If one is a novice to the world of cryptocurrency, they might get confused over some of the terms adopted in the crypto world. Amidst these terms, Bitcoin and Bitcoin Cash are two confounding terms that one needs to have some level of knowledge of.
For understanding the evolution of cryptocurrency, the differences between these two cryptocurrencies need to be comprehended. Both cryptocurrencies share many of the ingredients with which they are made, from the white paper used, the supply, mining algorithm to the reward system.
While both Bitcoin and Bitcoin Cash have established themselves as household names in the crypto market and both focus on emerging as worldwide accepted digital currencies, yet there are several crucial technical differences among the two, which have been explained in this blog.
Bitcoin (BTC) was created by Satoshi Nakamoto, a pseudonym that is renowned for penning the original Bitcoin whitepaper, in 2009. The cryptocurrency was presented as a type of peer-to-peer currency that doesn’t depend on centralized banks.
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Bitcoin remains as the first and the most well known and trusted cryptocurrency, and is widely recognized as a “digital gold” store of value and considered to be the gold standard in the crypto world.
The cryptocurrency has exceptional tradability owing to immense liquidity and additional trading pairs.
Although fiat currency has been the victim of quite some maneuvering by the government, there remains only a limited supply of bitcoins that will ever be available across the world, i.e - 21 million.
Until the supply is exhausted, fresh coins are launched into the market through a process we term as mining. In this process, advanced computers execute calculations which substantiate the transaction validity. The miners are in turn offered a fee on confirmed transactions, and also on freshly generated bitcoins.
From the point of its commencement, many doubts have been raised regarding Bitcoin’s scaling capacity and its ability to emerge as a universal global currency. Although bitcoin’s adoption of blockchain technology enables it to be decentralized and censorship-resistant yet people remain skeptical of the pace at which these transactions are processed.
This is because the bitcoin transactions are initially processed, after which the verification takes place, that is recorded in the blockchain.
For instance, Visa, a payments provider platform can presently process around 150 million transactions in a day, generating an average of 1,700 transactions per second. The platform is confident over its capacity expanding to reach beyond 24,000 transactions per second.
Meanwhile, the Bitcoin blockchain in the present scenario, is capable of handling around merely seven transactions per second, which is quite a huge difference.
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Bitcoin’s data is stored onto the blockchain and can be observed as a chain of data blocks. Every block on the Bitcoin network is restricted to 1MB of data. With the massive demand on the network, the result is a backlog of unconfirmed transactions that are waiting to be included in the blocks.
A fee is also required for the transactions being confirmed. The fee is directly proportional to the processing speed of the transaction. The clogging of the network and the high rate of competition in turn led to soaring prices of the transaction fees, which in many cases exceeded the amount that many users could afford to spare.
In order to resolve these scalability issues, two solutions were put forward :
Boosting the block size and thus allowing for more transactions to be adjusted into every block.
Maintaining the present 1 MB block size and scaling by adopting layer-two solutions.
The proposed solutions ultimately led to many escalating disputes amidst the community, which in turn played the role of the catalyst leading to the “hard fork”, in which one group of miners executed a certain set of changes to the prevailing bitcoin while another group of miners created fresh rules for its offshoot - bitcoin cash.
Bitcoin Cash is known for being a standalone digital currency, which was introduced in August 2017, serving as an offshoot of bitcoin. Although resembling bitcoin in quite some ways, Bitcoin cash functions through its own blockchain and is regulated under the vicinity of its own exclusive rules and regulations.
Upon the split of bitcoin in August 2017, several bitcoin owners were automatically sent bitcoin cash tokens for each bitcoin that they possessed. Yet if an exchange didn’t support bitcoin cash, neither was the bitcoin duplicated into the new currency, nor was it recognised.
On the time of its launch, bitcoin cash’s valuation volatility was at its peak with the cryptocurrency being valued at a fraction of bitcoin’s worth. Amidst the initial week of trading, there were several fluctuations in its price, which refused to dwindle for many months ahead. The currency’s future scope in the long term still remains a mystery.
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Around November 2018, for instance, the network of Bitcoin Cash experienced its own hard fork, leading to the formation of another bitcoin derivation - Bitcoin SV.
This was created as an attempt to help in processing additional transactions simultaneously and to generate additional transaction fees, an increase that aimed at offering an incentive to the miners, for them to continue mining fresh blocks even after the block rewards have halted and also to allow for scalability and swifter speed of transactions.
Difference between Bitcoin and Bitcoin Cash
Interestingly, while both these cryptocurrencies may sound similar, they are actually quite different. Let’s understand this difference in detail ahead.
One apparent difference is that the price of Bitcoin is much higher than that of Bitcoin Cash. Although of course, for an investor, it's not the price that holds priority as much as if it is appreciated in value.
Bitcoin Cash, unlike Bitcoin, has a minimal cost of transaction and also transfers data faster. As a result, the cryptocurrency can be adopted by more people simultaneously. However the cryptocurrency does not hold as much consumer trust as of yet, as is enjoyed by Bitcoin.
The maximum block size of Bitcoin Cash is 32MB as opposed to that of Bitcoin which is 1MB. This makes the cryptocurrency more scalable, giving it the ability to execute more transactions per second, minimizing its environmental effect, while also boosting its viability.
The cryptocurrency claims to hold the capacity of processing around 200 transactions per second, as a result minimizing the transaction cost.
Compared to Bitcoin, Bitcoin Cash adopts a different hash algorithm. This algorithm dismisses the possibility of any replay among the two blockchains. The algorithm has set up a replay and wipeout safety mechanism in place, to prepare for the possibility of the bitcoin cash splitting in the future.
This has been done to ensure that in case any split takes place, both the chains can peacefully coexist without any hindrance caused to the involved parties.
Bitcoin doesn’t support smart contracts, even though work is being carried out for helping to develop decentralized finance (DeFi) services for the cryptocurrency presently.
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The Bitcoin Cash developers, meanwhile, can adopt smart contract language such as Cash Script for enabling further complex functions compared to the basic transactions which are possible through Bitcoin.
For issuing tokens through the Bitcoin blockchain, the projects have to make use of the Omni layer, which is a platform to create and trade custom digital assets and currencies.
In the case of Bitcoin Cash, meanwhile, the Simple Ledger Protocol (SLP) is adopted. The protocol enables developers to issue tokens through Bitcoin cash in a similar manner to the way tokens are issued on the Ethereum blockchain. The SLP protocol also supports non fungible tokens (NFTs), which can be differentiated from each other. Although, unlike their adoption on Ethereum and other blockchains, their adoption on Bitcoin Cash is limited.
Bitcoin (BTC) has a replace-by fee feature that enables unconfirmed transactions to be cancelled or double spent. The Bitcoin Cash (BCH) protocol’s clearing away this feature allows for the cryptocurrency to become more secure, since the unconfirmed transactions are irrevocable.
It also allows for prompt transactions of petite amounts. With its protocol upgrade from May 2021 onwards, the cryptocurrency’s unconfirmed chained transaction limit, that had initially been set at 50, was dismissed, with double spend tests being introduced.
This in turn, additionally boosted Bitcoin Cash's utility to serve as a payment solution in a scenario where a high-volume of small-value transactions are required to be processed in a limited period of time.
Bitcoin’s universal acceptance as a payment form still remains a hot topic of debate, one that shows no signs of subsiding. Ofcourse, the use and popularity of Bitcoin keeps expanding at a steady rate, with investors wishing to derive perks from its widespread adoption.
In spite of its slow rate of transactions, Bitcoin is still viable for cases in which the speed is not pertinent, like in case of real estate purchase. We’ve now got plenty of leading companies that are using solutions to enable everyday purchases through Bitcoin.
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Bitcoin Cash, on the contrary, still remains an unfamiliar concept beyond the cryptocurrency world. Yet it is a preferable option when it comes to instantaneous transactions, specially for meager amounts. The role that this cryptocurrency takes up in the future still remains to be seen.
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