Not long ago, in a galaxy not too far away, some intellectuals invented Bitcoin. At the start, only some people were interested in Bitcoin, but soon others came to terms with its potential. As a result, the Bitcoin community began to grow exponentially.
Among other challenges, the biggest one Bitcoin faces is its slow transaction speeds: It can do around 7 transactions per second. For reference, Visa performs around 24,000 transactions per second. In 2017 which many call the year of discovery for cryptocurrency, the increased number of transactions made clear the need for change in order to allow Bitcoin to handle the transaction count and scale further.
Is it not possible to just increase the volume of transactions?
Bitcoin’s block size limit was 1 MB and today it is 2 MB. Why don’t they just increase their block size limit to say 10 GB?
This can be explained with the help of a metaphor. If there is an excessive traffic issue that has to be dealt with, would it make sense to increase the speed limit? Theoretically, increasing the speed limit should offer hope that the heavy traffic issue can be dealt with. The reality however, is that with increased speed limits comes increased danger to safety through crashes and injuries. Another challenge is that smaller and older vehicles will be unable to travel at the speed limit and so the road will be used only by people with big, strong and new cars. The people with regular cars will have to use slower roads to get wherever they intend to.
This is what will happen if there is an increase in block size limit. More blocks means more data to process per transaction and this will be impossible for small nodes thus making decentralisation harder to achieve.
The need for more transactions still exists – what is the solution?
This challenge provided by the transaction issue has split the Bitcoin community into two groups – the first group asserts that Bitcoin was never meant to be a “bagel with a cup of coffee” payment solution while the second group underlines the importance of scale for Bitcoin. Owing to the lack of a universally acceptable solution, in August 2017, Bitcoin was split utilising a process called “Hard Fork” which gave birth to a new version of Bitcoin called Bitcoin Cash. Bitcoin Cash has identical code to Bitcoin but has a block size limit of 8 MB, four times that of Bitcoin. This new limit allows around two million transactions to be processed per day.
Possession of Bitcoin and Bitcoin Cash in your Wallet
What happened to the people who had a specific amount of Bitcoin in their wallet prior to the fork? The easiest way to deal with this was to clone the wallet. The last mined block before the fork was 478558. If you possessed any Bitcoin before that block, you will now have the same amount of Bitcoin Cash.
The debate often was focussed on the merits of Bitcoin vs Ethereum vs Ripple. With the creation of Bitcoin Cash, there is a new dimension to the debate. Which one is the better Bitcoin? They each have their pros and cons and we are going to explore them.
They differ in name. The inclusion of the word ‘cash’ in Bitcoin Cash’s name is not coincidental. The developers of this cryptocurrency have a vision for it to become a new form of cash.
Block size Limit
Bitcoin has a block size limit of 2 MB (up from original 1 MB) while Bitcoin Cash has a limit of 8 MB and further increases are possible. As a result, more transactions can be processed at a lower cost with Bitcoin Cash.
Dependency on Mining Pools
Bitcoin has an abundance of mining pools which curtails the strength of individual developers and makes it impossible for any one miner to have a majority of 51% to rule the community.
Bitcoin Cash is more centralised than Bitcoin. There exist 3 mining pools which together account for over 51%. This is dangerous as the future of the currency is over reliant on these 3 mining pools.
Replay and Wipeout Protection
Bitcoin Cash utilises a different hash algorithm to the one Bitcoin uses. As a result, replay between the two chains is no longer possible.
New Transaction Signatures
Bitcoin Cash has a different transaction signature to guarantee its distinction from Bitcoin.
Emergency Difficulty Adjustment
This is a new algorithm which ensures normal chain work in the event of a significant change in the number of miners. This provides additional stability to the currency as a whole.
What is the price of Bitcoin Cash influenced by and why did it jump in November 2017?
The Bitcoin Cash hard fork happened in August but the real spike happened in November of the same year. This increase in price saw Bitcoin Cash become the second most valuable cryptocurrency in the world, behind Bitcoin.
Why did this happen?
- Bitcoin had a really rough few days. Due to lowered hashing power, there were over 10,000 pending transactions in the network. As a result, people moved to buy Bitcoin Cash in an attempt to get their transactions over the line.
- Bitcoin Cash arrived as a solution to the much publicised and discussed speed challenges that Bitcoin was facing and offered a solution that was superior to Bitcoin’s SegWit2X. Today it is the only technology that offers a scaling solution.
- Bitcoin doesn’t have the EDA algorithm that Bitcoin Cash possesses – EDA makes the network more stable during high price periods.
What are experts saying about Bitcoin vs Bitcoin Cash?
Roger Ver, one of foremost Bitcoin angel investors and evangelists, believes “Bitcoin Cash is the real Bitcoin and will have the larger market cap, trade volume and user base in the future.”
Adam Back, a British cryptographer says: “Bitcoin has the edge over Bitcoin Сash regarding long-term scaling because Bitcoin cash lacks the infrastructure to support second layer scaling.”
Brian Kelly CEO & Founder BKCM LLC says: “I think both Bitcoin and Bitcoin Cash are a great bet. Bitcoin is like the monetary base and Bitcoin Cash is the transactional currency similar to a global M1.”
Only time will tell which one of these two currencies is the ‘real Bitcoin’. For now, it looks like both offer good value and are worth paying close attention to. Both these currencies can be traded on exchanges like Belfrics.