Bitcoin vs. Bitcoin Cash: An Overview
Since its inception, there have been questions surrounding Bitcoin’s ability to scale effectively. Transactions involving the digital currency Bitcoin are processed, verified, and stored within a digital ledger known as a blockchain. Blockchain is a revolutionary ledger-recording technology. It makes ledgers far more difficult to manipulate because the reality of what has transpired is verified by majority rule, not by an individual actor. Additionally, this network is decentralized; it exists on computers all around the world.
The problem with blockchain technology in the Bitcoin network is that it’s slow, especially compared to banks that deal with credit card transactions. Popular credit card company Visa Inc. (V), for instance, processes an average of 564 million transactions per day, which is about 6,527 transactions per second.
How many transactions can the Bitcoin network process per second? As of Jan. 31, 2022, the rate is 4.43 per second. Transactions can take several minutes or more to process. As the network of Bitcoin users has grown, waiting times have become longer because there are more transactions to process without a change in the underlying technology that processes them.
Ongoing debates around Bitcoin’s technology have been concerned with this central problem of scaling and increasing the speed of the transaction verification process. Developers and cryptocurrency miners have come up with two major solutions to this problem:
- The first involves making the amount of data that needs to be verified in each block smaller, thus creating transactions that are faster and cheaper.
- The second requires making the blocks of data bigger so that more information can be processed at one time.
Bitcoin Cash (BCH) developed out of these solutions. Below, we’ll take a closer look at how Bitcoin and BCH differ from one another.
- Bitcoin is limited by transaction processing time, an issue that has caused rifts among factions within the Bitcoin mining and developing communities.
- Bitcoin Cash was started by Bitcoin miners and developers concerned about the future of the Bitcoin cryptocurrency and its ability to scale effectively.
- Though Bitcoin blocks are limited to 1 MB, BCH blocks can be up to 32 MB.
In July 2017, mining pools and companies representing roughly 80% to 90% of Bitcoin computing power voted to incorporate a technology known as a segregated witness (SegWit). This fix makes the amount of data that needs to be verified in each block smaller by removing signature data from the block of data that needs to be processed in each transaction and attaching it in an extended block. Signature data has been estimated to account for up to 65% of data processed in each block, so this is not an insignificant technological shift.
Talk of doubling the size of blocks from 1 MB to 2 MB ramped up in 2017 and 2018. As of February 2019, the average block size of Bitcoin increased to 1.305 MB, surpassing previous records. By Jan. 31, 2022, the block size was 1.39 MB on average. The larger block size helps in terms of improving Bitcoin’s scalability.
In September 2017, research released by cryptocurrency exchange BitMEX showed that SegWit implementation had helped increase the block size amid a steady adoption rate for the technology. Proposals to both implement SegWit and double the block size were known as SegWit2×.
Bitcoin Cash is a different story. Bitcoin Cash was started by Bitcoin miners and developers equally concerned with the future of the cryptocurrency and its ability to scale effectively. However, these individuals had their reservations about the adoption of a Segregated Witness technology. They felt that SegWit2× did not address the fundamental problem of scalability in a meaningful way, nor did it follow the roadmap initially outlined by Satoshi Nakamoto, the anonymous party who first proposed the blockchain technology behind cryptocurrency.
Furthermore, the process of introducing SegWit2× as the road forward was anything but transparent, and there were concerns that its introduction undermined the decentralization and democratization of the currency.
In August 2017, some miners and developers initiated what is known as a hard fork, effectively creating a new currency: BCH. BCH has its own blockchain and specifications, including one very important distinction from bitcoin. BCH implemented an increased block size of 8 MB to accelerate the verification process, with an adjustable level of difficulty to ensure the chain’s survival and transaction verification speed, regardless of the number of miners supporting it.
As of March 2022, the maximum block size for BCH was increased fourfold to 32 MB.
Bitcoin Cash is thus able to process transactions more quickly than the Bitcoin network, meaning that wait times are shorter and transaction processing fees tend to be lower. The Bitcoin Cash network can handle many more transactions per second than the Bitcoin network can. However, downsides also come with the faster transaction verification time. One potential issue with the larger block size associated with BCH is that security could be compromised relative to the Bitcoin network. Similarly, Bitcoin remains the most popular cryptocurrency in the world as well as the largest by market capitalization, so BCH users may find that liquidity and real-world usability are lower than they are for Bitcoin.
The debate about scalability, transaction processing, and blocks has continued beyond the fork that led to Bitcoin Cash. In November 2018, for example, the Bitcoin Cash network experienced its own hard fork, resulting in the creation of yet another derivation of Bitcoin called Bitcoin SV. Bitcoin SV was created in an effort to stay true to the original vision for Bitcoin that Satoshi Nakamoto described in the Bitcoin white paper while making modifications to facilitate scalability and faster transaction speeds.
The debate about the future of Bitcoin appears to show no signs of being resolved.
How Does the Market Capitalization of Bitcoin Cash Compare With Bitcoin's?
As of March 22, 2022, Bitcoin Cash had a market capitalization of $4.48 billion, ranking it No. 24 among cryptocurrencies by this measure, while Bitcoin was the largest cryptocurrency by far, with its market cap of $808.37 billion more than twice that of second-ranked Ethereum at $360.82 billion.
What Is the Total Supply of Bitcoin Cash?
Like Bitcoin, the total supply of Bitcoin Cash will never exceed 21 million coins. The rate at which new coins are added to the circulating supply gradually decreases along a defined schedule, with the issuance rate cut in half about every four years. As of March 22, 2022, the circulating supply of Bitcoin Cash was 19,015,775 BCH, or 91% of the total supply. Bitcoin's circulating supply was 18,990,837 BTC, or 90% of the total supply.
What Are the Features That Make Bitcoin Cash an Effective Medium of Exchange?
Bitcoin Cash enables peer-to-peer payments between individuals, like cash, but in digital form. Fees for sending Bitcoin Cash are typically a fraction of a cent, while settlement occurs almost instantly regardless of the physical location of the participants in the transaction. These features make Bitcoin Cash useful for daily transactions as well as microtransactions.