Bitcoin Cash

Due to philosophical disagreements among Bitcoin developers, Bitcoin Cash was founded in 2017.

What's the difference between Bitcoin and Bitcoin Cash, and how do you tell the two apart? If you're talking about the price, the difference is currently nearly $50,000. However, each cryptocurrency has its own background. Here's a look at the key discrepancies between these two digital currencies.

Companies often spin off portions of their businesses into separate, stand-alone businesses in the stock market. Shareholders normally get a portion of the new business or monetary compensation when this occurs. When Pfizer (ticker: PFE) spun off its animal health division Zoetis (ZTS) in 2013, for example, Pfizer shareholders were able to convert $100 in Pfizer stock to $107.52 in Zoetis shares.

Instead of spinoffs, there are "forks" of cryptocurrency. When Bitcoin Cash (BCH), also known as Bcash, forked off from Bitcoin (BTC) in August 2017, anyone who owned a bitcoin got an equal amount of Bitcoin Cash.

"Bitcoin Cash is a cryptocurrency that started as a fork, or copy, of Bitcoin," says Jamison Sites, senior manager and financial services senior analyst at RSM, an audit, tax and consulting company serving middle-market businesses. "In 2017, groups of Bitcoin developers put forward competing changes for improvements to the bitcoin protocol. The network operators were split on which protocol to adopt. Because there was no agreement on which proposal to support, Bitcoin split into two," Sites says.

The split resulted from a political disagreement within the Bitcoin community; some developers saw Bitcoin as primarily a store of value, while others wanted to promote its use as a medium of exchange.

For the latter group, Bitcoin Cash was formed.

"Bitcoin Cash is a hard fork of Bitcoin caused by the desire to increase the block size, thereby allowing more transactions to process at a time," says Sean van der Wal, managing partner at Drawing Capital Group.

Since the amount of transactions every second was increasing, Bcash was expected to help the cryptocurrency scale up and develop more smoothly.

Bitcoin Cash began with a market capitalization of about $240. Bitcoin was selling for about $2,700 at the time. Anyone who owned bitcoin before the fork received an equivalent number of Bcash, which they could use however they wished. Bitcoin cash was not available to those who purchased bitcoin after the fork.

Bitcoin

Bitcoin's roots are much more obscure. The idea was first laid out in the now-famous 2008 white paper "Bitcoin: A Peer-to-Peer Electronic Cash System," written by Satoshi Nakamoto or a group of people with the same name. Satoshi's true identity is also unknown. Early in 2009, the first bitcoin transactions took place.

"Bitcoin is a digital asset or digital currency of sorts not owned or controlled by anyone. It's part of a distributed system run by anyone who operates nodes all over the world," says Brock Pierce, chairman of The Bitcoin Foundation and a longtime evangelist of Bitcoin.

The invention of a decentralized digital currency that would completely disintermediate financial institutions was Bitcoin's breakthrough idea. It did away with the need for a trusted third party to validate transactions and mediate conflicts, instead spreading the task of transaction verification across the network, where many different parties could use their computing power to verify that bitcoins were being sent.

Another groundbreaking concept was the imposition of hard limits on the total amount of bitcoins that could ever exist – 21 million – as well as a well-defined framework for creating new bitcoin. Every four years, the rate of bitcoin formation is approximately halved. There are currently more than 18.6 million copies in print, accounting for more than 88 percent of the total.

One of the strongest bullish theses for Bitcoin is its scarcity, particularly as compared to the dollar, which the Federal Reserve can print indefinitely.

A lot has changed since the first transactions in 2009. Cryptocurrency has now evolved into its own asset class. One bitcoin was worth almost nothing in the beginning: less than a tenth of a penny. The price has risen dramatically over years of turbulent ups and downs, recently hitting highs of more than $52,000.

The Most Significant Differences Between Bitcoin and Bitcoin Cash

The defining difference between Bitcoin and Bitcoin Cash was the conceptual divide within the developer community – the one that led to the creation of Bitcoin Cash in the first place.

"The bitcoin core developers believe that Bitcoin is more of a digital gold or a store of value, and so they weren't doing things to increase the transaction throughput. The Bitcoin Cash community believes that it should be used more as a means of exchange," Pierce says.

Ironically, the Bitcoin Cash community's deliberate attempts to encourage the network to scale up and promote more transactions haven't resulted in it being more commonly accepted as a currency than bitcoin itself in the years after.

Companies like PayPal (PYPL), Zynga (ZNGA), and Overstock.com (OSTK) have accepted bitcoin as a means of payment despite its shortcomings as a currency. This year, also Mastercard (MA) is integrating cryptocurrency into its network.

Bitcoin is typically more accepted by institutional investors than its bitcoin cash offshoot. Tesla's (TSLA) recent decision to diversify its balance sheet by buying $1.5 billion in bitcoin demonstrates the cryptocurrency's increasing acceptance among investors.

"Bitcoin became an investment vehicle and the reserve currency of the cryptouniverse, which renders it a prime asset class for diversifying institutional portfolios." says van der Wal.

Bcash's price has risen from around $240 to recent highs of more than $900 since the Bitcoin Cash fork in 2017, while Bitcoin's price has risen from around $2,700 to recent highs of more than $50,000 in mid-February this year.

Transaction Fees and Transaction Speed

The transaction fees are one of the most noticeable variations between Bitcoin and Bitcoin Cash. Although the costs vary depending on the level of congestion on either blockchain, the Bitcoin network has higher transaction processing fees than Bitcoin Cash.

However, because the Bitcoin Cash platform's transaction volume is just marginally higher than that of BTC as of March 2021, this may not be a major selling point.

A transaction on the Bitcoin Cash network would likely cost you around $0.01, while a similar exchange on the Bitcoin network would cost you around $20, with the possibility of going even higher [data as of April 22, 2021].

BTC developers implemented the Lightning Network (LN), a second-layer scaling solution, to address the first decentralized platform's high transaction fees. LN is a payment channel that sits on top of the main chain. It contributes to the reduction of Bitcoin transaction fees while also increasing transaction speed.

With its increasing number of nodes and payment channels, LN continues to gain traction. Furthermore, cryptocurrency exchanges such as OKEx and Bitfinex have adopted the workaround, making Bitcoin deposits and withdrawals cheaper and quicker.

When it comes to transaction speed, Bitcoin can handle seven transactions per second (tps), while the BCH-powered network can handle 116 tps. The Lightning Network technically outperforms BCH by allowing billions of transactions per second, but it is still far from being ready to handle the volume of traffic.

The mempool is another important metric to compare between the two platforms. A mempool is a virtual location where legitimate but unconfirmed transactions waiting to be added to a block are stored by a decentralized protocol like Bitcoin or Bitcoin Cash.

The higher the number of transactions in the memory pool, the more network congestion there would be. Network nodes set a transaction cost level to decongest the network. Above this threshold, all transactions are excluded from the pool.

In this situation, BCH wins over BTC because its mempool is less congested.

BTC has obviously dominated the branding and price wars, as it is worth more than the other — but there is plenty of space in the thriving and still nascent digital asset market for more payment-focused cryptocurrencies including Bitcoin Cash.