Bitcoin vs. Bitcoin Cash
If you have been an active player in the crypto market in recent years, you are no doubt familiar with Bitcoin (BTC), but you may also have come across Bitcoin Cash (BCH) and wondered just what it is and how the two differ from one another.
There are a number of key differences and they could play a major role in helping you determine if you’d rather invest in one or the other – or in both. Here’s a breakdown of how Bitcoin Cash came to be and how it differs from Bitcoin on several levels.
A fork of Bitcoin
We are all familiar with Bitcoin. It was the very first cryptocurrency in existence, is based on blockchain technology, is non-regulated and decentralized, and so on. Most importantly, Bitcoin is still the most valuable and popular cryptocurrency on the market.
Bitcoin Cash was created as a “fork” of Bitcoin, or a derivative form of the same code. It is one of several Bitcoin forks, but is the most widely known and used.
A fork occurs when the original code of a blockchain is updated but only some of the nodes on the blockchain accept the update. This creates an entirely new blockchain and thus an entirely new currency – in this case, Bitcoin Cash. If you were holding Bitcoin at the time of the fork in late 2016, you would also automatically receive Bitcoin Cash to match the value of your Bitcoin.
The reasoning behind the fork
The forked creation of BCH occurred because Bitcoin developers wanted to make some small changes to Bitcoin but couldn’t come to a unanimous agreement, so a small group agreed upon their own series of changes and created the forked variation now known as Bitcoin Cash.
There were several prospective Bitcoin changes being discussed around the time of BCH’s creation – mainly focused on improving the speed of the network. The Bitcoin network can only process up to seven transactions per second that take about 10 minutes each – which is an issue in a growing network.
Possible solutions included reducing the amount of data needed to verify a block and making the blocks bigger themselves. However, the developers of BCH felt this new currency would more directly address the issues of speed and scalability for users.
Bitcoin Cash is similar to Bitcoin in several ways – it is a cryptocurrency with its own blockchain and the only way to create new BCH is through mining. But there are also several key differences, including:
- BCH has cheaper transfer fees, making it more economical to use in transactions
- BCH has faster transfer times, meaning you don’t have to wait as long to verify a transaction (Bitcoin transaction processing times continue to slow as more investors join the market)
- BCH can handle more transactions per second
These differences all exist because BCH blocks are eight times larger than those of Bitcoin, making it faster and more economical. This all contributes to the growing popularity of BCH while addressing many of the key issues investors have with Bitcoin relating primarily to speed and scalability.
Disadvantages of BCH vs. BTC
Despite BCH’s benefits over Bitcoin, there are also a few shortcomings when comparing the two. Bitcoin Cash has less investor confidence than Bitcoin, which is mostly due to its newness.
The price of BCH may be less, but the cost of mining is roughly the same, translating to less profit for investors. BCH is also less tradeable and less popular than Bitcoin, which has driven so much of the market behavior for so long and is thus placed at the top of the pyramid when it comes to crypto.
Investing in both
BTC and BCH both have their strengths and weaknesses, and while your strategy may favor one over the other, it’s not a bad idea to invest in both. Diversifying is generally always smart and can be a great way to hedge your portfolio against the volatility of the market.
Bitcoin is for the most part a long-term play, while Bitcoin Cash can be invested in and used in transactions. You can think of BCH like spending money and BTC like your retirement fund, with both serving a functional purpose in the current crypto landscape.
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