What are the distinctions between Bitcoin and Bitcoin Cash? A comparative analysis

Bitcoin (BTC) is widely recognized as the leading cryptocurrency, yet it has limitations, notably its relatively low transaction processing capacity per second, which hampers its efficiency for payments.

In response to this, Bitcoin Cash (BCH) emerged in 2017 to provide a solution, offering faster and cheaper transaction processing. Since its inception, Bitcoin Cash has risen to become one of the top 30 cryptocurrencies in the market.

If you're among the over one million Australians who now hold cryptocurrencies, you might be curious about the distinctions between these two and their respective advantages and disadvantages.

What is Bitcoin Cash?

Bitcoin Cash is a cryptocurrency that originated from a "hard fork" of the Bitcoin blockchain on August 1, 2017. The hard fork was proposed by some participants in the Bitcoin community who advocated for changing the blockchain's rules to increase transaction capacity. However, the majority of nodes opposed these changes, leading to the split and the creation of two separate blockchain paths: Bitcoin and Bitcoin Cash.

Henrik Gebbing, co-founder and co-CEO of Finoa, described the event as akin to a schism in a religion. Miners had to decide which blockchain to support with their computing power, exchanges had to determine whether to facilitate trading of the newly created currency, and market participants needed to assess their interest in Bitcoin Cash and determine its fair market value.

How does Bitcoin Cash work?

Bitcoin Cash utilizes a larger block size compared to Bitcoin. Blocks, which are groups of transactions added to the blockchain simultaneously, are limited to 1 megabyte (MB) in Bitcoin, allowing around seven transactions per second. In contrast, Bitcoin Cash initially increased its block size to 8 MB and later to 32 MB. This expansion enables Bitcoin Cash to process over 100 transactions per second.

In functionality, Bitcoin Cash operates similarly to Bitcoin as an open-source, decentralized digital ledger. Miners validate and add transactions to the blockchain using cryptographic solutions, earning Bitcoin Cash tokens as a reward. These tokens can then be traded or sold. Similar to Bitcoin, Bitcoin Cash will have a total supply of 21 million coins.

How they differ?

As mentioned, the primary distinction between Bitcoin and Bitcoin Cash lies in their block sizes. This adjustment allows Bitcoin Cash to process transactions faster and at lower costs. While a Bitcoin transaction averages $59, Bitcoin Cash transactions cost less than one US penny.

However, the trade-off for faster processing is potentially lower security compared to Bitcoin. Bitcoin Cash requires fewer miners to process and validate transactions, which may increase vulnerability to security breaches.

"Bitcoin Cash could be more suitable for smaller transactions like buying a cup of coffee, whereas larger purchases such as a car or house might benefit from the slower and more secure transactions of Bitcoin," explained Daniel R. Hill, president of Hill Wealth Strategies in Virginia.

Another difference is market size. As of September 9, Bitcoin Cash has a total market capitalization of approximately $2.4 billion with a price of $126.82 per coin. This contrasts with Bitcoin's market cap of $370 billion and a price just under $20,000 per coin.

Pros and cons of Bitcoin Cash

Pros of Bitcoin Cash

• Faster, cost-effective transactions: Bitcoin Cash offers transactions costing less than one US penny and can process over 100 transactions per second. However, compared to Visa's network processing 2000 transactions per second, Bitcoin Cash still has room for improvement.
• Enhanced scalability: Bitcoin Cash's larger blocks allow for a more scalable blockchain, resulting in lower user fees and increased transaction efficiency.
• Decentralized currency: Bitcoin Cash provides a decentralized financial system, free from control by banks or central governments, appealing to those concerned about centralized financial control.
• Accessibility: Among the thousands of cryptocurrencies available, Bitcoin Cash is widely recognized and can be purchased on major exchanges. With a price of around $120 per coin, it's more affordable than Bitcoin for investors.

Cons of Bitcoin Cash

• Limited adoption: Despite technological advantages, adoption remains a challenge. Russell Starr from DeFi Technologies highlights that widespread adoption is crucial for the success of any technology or currency, and Bitcoin Cash faces lower adoption rates compared to Bitcoin.
• Security concerns: Faster processing in Bitcoin Cash comes at the expense of reduced security compared to Bitcoin, as it requires less mining power to verify transactions.
• Brand recognition issues: Bitcoin Cash struggles to distinguish itself due to its similar name to Bitcoin and lower popularity since the fork, where Bitcoin emerged as the dominant cryptocurrency.
• Environmental impact: Bitcoin Cash, like Bitcoin, uses a proof-of-work system that consumes substantial energy. While less than Bitcoin, this system still poses environmental challenges due to its energy-intensive nature.

How to buy Bitcoin Cash?

Bitcoin Cash is readily accessible on prominent cryptocurrency exchanges such as Coinbase and Kraken. To acquire Bitcoin Cash, users typically create an account, deposit funds, and then purchase the cryptocurrency. Platforms like PayPal also offer options to buy Bitcoin Cash.

Once acquired, Bitcoin Cash can be held in a cryptocurrency wallet as an investment, traded for other digital assets, or used for transactions.

However, Bitcoin Cash has encountered challenges related to branding. For instance, in early 2021, OKCoin delisted Bitcoin Cash due to concerns that offering both Bitcoin Cash and Bitcoin on the same platform might confuse investors.

Should one consider purchasing Bitcoin Cash or Bitcoin?

Whether you're considering buying Bitcoin Cash or Bitcoin depends on your investment goals or transactional needs.

"Bitcoin Cash has steadily declined in value against Bitcoin since its inception, making Bitcoin the safer long-term investment," noted Gebbing. "However, for transactions, Bitcoin Cash offers broader acceptance and lower fees due to its larger block size and less congested chain."

As with any cryptocurrency investment, Star advises caution due to the asset class's volatility. He suggests that those interested in cryptocurrencies explore beyond popular options like Bitcoin and Ethereum to understand emerging technologies better.

The Australian Investment and Securities Commission (ASIC) warns that cryptocurrencies are highly volatile and largely unregulated, with many Australians falling victim to scams.

While Bitcoin Cash aims to be a viable alternative to Bitcoin, it has yet to achieve its goal of supplanting the original. If it gains wider acceptance as a medium of exchange, it could pose a serious challenge to its more established counterpart.