Bitcoin Cash was created in 2017 as a hard fork of the original Bitcoin blockchain. It was created to deliver faster transaction speeds that ideally would make it more scalable.
Despite some similarities, Bitcoin Cash (BCH) and bitcoin (BTC) are quite different, most notably in their block size. Bitcoin’s maximum block size, established when bitcoin launched in 2009, is 1MB vs. a 32MB potential capacity for Bitcoin Cash, which theoretically could give the newer currency a higher per-second transaction capacity — and at a lower cost.
To fully understand the difference between Bitcoin vs Bitcoin Cash, it helps to understand the origins of Bitcoin, and how and why Bitcoin Cash emerged.
The Bitcoin vs. Bitcoin Cash Blockchain
Bitcoin and Bitcoin Cash are both built using blockchain technology. In its simplest form, a blockchain is the transparent digital ledger that functions as the record-keeper when you trade, send, or spend a cryptocurrency.
Using blockchain technology to create an encrypted digital currency was first proposed in a white paper published in October of 2008, by a person or group using the pseudonym Satoshi Nakamoto.
Nakamoto’s paper laid out the idea for an electronic cash system that relied on a network of computers or “nodes” to conduct highly complex mathematical calculations to verify transactions instead of relying on a third party, like a bank. The proposal was to make an electronic and decentralized currency that was secured by cryptography, and would therefore be “trustless” — i.e., free from middlemen and unregulated by a central authority the way fiat currencies, like the dollar, are regulated by the government.
The first bitcoin was issued in January 2009. And while there are now thousands of types of cryptocurrencies, coins, and tokens, bitcoin is still the oldest and largest by market cap, worth about $47,000 per coin, as of December 13, 2021.
The Trouble With Bitcoin
At first, bitcoin was a success. Nakamoto’s experiment seemed to work: The Bitcoin blockchain was a functioning peer-to-peer network, secured by miners who employed a consensus mechanism called proof of work (PoW) to do the billions of calculations required to verify transactions and mint more bitcoin.
Over time, however, the amount of time it took to verify each 1MB block of data on the Bitcoin blockchain became a bottleneck, causing transactions to get stuck in a sort of digital logjam.
As a point of comparison, Bitcoin can process about seven transactions per second, versus Visa, one of the largest credit card providers, which conducts some 564 million payment transactions per day — about 6,700 per second.
One solution, implemented in 2017, was to streamline each block of data on the Bitcoin blockchain using a technology called “segregated witness” or SegWit. SegWit would remove signature data from the data in a given block, and attach it in an extended block. Since signature data is estimated to take up nearly ⅔ of each block, the hope was that this would allow more bitcoin transactions to be added to each block, increasing the overall transaction speed.
How Bitcoin Cash Was Created
While the addition of SegWit, also called SegWit2×, did allow more data to be stored on each block, some argued that it also compromised the transparency of the Bitcoin blockchain, and therefore Satoshi Nakamoto’s original vision.
A controversy ensued, and in 2017 a group of miners and developers from the Bitcoin network initiated a “hard fork” on the Bitcoin blockchain — effectively building a new branch of the blockchain designed to support faster, more efficient transactions, as well as a brand-new currency: Bitcoin Cash.
Bitcoin Cash was designed to have 8MB blocks in order to drive the cost of processing payments on the blockchain down. Since then the Bitcoin Cash block capacity has increased even further to 32MB, with transaction fees under $0.01 versus about $200 on average for bitcoin now.
Interestingly though, it’s unclear whether the larger capacity of the blocks on the Bitcoin Cash network will deliver faster transactions. The average size of a Bitcoin Cash block remains smaller than Bitcoin’s: about 236K vs. 472K, as of December 13, 2021.
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Bitcoin vs. Bitcoin Cash: 5 Things to Know
Although Bitcoin Cash split off from Bitcoin the two retain some similarities. For example, both BTC and BCH are mined using the proof of work (PoW) consensus mechanism.
And, in the same way that the number of bitcoin that can be mined is limited to 21 million, the number of bitcoin cash is also capped at 21 million.
But there are differences between the two. Bitcoin Cash is effectively its own blockchain now. And the blocks don’t incorporate the SegWit technology that was added to Bitcoin’s blockchain a few years ago, owing to the controversy over transparency.
In fact, a year after its launch in 2017 Bitcoin Cash itself underwent a hard fork in 2018, which created Bitcoin SV. The SV stands for “Satoshi’s Vision” because the developers believe they are remaining true to the initial 2008 white paper of creating a decentralized digital currency.
The Takeaway
Bitcoin and Bitcoin Cash are two separate cryptocurrencies. Bitcoin Cash was created thanks to a hard fork of the Bitcoin blockchain in 2017, and it was designed with the capacity for a much larger block size than Bitcoin’s, with the hope that bigger blocks with the capacity for more data would speed up transaction times.
While this is still a possibility, Bitcoin Cash has not dramatically improved upon the Bitcoin protocol, and remains the 24th largest crypto by market cap — far behind Bitcoin’s place at number one. Of course, the size and popularity of different types of crypto can change by the day. One way to learn more about the opportunities for investors in this dynamic new sector is to open an account with SoFi Invest®. You can trade bitcoin, litecoin, dogecoin, ether, polkadot, and dozens more, 24/7. Always know that SoFi takes security seriously and uses a number of tools to keep investors’ crypto holdings secure.
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