Bitcoin vs. Bitcoin Cash: Why It’s Important for Investors To Know the Difference
Bitcoin is the most valuable cryptocurrency on the market, and many investors are starting to notice.
But taking the first step toward investing might be more confusing than you’d think thanks to another popular cryptocurrency that shares Bitcoin’s name: Bitcoin Cash. These cryptocurrencies are different, despite the name similarities.
Since experts say you should stick to Bitcoin and Ethereum as long-term investments, it’s important not to confuse Bitcoin Cash and the original Bitcoin. Here is some more basic information on both:
What Is Bitcoin
Bitcoin is the first cryptocurrency, launched in 2009 by a pseudonymous figure named Satoshi Nakomoto. Its price has fluctuated over the past year from lows of around $10,000 per coin to highs of more than $60,000.
Bitcoin was originally intended to be a peer-to-peer electronic cash system that you would use to make payments. However, thanks to slow processing and volatility, “Bitcoin is actually not very easy to use when it comes to payments,” says Kiana Danial, author of “Cryptocurrency Investing for Dummies.” Because of that, Bitcoin’s original intention was pretty much scrapped from the beginning.
Instead of making payments over the internet using Bitcoin, people bought and held the coins in the hope they would increase in value over time, similar to how some people hold onto gold.
But a group of Bitcoin users in 2017 wanted to improve Bitcoin’s ability to process transactions, and make it easier to use the cryptocurrency for its original intention as a peer-to-peer electronic cash system. Enter: Bitcoin Cash
What Is Bitcoin Cash
Bitcoin Cash was spurred by a desire for “other crypto assets and cryptocurrencies optimized for actual payments,” says Danial. “Bitcoin Cash literally forked out of Bitcoin for that reason.”
If a group of developers wants to change an aspect of a current crypto, they can split, or fork, the blockchain it lives on. Forking takes the main code from an existing cryptocurrency, like Bitcoin, and then adds to or alters it slightly so that it becomes its own, separate entity.
But even though Bitcoin Cash was developed to serve as an electronic cash payments system, it has experienced much of the same volatility that holds back Bitcoin’s potential as a true currency. The volatility is why you should be particularly cautious when using either currency to make payments (in fact, we recommend that you don’t).
Imagine paying for a $5 coffee with any cryptocurrency, and tomorrow that same amount of crypto is worth $20. That volatility could lead to a loss for you. Plus, while you don’t need to report crypto purchases to the IRS, you do need to report when trading crypto for goods and services, requiring extra diligence on your end.
Bitcoin vs. Bitcoin Cash: Which Should You Buy?
BEFORE YOU INVEST IN CRYPTO
Experts say it’s smart to keep your crypto investments under 5% of your overall portfolio. Crypto prices fluctuate wildly by the day, and experts also say you’d be smart not to invest more than you’d be OK losing if the market dropped out altogether. Crypto investments should also never get in the way of other financial priorities like saving for emergencies, paying off high-interest debt, and saving for retirement using more conventional investment strategies.
Investing experts recommend sticking with the two most well-known cryptocurrencies, Bitcoin and Ethereum, and to pass on other altcoins, including Bitcoin Cash.
“I personally do not go beyond Bitcoin and or Ethereum,” Michael Kelly, a CFA at Switchback Financial told NextAdvisor recently. “I feel those two have a bit more of an established base and feel the risk of other coins becomes too significant.”
There are thousands of different cryptocurrencies on the market, and most have very little value and uncertain potential for value growth in the future. So even though Bitcoin Cash shares its name, experts say investors should take a pass and stick to Bitcoin.
Which is More Valuable: Bitcoin or Bitcoin Cash?
Bitcoin launched in 2009, and has climbed from $0 to over $60,000 during its lifespan, though the ride has been anything but smooth. Just this year, Bitcoin reached its highest price point of all time at just above $60,000, and then rapidly lost 50% of that value in the following weeks.
Bitcoin Cash has only been available since 2017, but has a similarly rocky price history. It had a high point shortly after it was launched of around $3,785 per coin, though the price has been fluctuating between around $200 and $1600 in the past year.
In either case, it’s also important to remember that Bitcoin and Bitcoin Cash only have value because people think they do. Cryptocurrencies are not tied to any other asset class or company, making them highly speculative and volatile — all part of the reason why you should never invest more than 5% of your total portfolio into cryptocurrency and only invest what you’re OK with losing.
How to Buy Bitcoin or Bitcoin Cash
While experts say investors should stick with Bitcoin, the process for buying either is essentially the same:Bitcoin vs. Bitcoin Cash: Why It’s Important for Investors To Know the Difference
Choose a cryptocurrency exchange: You can’t purchase cryptocurrency through a traditional brokerage or your bank, so you’ll need to access a specific cryptocurrency exchange like Coinbase or Gemini.
Fund your account: You’ll need to connect your bank account or debit card to transfer funds into your chosen cryptocurrency exchange.
Place an order: Once your payment method is in place, place your order. You can designate how much you’d like to buy in either USD or in crypto. Most people will likely be purchasing fractional shares of a single coin, since they are so expensive.
Store your crypto: For smaller amounts of crypto, you can keep it directly in your exchange. But a crypto wallet will provide more security if you have large amounts of crypto and want the extra security that can come with it.