Bitcoin, Bitcoin Cash, dogecoin, mining, and the blockchain … almost sounds like the beginning of an updated version of Billy Joel’s “We Didn’t Start the Fire.” If you’re not familiar with the cryptocurrency world, you may not know what these words mean, but you’re probably going to encounter them if you start to dip a financial toe into the growing pool of crypto. This article will address the first two on the list.
Bitcoin and its spinoff, Bitcoin Cash, might seem especially confusing since they include the same word. You may be asking: What’s the difference? How are they alike? Is Bitcoin Cash just paper Bitcoin that you can spend like cash? (Spoiler alert: It’s not.) What can you do with these cryptocurrencies?
If you want to invest in cryptocurrency, understanding the difference between Bitcoin and Bitcoin Cash—how they’re similar and where they diverge—might help you decide if they are right for you. While they have nearly the same name, they actually offer different features, ways to spend and send the currency, and they have different histories.
Built on the Blockchain
Bitcoin and Bitcoin Cash are both built on top of blockchain technology. It’s probably worth taking a few minutes to familiarize yourself with this technology before you start thinking about which currency might work for you.
In its simplest form, a blockchain is the technology that functions as record-keeping when you trade, send, or spend a cryptocurrency.
It’s like when you look at a bank account or credit card statement and see all the transactions you’ve made—except with blockchain you can see all the transactions or “blocks” that have ever been made, not just by you.
Blockchain was first proposed by Satoshi Nakamoto in a white paper posted to a cryptography mailing list in October of 2008. Nakamoto’s paper laid out the idea for an electronic cash system that used advanced math to verify transactions instead of a third party, like a bank. The proposal was to make an electronic and decentralized currency that was also secured by cryptography.
Here’s an easy way to imagine it without all the incredibly complex math that happens on the blockchain every day. Say you write someone a check for $10. In the old days, you’d write the check, tuck it into a birthday card, and mail it off. The recipient would get the check, take it to the bank where they would verify that you had $10 to give, and the bank would then give the recipient $10.
With blockchain, the public ledger verifies that you have $10 to send someone and that person has received $10. The transactions are secured by some super complicated math problems that are solved by “miners” who devote their own computers’ processing power across this huge network for small slices of payment.
Both Bitcoin and Bitcoin Cash have blockchain running under the hood, but they aren’t exactly the same.
Bitcoin: The Innovator and First Generation
Bitcoin was the first cryptocurrency built on the blockchain. Announced in Nakamoto’s white paper in 2008, Bitcoin has been on a rollercoaster ride of value that has seen prices move from $1,000 for one coin, all the way up to almost $20,000, and back down to $13,000—just in 2017 alone.
The price has risen, fallen, and risen again, all while the coin has gotten itself a huge market cap—this just means that a lot of people have been buying and selling it, so it’s kind of a big deal.
Nakamoto claims in his white paper that the reason to create a blockchain, and Bitcoin on top of it, is to make “an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
And it seems like Bitcoin has been successful in creating these transactions. The network has been verifying transactions since 2009, and about 300,000 of them occur on Bitcoin and Bitcoin cash networks daily.
Buy Bitcoin, Ethereum, and Litecoin
right alongside stocks and ETFs with SoFi.
Bitcoin has some unique benefits that might make it appealing to investors and users. Control over your currency is a big plus for a lot of folks looking to get into Bitcoin. Because there is no central authority, and the network is distributed, many believe that Bitcoin gives you more control than a currency issued by a government or other third party.
It’s also thought to offer additional protections against fraud as well because, according to Bitcoin.org, “Bitcoin balances are stored in a large distributed network, and they cannot be fraudulently altered by anybody.”
Bitcoin has the largest market capitalization of the more than 1,500 other cryptocurrencies. It’s arguably the most well-known cryptocurrency since it’s the most traded. This might make it a relatively appealing investment for some because of its history and longevity.
Some other perceived benefits are that transactions are nearly instant and can have pretty low fees. And purchasers get some anonymity since transactions are linked to a digital wallet that is just a long string of numbers.
There are some reasons many think twice about investing in Bitcoin.
Bitcoin might require some research and a little technical know-how to get started. Getting started with Bitcoin might involve downloading a digital wallet, buying some coins from an online exchange, then getting those coins into your wallet. That process might seem a little more complicated than opening a bank account online, throwing some money in it, and spending as you like.
There’s also the fluctuating price. For instance, Bitcoin started 2018 at a value of about $13,000 per coin and ended the year at almost $4,000. As of October 2019, the price is back up to around $8,000 —those are pretty big swings in less than two years.
Bitcoin transactions aren’t always mistake-friendly. Bitcoin transactions are irreversible. If you accidentally send money to the wrong wallet, there’s no guarantee you’ll get it back. Accidentally pay someone twice? You may be out of luck.
The only way you’ll get the money back is if the person you sent it to agrees to send it back. Remember, there’s no third party verifying transactions, just the distributed network. If your transaction goes wrong, you can’t call up the bank or credit card issuer to have it corrected.
Bitcoin also isn’t accepted everywhere and can be hard to convert to cash. There are about 3,000 Bitcoin ATMs in the US compared to the more than more than 400,000 regular ATMs . Some companies have started accepting Bitcoin: You might be able to buy a sub sandwich, computer parts, book travel, and furniture. But, Bitcoin still lacks the near-universal acceptance you’d probably find with a debit or credit card—or cash, of course.
Satoshi Nakamoto’s concept seems to be chugging right along, however. The transactions are flying across the network and are being verified without a third party needed. But, for some, there was something missing from all this exciting progress: convenience.
It just so happened there was a group of programmers and marketers out there who thought they could take the building blocks of Bitcoin and the blockchain and add a few conveniences to build what they thought could be a better cryptocurrency.
Bitcoin Cash: Like Bitcoin, but Hopefully a Little More Scalable
Bitcoin Cash is a “hard fork” of Bitcoin. This means its source code was, at one point, Bitcoin. You’ll often hear the words “trunk” and “fork” used when talking about software, a platform, or a cryptocurrency that has “forked.” In this case, original Bitcoin is the trunk from which Bitcoin Cash forked.
Bitcoin Cash is now a parallel branch to the trunk that was and is Bitcoin. They’ll both be developed in parallel—however, Bitcoin Cash is its own cryptocurrency.
Why would anyone need Bitcoin Cash if Bitcoin already existed? The answer is a little technical, but it involves some of the early limitations of Bitcoin.
Bitcoin is supposed to have a block limit size of 1MB , which is basically the file size of an ebook or a large PDF. These blocks are chained together in a public ledger—the blockchain—to keep a record of all the transactions happening in Bitcoin.
Now, when you throw a whole lot of transactions at files that aren’t that huge, you get a backup. It’s like trying to shove a watermelon through a garden hose. At one point, things got so backed up in 2017 that 200,000 Bitcoin transactions were hanging around waiting to be confirmed.
The trading volume for Bitcoin around the time of this epic traffic jam was at $29 billion . That’s a lot of ones and zeros, Bitcoins, and dollars hanging around in limbo, waiting for the network to catch up.
This started an argument among developers. On one side, Bitcoin traditionalists wanted to keep things the way they were. On the other side, there was a group that wanted to increase the block size to 8MB . They also wanted to lower transaction costs and speed up transactions.
The fork, or the creation of Bitcoin Cash, officially took place on Aug. 1, 2017 . There was little fanfare, just a split in the network, new rules, some lines of code, and, presto, a new cryptocurrency was born.
Pros and Cons
In 2018, Bitcoin Cash had its own fork, increasing its block size to 32MB in a year that saw fees that were much lower than Bitcoin. This increased block size and the lower fees were two of the main reasons for creating Bitcoin Cash in the first place, so developers were delivering on their promise. Transaction fees for most of 2018 were lower than $.01 .
This was one way Bitcoin Cash was doing better than Bitcoin, especially if you consider that Bitcoin transaction fees during the traffic jam of 2017 were anywhere from $25 per transaction all the way up to $50.
Bitcoin Cash also deals with the same lack of merchants that can make it hard to spend Bitcoins in a shop or online.
As of February 2019, there were about 900 online stores and almost 700 brick-and-mortar stores that would accept Bitcoin Cash. Unsurprisingly, a lot of these merchants are in the tech space and also accept Bitcoin.
Bitcoin Cash is currently trading at a fraction of its more established cousin, Bitcoin. Bitcoin Cash is cheaper per coin right now, transactions should be faster, and they should cost less in fees.
Which Currency Might Align With Your Goals?
Your reasons for thinking about investing in Bitcoin or Bitcoin Cash are probably as varied as the transactions that zip across the blockchain every day. You also have your own specific goals. The choice between Bitcoin and Bitcoin Cash will probably boil down to accessibility, ease of use, and comfort with technology.
Bitcoin is the original and still the leader in the cryptocurrency world, in terms of market cap. If you’re looking for faster transactions and lower fees, Bitcoin cash might be worth considering.
Both of these cryptocurrencies have strengths and opportunities that might make investing interesting. Of course, there’s no reason you can’t invest in both, take them for a spin, and find the right fit for your goals.
With SoFi Invest®️, you get access to financial advisors who can help you plan for your financial goals. You can choose between an automated or active investing account and you will pay $0 in SoFi transaction and management fees.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.