Just like Bitcoin (BTC), Bitcoin Cash (BCH) is a peer-to-peer cryptocurrency, which can be sent directly to anyone, anywhere in the world without the use of a third-party intermediary.
There are two differences between Bitcoin Cash and Bitcoin:
Bitcoin Cash has a larger block size, which results in lower transaction fees and faster transfers on average.
Bitcoin is much more valuable than Bitcoin Cash
Because of these differences, many people think of Bitcoin as a kind of digital gold, and Bitcoin Cash as a kind of digital cash.
When you send Bitcoin or Bitcoin Cash to someone, it has to get packed into a block on a blockchain.
Block size refers to the size of these blocks. It's usually measured in megabytes. When a block is larger it can hold more transactions.
Because of the way Bitcoin and Bitcoin Cash fees work, this translates into lower fees and will often result in faster transfers at lower cost.
Bitcoin and Bitcoin Cash use the same system of fees.
When you send a Bitcoin Cash transaction, you need to attach a transaction fee which goes to the Bitcoin Cash miner who packs your transaction into a block and processes it.
Because the miners get the fees, they will prioritise the highest fee transactions first.
As such, when more people want to send a transaction than there is room on the blockchain, a queue forms and the highest fees get to go first.
Because Bitcoin Cash has a larger block size and fewer users, it doesn't get these kinds of queues, which helps keep its transactions cheaper and faster.
What makes Bitcoin Cash better than Bitcoin?
Bitcoin Cash has some technical differences which make it cheaper to use than Bitcoin.
Specifically, it has a 32MB (megabyte) block size, while Bitcoin has a 1MB block size. This means the Bitcoin Cash blockchain can carry a lot more transactions, which keeps its fees low even in times of high use.
By contrast, in times of high activity the Bitcoin blockchain fills up and transactions have to start queuing, which slows down transfer times and raises fees.
In a nutshell, BCH is much faster and cheaper than BTC.
What makes Bitcoin Cash worse than Bitcoin?
The main technical downside of larger blocks is that they're harder for miners to "digest", which can lead to problems like unintentionally splitting the blockchain into multiple branches. It also gives an extra advantage to the miners who are able to digest them more easily, which increases the risk of a blockchain centralising around those kinds of miners.
Fortunately, in the case of Bitcoin Cash this is more of a theoretical problem than an actual one, as 32MB is not large enough to cause these kinds of problems.
The main reason BCH is worse than BTC is simply because BTC is worth a lot more, so more people use BTC than BCH.
In fact, Bitcoin Cash has never even come close to fully utilising its large block size.
In cryptocurrencies like Bitcoin and Bitcoin Cash, the value of a coin is also functionally very important because it determines how secure and reliable the network is. This is because the more valuable a coin is, the more miners it can support.
The chart below shows the mining power (known as hashrate) of Bitcoin (blue) vs Bitcoin Cash (red).
As you can see, Bitcoin consistently has a much higher hashrate than Bitcoin Cash, and so is more resistant to certain types of attacks.
Still, despite the huge difference, Bitcoin Cash is still believed to have sufficient hashrate to withstand realistic attacks.
Why is Bitcoin worth more than Bitcoin Cash?
But if Bitcoin Cash is cheaper and faster, why is Bitcoin worth more?
No one knows for sure, but there are two main theories: an economic one and a social one.
The economic theory
One theory holds that frictions, such as higher fees and slower transfers, are actually good for maintaining the value of assets.
This is because it makes it more difficult and expensive to dispose of, either by selling or spending. These high fees and slow transfers subtly encourage people to hold onto their Bitcoin instead of spending it, which reduces the total amount of Bitcoin available on the open market and drives prices upwards.
The social theory
The social theory is that people are simply more attracted to Bitcoin because it's worth more, which in turn makes it even more valuable and more attractive.
BTC also bears the original Bitcoin name, which helps increase its brand recognition.
How Bitcoin Cash is developing
Current development in Bitcoin Cash is largely geared towards utilising its large block size for purposes other than simply carrying BCH transactions.
The large block size creates ample room to carry "smart contract" type programs on the Bitcoin Cash blockchain, although there are some challenges associated with adapting the underlying Bitcoin framework for smart contracts, which other blockchains don't have to contend with.
What to consider before buying Bitcoin Cash
Bitcoin Cash functionally performs much better than Bitcoin and its larger block size hasn't resulted in any significant downsides. But is that enough?
When considering Bitcoin Cash...
As a store of value: The cryptocurrency market has shown a clear preference for BTC over BCH, and despite the functional benefits of BCH, it has far fewer users than BTC. When viewed as a store of value people can believe in, Bitcoin Cash appears to be getting outclassed by Bitcoin.
As a digital currency: The functionality of payment-oriented cryptocurrencies like BCH is limited by their volatility, while stablecoins do not have this problem. Bitcoin Cash (as well as Litecoin, DASH and many more) may be outclassed by stablecoins and other developments outside of cryptocurrency. However, BCH's volatility may also be seen as an advantage for those who want a digital currency whose value is completely independent of existing fiat currencies.
As a digital currency: As a holistic utility blockchain, the rigid framework underpinning Bitcoin Cash may put it at a disadvantage compared to more smart-contract-specific blockchains such as Ethereum. Similarly, its comparatively small developer community may limit the pace and scope of application development on the Bitcoin Cash blockchain.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
Andrew Munro is the global cryptocurrency editor at Finder. After previously writing about insurance and other areas, he now covers the latest developments in digital assets and blockchain and works on Finder's comprehensive range of guides to help people understand cryptocurrency.
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