiculous amount of energy to overpower the Bitcoin network; this makes a 51% attack on blockchain difficult but not impossible.
Bitcoin Transactions Are Slow
Verifying Bitcoin transactions takes a long time. Specifically, it takes around 10 minutes to create a Bitcoin block. Correspondingly, Bitcoin’s blockchain technology can only accept somewhere between 3 and 7 Bitcoin transactions per second. This is low, considering Bitcoin’s market cap of over $113 billion today.
By comparison, the Ripple (XRP) network can process 1,500 transactions per second. Visa can accept 24,000 per second. Electroneum (ETN) also announced that their new instant payment platform could process transactions faster than Visa, AMEX, and Mastercard.
Furthermore, the size of Bitcoin blocks constricts the network. At the blockchain’s inception, Bitcoin blocks had no size limit. This can be a problem because bigger Bitcoin blocks require more energy. As a result, the blockchain favors large mining pools. And with fewer and bigger mining pools, the Bitcoin network could become centralized.
To avoid this, Satoshi Nakamoto, Bitcoin’s pseudonymous founder, changed Bitcoin’s code. From 2010 on, Bitcoin has had a block limit of 1MB. This has meant less centralization but slower transactions.
As Bitcoin adoption grew, transaction speed became a bigger and bigger issue. Some developers worried that Bitcoin price and speed would eventually deter people from using Bitcoin as a means of exchange. This led to Bitcoin’s soft and hard forks.
Bitcoin’s Soft Fork
One way to speed up transactions is to increase the size of Bitcoin blocks. This would allow more transactions to go through simultaneously. Another solution is to make the process of verifying a transaction, i.e., Proof-of-Work, easier and faster.
In 2017, the majority of Bitcoin’s mining pool decided to do the former by implementing a process called Segregated Witness, SegWit.
There are two parts of a Bitcoin transaction: the input and the output (though there can be multiple of each). The input and output represent data about the sender and the receiver, respectively. Specifically, part of the input transaction called the “signature” verifies that the sender has enough funds in their account to initiate the exchange. The signature accounts for 65% of transaction data.
Since the signature is the most significant part of a transaction, it’s also the biggest culprit of Bitcoin’s transaction speed problem. At a conference in 2015, Bitcoin developer Pieter Wuille suggested that that the Bitcoin network separate the signature from the input and shift it to the end of the transaction.
This process is called Segregated Witness. It theoretically increases the size of Bitcoin blocks from 1 MB to 4 MB by redistributing transaction data.
Ultimately, SegWit2x received 95% of the Bitcoin mining community’s approval. After August 2017, transactions looked a little different.
The Origin of Bitcoin Cash
Not everyone agreed with SegWit—a Bitcoin soft fork. More concerned with Bitcoin’s scalability rather than its ability to function as an investment, some Bitcoin developers wanted to increase block size even more. Specifically, they wanted Bitcoin blocks to be 8 MB.
To do this, these developers had to hard fork Bitcoin’s blockchain. A hard fork is when a new upgrade in a cryptocurrency’s protocol creates two different blockchains because it’s so drastic. By comparison, a soft fork like SegWit was still compatible with the older blockchain.
Bitcoin mining pool ViaBTC created the first 1.9 MB Bitcoin block on August 1, 2017. The old Bitcoin network did not accept it. Thus Bitcoin hard forked into Bitcoin vs Bitcoin Cash.
This also meant that every person who held Bitcoin at the time received the same amount in BCH as they had in BTC.
Bitcoin vs Bitcoin Cash
Though originating from the same blockchain, Bitcoin and Bitcoin Cash are ideologically distinct. Bitcoin Cash came from the belief that Bitcoin should be used like cash. By comparison, Bitcoin can function as an investment, though it can also be a means of exchange.
For Bitcoin Cash to function more like cash than Bitcoin, its network needed to validate more transactions quickly. This meant bigger blockchain blocks and easier mining work. As noted in the Bitcoin vs Bitcoin Cash table above, this led to some key distinctions:
1. Bitcoin Cash blocks can be a lot bigger.
In 2018, Bitcoin Cash further increased the max block size to 32 MB. However, this does not mean that the average Bitcoin Cash block needs to be bigger.
2. Bitcoin Cash blocks are smaller on average than Bitcoin’s.
Though the network allows for the creation of bigger blocks, the Bitcoin Cash network does not have enough demand to merit anything close to the max block size. The bigger the block, the more computational power is needed to add it to the blockchain.
3. Bitcoin creates more blocks per hour than Bitcoin Cash.
This is because there are more Bitcoin miners than Bitcoin Cash miners. Since Bitcoin blocks can be a lot smaller, they’re a lot easier to mine. This means that there is a lower bar to entry when it comes to Bitcoin vs Bitcoin Cash mining.
Though there is speculation that some Bitcoin mining pools secretly own others, no single mining pool owns close to half of Bitcoin mining today.
4. Bitcoin Cash is less circulated than Bitcoin.
Bitcoin had 452,878 active accounts in the past 24 hours and averaged 9,772 transactions per hour. By comparison, Bitcoin Cash has 6% of Bitcoin’s active wallets and 8.5% of its total transaction volume.
5. Bitcoin creates more blocks per hour than Bitcoin Cash.
Though Bitcoin Cash can confirm transactions faster than Bitcoin, it doesn’t have the same levels of use.
6. Bitcoin has a higher market cap.
Today, Bitcoin’s market cap is $112.7 billion, and Bitcoin Cash’s is $9.85 billion. So far, Bitcoin Cash’s market cap has yet to approach Bitcoin’s.
Bitcoin Is Circulated, Valued, and Mined More Than Bitcoin Cash
Bitcoin has a much higher market cap, is used by many people, and is mined much more, though they came from the same original blockchain. What makes Bitcoin Cash different from Bitcoin?
Miner Support for Bitcoin vs Bitcoin Cash
The big reason why Bitcoin is ‘bigger’ than Bitcoin Cash goes back to how it forked. Back in 2017, 95% of Bitcoin miners supported the adoption of SegWit. In other words, the Bitcoin Cash mining community was only 5% of Bitcoin’s a little over a year ago.
Keep in mind that cryptocurrency mining does not directly create value. Mining puts more currency into circulation. Therefore, it technically devalues a currency.
However, when Bitcoin miners receive Bitcoin as a reward for creating blocks, they can put it back into the system. In other words, more mining can mean more engagement with a currency.
Moreover, Bitcoin’s mining and investment communities are much more established. Keep in mind that Bitcoin Cash is only a little over a year old.
Bitcoin Cash Is More Centralized
This goes back to Satoshi Nakamoto’s decision to cap Bitcoin blocks at 1 MB. Big Bitcoin blocks encourage large, powerful mining pools. In turn, larger mining pools mean fewer miners, more centralization, and a better chance of a 51% attack on blockchain.
In July 2018, one hacker who goes by BitPico claimed that 98% of Bitcoin Cash nodes are located in the same rack (the Tweet has since been deleted). Not only would this mean that a single organization has control over the Bitcoin Cash network, but it would be easy for hacks to take down the entire network.
This wasn’t the only time that someone accused Bitcoin Cash of being centralized. Jameson Lopp, a cryptocurrency developer, tweeted, “54% of reachable Bitcoin ABC (bcash) nodes are running on Hangzhou Alibaba virtual servers in China.”
54% of reachable Bitcoin ABC (bcash) nodes are running on Hangzhou Alibaba virtual servers in China. Compare that to 2% of reachable Bitcoin nodes running on Hangzhou Alibaba servers. pic.twitter.com/hXuYuXkYrp
— Jameson Lopp (@lopp) December 20, 2017
Fellow developer Sondre Bjellas tweeted back with this visualization of just how centralized Bitcoin Cash could be:
— Sondre Bjellås (@SondreB) December 21, 2017
The blue and the grey represent Alibaba-controlled nodes. In the same thread, developer Nick Szabo responded:
"Bitcoin Cash" is centralized sock puppetry. https://t.co/OJJo5vwEfn
— Nick Szabo (@NickSzabo4) December 21, 2017
In other words, well-known cryptocurrency developers with significant social media followings have been outspoken about centralization in Bitcoin Cash. As the news and social media influence the value of cryptocurrency, these Tweets have real-life consequences for BCH adoption.
Bitcoin vs Bitcoin Cash
Bitcoin and Bitcoin Cash have the first and fourth highest market caps, respectively. Though they share a name, Bitcoin and Bitcoin Cash are very different.
Bitcoin vs Bitcoin Cash goes back to Bitcoin’s hard fork in 2017. Though the Bitcoin mining community wanted to increase block size, Bitcoin Cash developers wanted to make blocks even bigger, and transactions even easier.
Today, Bitcoin Cash has lower transaction fees and lower rates of adoption than Bitcoin. This is partially due to the legacy and size of each community. When Bitcoin Cash split, it represented only 5% of Bitcoin miners. And today, Bitcoin Cash is a little over a year old. Additionally, there are concerns about centralization in Bitcoin Cash. Larger blocks mean larger mining pools and fewer miners.
Overall, Bitcoin and Bitcoin Cash have different philosophies. Bitcoin functions as an investment and Bitcoin Cash work like cash. However, in the future, both will confront the same problems. Similarly to Ethereum vs Ethereum Classic. For one, what will happen when we’ve mined all 21 million Bitcoin?