The world of cryptocurrencies is complex and dynamic. Among the numerous digital currencies, Bitcoin (BTC) and Bitcoin Cash (BCH) are at the center of many discussions. Both cryptocurrencies originate from the original Bitcoin blockchain and are often equated due to their similar names. However, a closer look reveals fundamental differences between the two coins, each backed by competing communities that claim to embody Nakamoto’s vision. This article examines the history, core principles, use cases, and technological differences between Bitcoin and Bitcoin Cash.
Bitcoin was launched in 2009 by an anonymous person or group under the pseudonym Satoshi Nakamoto. It was the first decentralized cryptocurrency to use blockchain technology, paving the way for the development of numerous other digital currencies. Bitcoin was conceived as a peer-to-peer electronic cash system that operates without a central authority. However, as Bitcoin’s popularity grew, so did the strain on the network. The Bitcoin blockchain could only process a limited number of transactions per second, leading to delays and higher transaction fees. These scaling issues led to a split in the Bitcoin community in 2017. One part of the community advocated for increasing the block size to allow more transactions per block. The other part opposed this and supported alternative solutions like the Lightning Network to improve scalability. This disagreement eventually led to a hard fork of the Bitcoin blockchain in August 2017, resulting in two parallel blockchains with their own protocol software.
Bitcoin is the most well-known virtual currency and is often referred to as digital gold. Its primary goal is to serve as a store of value and a medium of value transfer. The success stories of early investors who became millionaires have significantly contributed to its popularity. Bitcoin is often viewed as a hedge against inflation and traditional financial systems, providing users with the ability to transfer funds worldwide without intermediaries.
Bitcoin Cash was created with the goal of realizing the original vision of Bitcoin as an electronic peer-to-peer payment system. Proponents of Bitcoin Cash argue that low transaction fees and fast transactions are crucial to establishing cryptocurrencies as a mainstream payment method. Therefore, Bitcoin Cash focuses on making transactions more efficient and cost-effective.
Another key difference lies in the visions of the two communities. The Bitcoin community places great emphasis on decentralization and Satoshi Nakamoto’s vision. Decentralization is a key element that takes precedence over everything else. As a result, the majority of the community chose solutions like the Lightning Network to improve scalability without compromising decentralization. On the other hand, Bitcoin Cash supporters place greater emphasis on the widespread adoption of cryptocurrencies by consumers. They assign special significance to the title of Nakamoto’s initial Bitcoin paper, “A Peer-to-Peer Electronic Cash System,” by focusing on the payment aspect. They argue that low transaction fees and fast confirmation times are more important than strict adherence to decentralization principles.
The most significant technological difference between Bitcoin and Bitcoin Cash, as previously mentioned, lies in the block size. Bitcoin has a block size of 1 MB, which was effectively increased to about 1.8 MB through the Bitcoin protocol update SegWit. Bitcoin Cash, on the other hand, started with a block size of 8 MB, later increased to 32 MB. This allows Bitcoin Cash to process about 15 times more transactions per block than Bitcoin. However, Bitcoin Cash blocks are often not fully utilized and rarely reach a capacity of 1 MB. The low utilization enables fast transactions but also leads to inefficiencies and increased storage requirements.
Bitcoin relies on the Lightning Network, a second-layer solution that allows users to conduct microtransactions almost instantly and with minimal fees. The Lightning Network works by processing most transactions off-chain and only recording the final results on the blockchain. Bitcoin Cash, on the other hand, follows an on-chain scaling approach. By increasing the block size, scalability is maintained directly within the blockchain. This means that all transactions are recorded directly on the blockchain without relying on second-layer solutions.
Transaction speed and fees are essential distinguishing features between the two cryptocurrencies. Bitcoin transactions can sometimes take several minutes to hours due to the limited block size and high demand, especially during peak times. Transaction fees can also be significant. Bitcoin Cash, in contrast, offers faster transaction times and lower fees. The larger block size allows more transactions to be processed per block, reducing the likelihood of delays and high fees.
Both Bitcoin and Bitcoin Cash use the same Proof-of-Work (PoW) mining algorithm called SHA-256. This means that the basic mechanisms for securing the network and validating transactions are the same. However, Bitcoin Cash implemented replay protection to ensure that transactions conducted on one blockchain (e.g., Bitcoin) are not automatically valid on the other blockchain (Bitcoin Cash).
Bitcoin and Bitcoin Cash are two significant cryptocurrencies that, despite their common origins, pursue different goals and technical approaches. Bitcoin focuses on being a store of value and relies on off-chain solutions like the Lightning Network. Bitcoin Cash, on the other hand, aims to be an efficient and cost-effective payment system by increasing the block size and processing transactions directly on the blockchain. The choice between Bitcoin and Bitcoin Cash ultimately depends on the individual needs and priorities of the users. In a constantly evolving crypto landscape, it remains exciting to see how these two projects will continue to develop.
Disclaimer: This report is for information and knowledge transfer purposes only and is not an investment recommendation.
Julia Knolle
E-Mail: julia.knolle@horn-company.de
Martin Rupprecht
E-Mail: martin.rupprecht@horn-company.de
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