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Bitcoin vs. Bitcoin Cash: Understanding the 6 Key Differences

Last Updated November 14, 2023 12:49 PM
Andrew Kamsky
Last Updated November 14, 2023 12:49 PM

Key Takeaways

  • Bitcoin’s smaller 1 MB block size limits its transaction capacity, while Bitcoin Cash’s larger 32 MB block size enhances transaction speed and reduces fees.
  • Bitcoin Cash was created from Bitcoin in 2017 to address scalability issues, opting for a larger block size that differs from Bitcoin’s original focus on decentralization.
  • Despite sharing a common origin, Bitcoin and Bitcoin Cash operate on separate blockchains and serve different purposes, making them non-interchangeable.
  • Bitcoin emphasizes security and decentralization with its smaller block size, whereas Bitcoin Cash focuses on efficiency with faster transactions, potentially compromising some aspects of decentralization.

Bitcoin and Bitcoin Cash are two similar digital assets in terms of their foundational structure. However, both cryptocurrencies hold unique traits that make them differ from each other.

What Is The History Of Bitcoin And Bitcoin Cash?

The origins of Bitcoin (BTC) and Bitcoin Cash (BCH) can be traced back to the inception of Bitcoin with its genesis block in 2009, and the significant fork in 2017 that led to the creation of Bitcoin Cash. The following narrative delves into the detailed history of these two prominent cryptocurrencies:

Bitcoin: The Genesis Of First Cryptocurrency (2009)

Bitcoin, the first cryptocurrency, was created by an individual or group of individuals using the pseudonym Satoshi Nakamoto. It was introduced in 2009 as a decentralized digital currency, operating on a peer-to-peer network without the need for a central authority. 

The idea was to enable direct digital transactions between parties, secured by blockchain technology. Bitcoin’s creation was partly in response to the 2008 financial crisis, aiming to provide a transparent, tamper-proof, and a decentralized financial system.

Bitcoin Cash: A Response To Bitcoin Scalability Issues (2017)

As Bitcoin gained popularity, it faced scalability issues. The Bitcoin network could only handle a limited number of transactions per second due to its 1 MB block size limit. This limitation led to slower transaction times and higher fees, especially during periods of high demand.

Bitcoin’s debate on scalability in 2017, resulted in the Bitcoin community being divided over how to address scalability issues. One faction advocated for keeping the block size small to maintain decentralization and security, while another group pushed for increasing the block size to process more transactions and to reduce fees.

Unable to reach a consensus, the latter group initiated a hard fork of the Bitcoin blockchain on August 1, 2017. This fork led to the creation of Bitcoin Cash (BCH), a new cryptocurrency with an increased block size limit (initially 8 MB, later further increased), aimed at providing faster transaction speeds and lower fees. 

Bitcoin Vs Bitcoin Cash: How They Are Different

Bitcoin Cash was designed to be used more as a medium of exchange for daily transactions, in contrast to Bitcoin, which is a modern day store of value or “digital gold” over the last decade.

The Bitcoin fork to Bitcoin Cash was not just technical but also ideological, reflecting differing visions for the future of cryptocurrencies. While Bitcoin continues to be the most recognized and valued cryptocurrency, Bitcoin Cash has also established

Bitcoin vs Bitcoin Cash: 6 Key Differences

The cryptocurrency world is vast and varied, with Bitcoin and Bitcoin Cash being two of its most prominent players. Aside from the name, the differences between the two cryptocurrencies are significant, as explained below.

1.0 Price And Market Capitalization

At the outset, the most noticeable difference between Bitcoin and Bitcoin Cash lies in their market value. Currently, Bitcoin stands at around $37K  with a market capitalization exceeding $750 billion. In contrast, Bitcoin Cash is priced at $220 , with a market cap of over $4.7 billion as per CoinMarketCap data. This stark difference in value and market presence sets the stage for further differences.

2.0 Transaction Speed And Fee

Bitcoin, governed by predefined rules like a capped supply of 21 million coins and the halving events every four years, faces limitations in transaction speed, processing only 3-7 transactions per second (TPS). 

The network’s 1 MB block size means each block can contain about a thousand transactions, leading to increased competition and higher transaction fees.

Bitcoin Cash, born out of a hard fork from Bitcoin, addresses these issues with a larger block size of 32 MB (up from an initial 8 MB), allowing for around 100 TPS. This enhancement not only speeds up transactions but also reduces costs significantly, making Bitcoin Cash a more efficient alternative at the expense of its decentralization.

3.0 Block Size: A Core Technical Difference

The block size is a fundamental technical difference between the two cryptocurrencies. Bitcoin’s 1 MB block size is dwarfed by Bitcoin Cash’s 32 MB. 

This increase not only boosts transaction speed (up to 200 TPS) but also reduces transaction costs when compared to a fraction of Bitcoins cost. However, this apparent strength has not translated into significant growth for the Bitcoin Cash network.

4.0 Security: The Trade-Off

Bitcoin’s network is renowned for its decentralization and security, with nodes spread worldwide. This extensive distribution enhances its security. Bitcoin Cash, while faster and cheaper, potentially sacrifices some degree of decentralization and security due to its larger block size and faster processing capabilities.

5.0 Smart Contracts And DeFi

Bitcoin was designed for peer-to-peer transactions and does not natively support smart contracts and decentralized applications (dApps). However, with developments such as the integration of layers like Stacks and RSK, Bitcoin developers are actively working to support smart contracts on the Bitcoin network, challenging the notion that Bitcoin cannot accommodate these functions. 

In contrast, Bitcoin Cash readily supports smart contracts and DeFi services, allowing for more complex functions through languages like Cashscript.

6.0 Token Issuance And NFTs

Bitcoin’s Omni Layer, a software layer built on top of the Bitcoin blockchain enhances the features of Bitcoin through its own additional characteristics. By providing smart contract capabilities, Omni Layer enables developers to create customized cryptocurrencies. Developers

 hold the power to build cryptocurrencies with specific features and rules. Essentially, Omni Layer helps expand the Bitcoin network beyond its own currency in a decentralized and transparent way.  

Bitcoin Cash uses the Simple Ledger Protocol (SLP) for token issuance, supporting NFTs and unique, non-fungible tokens (NFTs). Both networks, however, still lag in widespread adoption in this area.

The Decentralization Vs. Transaction Efficiency Debate

When critically analyzing the philosophical divide between Bitcoin and Bitcoin Cash, investors will need to identify an important function to safeguard. Being the protection of the decentralization of Bitcoin, or the prioritization of transaction efficiency in Bitcoin Cash.

Decentralization (Bitcoin’s Key Focus)

Bitcoin’s main focus is decentralization, which was a key aspect of Satoshi’s vision because it emphasizes financial democracy. Bitcoin maximizes decentralization via small block sizes, as this allows for widespread participation in network maintenance. 

However, as mentioned prior, this limits transaction capacity and causes slower processing and results in higher fees. Despite these challenges, Bitcoin enthusiasts accept these limitations, valuing its role as a secure, inflation-resistant digital asset.

Transaction Efficiency (Bitcoin Cash’s Key Focus)

As explained, Bitcoin Cash was created with an emphasis on transaction efficiency. By raising the block size limit, more transactions can be handled in a single block. By lowering transaction costs and speeding up processing, this method becomes feasible for regular transactions, such as purchasing coffee.

Both networks continue to evolve. For instance, the Lightning Network aims to increase transaction speed and reduce costs without compromising its decentralization. Bitcoin Cash continues to explore ways to optimize its larger block strategy.

Conclusion

The differences between Bitcoin and Bitcoin Cash centers around a fundamental debate whereby the Bitcoin community prioritizes decentralization, a choice that upholds the principles surrounding financial democracy and security but at the cost of transaction speed and scalability. 

On the other hand, Bitcoin Cash, emerging from the limitations of Bitcoin, opts for larger block sizes to enhance transaction efficiency and usability, potentially compromising on the degree of decentralization. 

As both cryptocurrencies continue to develop and adapt, they will continue to offer distinct paths for users and investors, each with its own set of advantages, challenges, and potential for future growth.

FAQs

What are the main differences between Bitcoin and Bitcoin Cash?

Bitcoin and Bitcoin Cash differ primarily in block size, transaction speed, and fees. Bitcoin focuses on decentralization with a smaller block size, leading to slower transactions and higher fees. Bitcoin Cash increases block size for faster, cheaper transactions, which potentially compromises decentralization.

How did Bitcoin Cash originate from Bitcoin?

Bitcoin Cash was created in 2017 through a hard fork of Bitcoin, in response to scalability issues. It increased the block size limit to improve transaction speed and reduce fees, diverging from Bitcoin’s original framework.

Can Bitcoin and Bitcoin Cash be used interchangeably?

No, Bitcoin and Bitcoin Cash are separate cryptocurrencies with different blockchains. They cannot be used interchangeably as they operate on different networks and have distinct technical and philosophical frameworks.

What are the implications of the block size difference between Bitcoin and Bitcoin Cash?

Bitcoin’s smaller block size limits transaction capacity, leading to slower processing and higher fees, but ensures greater decentralization. Bitcoin Cash’s larger block size allows for faster, cheaper transactions but may compromise some decentralization aspects.

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