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Bitcoin and Bitcoin Cash—The Differences for Investors

By Colin Dodds · March 08, 2021 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Bitcoin and Bitcoin Cash—The Differences for Investors

Bitcoin Cash (BCH) was designed to improve on the original Bitcoin. And while it hasn’t knocked Bitcoin off its perch as the top crypto, it has gained many advocates. This article will explore the history of Bitcoin Cash, its uses, and whether it’s a good investment for investors looking to buy cryptocurrency. Topics covered include:

•  What is Bitcoin Cash?
•  Why Was BCH Created?
•  How Was Bitcoin Cash Created?
•  Differences Between Bitcoin and Bitcoin Cash
•  Is BCH a Good Investment?

What is Bitcoin Cash?

Bitcoin Cash (BCH) is a cryptocurrency that was originally based on Bitcoin. It launched in 2017 to address what some bitcoin miners and investors saw as emerging issues with Bitcoin’s transaction speed and its prospects for long-term growth.

Created in 2009, Bitcoin was the first cryptocurrency, and is currently the best-known and most-used form of crypto. Bitcoin Cash was the first form of cryptocurrency to fork from the original Bitcoin blockchain software protocol. And today, BCH is the largest Bitcoin fork, by both market capitalization and active users.

Like all forms of crypto, BCH uses blockchain, or distributed-ledger, technology. That technology employs a host of independent computers, called nodes, to track and coordinate transactions. This idea was revolutionary when Bitcoin came out in 2009 and upended the existing trading models that had depended upon a central clearinghouse or exchange.

Each node in the blockchain constantly organizes new data into blocks, and chains it together in an “append only” format, which prevents any one any node from altering or deleting the data in earlier blocks. Blockchain is what protects Bitcoin from copying, counterfeiting or double spending.

Recommended: SoFi’s Guide to Cryptocurrency

Why Was BCH Created?

But blockchain also has its drawbacks. And BCH was created to address some of those drawbacks as they began to emerge over the course of Bitcoin’s growth (and that of other types of cryptocurrency) into a unique part of the financial landscape.

One of the biggest questions about Bitcoin was how it would perform as it handled more transactions. When someone buys or sells a bitcoin, the transaction is processed, verified, and stored within the coin’s blockchain. Because blockchain depends on so many nodes to verify a transaction, and because the network of nodes is decentralized, transactions can be slow.

The entire Bitcoin network can handle about seven transactions per second. By contrast, Visa can process roughly 24,000 transaction messages per second.  As a result, Bitcoin transactions can take several minutes to process, with wait times only growing longer as the number of Bitcoin users grows.

BCH is designed to handle more users, and to shorten transaction times. The developers behind the cryptocurrency did this by reducing the quantity of information that needs to be verified in a block of the chain. They also made the blocks of data bigger, so more data can be processed at one time. Bitcoin Cash can process 116 transactions per second.

How Was Bitcoin Cash Created?

Bitcoin Cash forked off from Bitcoin on August 1, 2017. Forks have become a common occurrence in cryptocurrency. They typically happen when the systems underlying a given currency undergo an upgrade or update. It can also happen when a large enough group of the miners of a given currency choose to change the rules of the network.

A currency forks in the same way that a path can fork, with each branch going its own way. Each forking path has its own separate open-source code designed to work together to assist in the main function. There are two kinds of forks: Hard forks and soft forks.

If the software protocol of a currency changes in such a way that the older protocol version is no longer valid, it’s called a hard fork. One risk of a hard fork is if an older protocol is still running, then it can lead to confusion and even a loss of funds. In a soft fork, on the other hand, the new changes continue to work with the older protocols, and the old version accepts the newer version. For a soft fork to be implemented a majority of the network on the blockchain has to accept it.

Bitcoin Cash was formed as a hard fork in the software protocols of Bitcoin. As a result, BCH has its own separate blockchain. To reduce confusion, it took on its own name. Different as it may be, it is still subject to the same cryptocurrency rules and regulations Bitcoin is.

Bitcoin SV

BCH wasn’t the end of the forking process, however. The Bitcoin Cash network had its own hard fork in November of 2018. This led to the creation of Bitcoin SV, whose backers say is truer to the original vision of bitcoin inventor Satoshi Nakamoto, while offering faster transaction speeds the potential for greater scalability.

The main difference between Bitcoin, Bitcoin Cash, and Bitcoin SV is their block size. And while Bitcoin is the original cryptocurrency, Bitcoin Cash and Bitcoin SV are considered altcoins.

How is BCH Different from Bitcoin?

While Bitcoin and BCH are very similar, there are some core differences written into the technological DNA of BCH. To accelerate the verification process, BCH increased the data in each block on the chain in its protocol to 8 MB when it launched, up from Bitcoin’s 1MB.

Eventually BCH took it a step further, increasing the size of the blocks to 32 MB. As a result of these improvements, the BCH network can support 23,040,000 transactions per day. While that pales in comparison to the more than two trillion transactions that (to continue our example from above) Visa can handle on a given day, it is far more than the 600,000 transactions that Bitcoin can facilitate daily.

But that speed may not necessarily translate for BCH users. Because Bitcoin is far and away the most popular cryptocurrency in the world, it offers far greater usability and liquidity than BCH. And while BCH has much higher transaction capacity, it hasn’t needed it so far.

Is BCH a Good Investment?

As of late January 2021, Bitcoin Cash was the ninth-largest cryptocurrency by market cap, with roughly $8 billion, according to CoinDesk. That is just a fraction of the $900 billion market cap of Bitcoin.

As anyone acquainted with the basics of cryptocurrency investing may know, BCH and many other forms of crypto have taken investors for a wild ride in recent years. Its price peaked in late December of 2017 at $3,785, in the midst of a dramatic rally for cryptocurrencies as a category. But its value has dropped just as dramatically since then, going as low as $180 in March of 2020. That said, nearly every cryptocurrency in the 2017 bull market has fallen similarly. BCH is back up to $429 in late January 2021.

One benchmark for potential BCH investors is how the currency is performing relative to its parent currency, Bitcoin. There have been times when a BCH coin was worth as little as 0.0021—or roughly one five hundredth—of a single bitcoin. But BCH has since rallied from those all-time lows to .013—or more than one percent—of a bitcoin as of late January 2021.

Another consideration when investing in cryptocurrency is the tax implication. The IRS considers crypto to be property, and investors may owe capital gains taxes if they see a profit on their investment. Anyone thinking of investing in crypto might want to review our comprehensive guide to taxes and cryptocurrency.

The Takeaway

Bitcoin Cash, an offshoot of the biggest cryptocurrency, promises faster transactions and better scalability. But it’s still worth a fraction of Bitcoin, which also boasts better usability and liquidity.

There are many different cryptocurrencies for investors to learn about and invest in beyond Bitcoin and Bitcoin Cash. If your curiosity is fueled by a desire to start buying cryptocurrency, SoFi Invest® can be a great place to start. SoFi members can manage crypto investments in the SoFi app, knowing their crypto is in a secure platform.

Find out how SoFi Invest can help you with your investment goals.

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. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
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