Bitcoin Cash Explained

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Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.

Bitcoin was created back in 2008, and hit its all-time high of $20,000 in 2017, even if some people thought that Bitcoin’s technology was too slow as a means of payment and not fit for the decentralized payments network that some people hoped it would be.

So a group of Bitcoin coders “forked” the Bitcoin blockchain—that is, they split from the Bitcoin blockchain to forge their own path. Their fork, called Bitcoin Cash, optimised the Bitcoin blockchain for payments, ready for the new world order.

The plan worked—sort of. Bitcoin Cash isn’t as popular as Bitcoin, but it’s still a major cryptocurrency. Understanding its lore and history is useful when considering how to invest your cryptocurrencies.

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What is Bitcoin Cash?

Throughout much of its history Bitcoin blockchain has been criticized as being too slow because its “blocks” were only 1 MB in size. This means that the computers processing Bitcoin transactions could only handle a small amount of transactions at a time, causing the network to clog up and become expensive to run.

One need only look at a chart to understand their concerns. In December 2017, the average cost of processing a single Bitcoin transaction peaked at $54 USD. By comparison, buying things with a debit card or moving money between bank accounts is usually free.

A group of Bitcoin coders and investors had an idea: What if the block size increased to 8 MB, making Bitcoin 8x as capable of processing transactions? This, theoretically, would optimise it for payments.

The group quickly ran into resistance: Some users preferred to keep the blocks limited to 1MB in size. These users weren’t concerned about Bitcoin being used as a means of payment and liked the 1MB block size because it made it feasible for anyone to run a Bitcoin node—a computer capable of processing Bitcoin transactions.

Proponents of Bitcoin Cash proponents were happy to make this sacrifice if it meant that people could use Bitcoin to pay for things. But with the conflict unresolved, the only way to turn Bitcoin into a means of payment was fork from the Bitcoin blockchain. So in August 2017, they did, and thus Bitcoin Cash was born.

Defectors could convert their Bitcoin into Bitcoin Cash for use on the new blockchain. But it was a one way system: Bitcoin Cash, an entirely separate cryptocurrency, couldn’t be turned back into Bitcoin.

When Bitcoin Cash split from Bitcoin in 2017, there was a second civil war, this time within the Bitcoin Cash community. Another faction wanted to increase the block size to 128MB—16 times larger than Bitcoin Cash.

The group forked from Bitcoin Cash, calling their new creation Bitcoin SV. SV stands for “Satoshi’s Vision,” because the faction believed that it preserved the vision of Bitcoin’s creator, Satoshi Nakamoto.

In 2018, the block size for Bitcoin Cash increased to 32MB, four times larger than Bitcoin Cash’s original block size, and 32 times as capable as Bitcoin.

Despite the increases in block size, both Bitcoin Cash and Bitcoin SV rarely come anywhere close to reaching their limits. Most Bitcoin Cash blocks are under 200 kilobytes—160x less than the block sizes Bitcoin Cash is capable of supporting, and about the fifth of the size of the average Bitcoin block.

Bitcoin vs Bitcoin Cash

Functionally, Bitcoin Cash is very similar to Bitcoin. Both are cryptocurrencies and under the hood are more alike than they are different. Both have similar current circulating supplies: about 18.5 million.

The main difference is the block size. The practical implication of this is that transactions on the Bitcoin Cash blockchain are far cheaper than they are on the Bitcoin blockchain. Bitcoin Cash transactions usually cost less than a cent, while Bitcoin transactions are frequently several dollars, in some cases more than $10 when the network is busy.

This makes Bitcoin Cash much cheaper as a means of payment. As more merchants begin to accept cryptocurrencies, they may prefer Bitcoin Cash to Bitcoin.

The coins also have vastly different market capitalizations and prices. Bitcoin is the bigger fish. As of November 2020, Bitcoin has a price of $15,251 USD and a market capitalization of $282 billion USD. That makes it the largest cryptocurrency by market capitalization.

In comparison, one Bitcoin Cash coin costs $256, and Bitcoin Cash’s entire market cap stands at $4.7 billion, as of November 2020, making Bitcoin Cashthe sixth largest cryptocurrency by market cap. Bitcoin SV, the fork of Bitcoin Cash, is even less popular. It is the 11th largest cryptocurrency by market cap, with a price of $158 and a market cap of $2.9 billion.

And while the prices of both Bitcoin SV and Bitcoin Cash (and other spinoffs, such as Litecoin) tend to track Bitcoin, Bitcoin Cash is generally in decline. Bitcoin Cash has decreased in value relative to Bitcoin since it launched. At launch, a Bitcoin Cash coin was worth approximately 0.16 of a bitcoin. This rose to 0.229 in early 2018, but fell to 0.019 as of November 2020.

Pros and Cons of Bitcoin Cash

Lower transaction feesLower adoption
Greater scalabilityLower price

Bitcoin Cash has some clear advantages over Bitcoin. It is useful for transactions, since it has moved on from the 1MB block size limit. This, potentially, means that Bitcoin Cash may become more widespread as a means of payment. If Bitcoin grows, the strain on its block size limit would only increase—Bitcoin Cash has plenty more room in its blocks.

However, even though Bitcoin Cash may be theoretically better as a means of payment, many more people use, trade, and own Bitcoin, which is by far the world’s largest cryptocurrency by market cap and thus the best known. This means that more vendors accept it today, even if it could be argued that it is technically inferior to Bitcoin Cash.

Bitcoin’s popularity also brings another advantage: security. Because Bitcoin’s a lot bigger than Bitcoin Cash, more miners are required to secure its network. The more miners, the more decentralized the Bitcoin network and the fewer points of failure. Bitcoin Cash, the less popular of the two currencies, is backed by far less computational power and is therefore more vulnerable to attack.

How to Trade Bitcoin Cash

Just like Bitcoin, Bitcoin Cash can be traded on most major exchanges, such as BinanceCoinbase and Kraken. To trade crypto on these exchanges, you have to sign up, provide some form of identification and then load up your wallet with fiat currencies, such as the US or Canadian dollar, or cryptocurrencies, such as Bitcoin.

Some exchanges let you buy Bitcoin Cash directly for fiat currencies, while others only allow you to buy Bitcoin Cash with other cryptocurrencies.

Often, this Bitcoin Cash will end up in a Bitcoin Cash wallet—sort of like a bank account for your cryptocurrencies. When buying or selling Bitcoin Cash from an exchange, you’ll likely incur several fees on top of the actual transaction fee levied by the Bitcoin Cash blockchain. These may include deposit, withdrawal, and trading fees.

The exchange may provide you with a Bitcoin Cash wallet, but it’s better to send your Bitcoin Cash to your own wallet, just in case the exchange collapses. One of the most popular crypto wallets is Coinbase’s Trust Wallet. Once your Bitcoin Cash is snug in its wallet, you can transfer it between exchanges or send to your friends. Or, to carry out Bitcoin Cash’s original intentions, you can use it to buy things at participating merchants.

Some exchanges only let you buy and sell Bitcoin Cash—they don’t let you freely move it around the cryptocurrency ecosystem. Challenger bank Revolut does this, and PayPal will only support the buying and selling of Bitcoin Cash.

PayPal, which is integrating Bitcoin Cash within its services, will also let its customers buy goods and services offered by its 26 million merchants. To do this, PayPal converts the Bitcoin Cash at the point of sale into the relevant fiat currency, so that the merchant never has to handle Bitcoin Cash.

Finally, Bitcoin Cash may have its moment.

Last Updated November 30, 2020

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