Bitcoin Cash is a cryptocurrency altcoin. The speedier, more cost-efficient alternative to Bitcoin was designed as a solution to the original platform’s scalability issues. It acts as a peer-to-peer electronic cash system developed to quickly verify micropayments at high capacity with privacy.
Like other decentralized finance solutions, Bitcoin Cash operates on a blockchain, making permissionless transactions possible via public ledger without the aid of a centralized third-party entity, such as a bank or government.
What Is Bitcoin Cash?
Bitcoin Cash is a cryptocurrency altcoin created from a split in Bitcoin’s blockchain network in 2017. With bigger block sizes and lower transaction fees, the Bitcoin alternative is designed to be quicker and cheaper.
The Origin of Bitcoin Cash
The altcoin formed at block 478558, when the Bitcoin blockchain split into two separate networks during a hard fork in 2017. This happens when developers and the communities backing a digital token cannot agree on the governing software and future of a project, which happens more often than you might think. Just within the Bitcoin network, there have been 105 hard forks to date, according to crypto fork tracker Forkdrop.io.
In the case of Bitcoin Cash, camps split over a need for network speed.
“The idea was to have a bigger block size to enable more transactions in a block, which would mean you wouldn’t have the network clogging up and transactions waiting for the next block to be mined,” said Stefan Rust, founder and CEO at Truflation, a blockchain-based index that aggregates inflation rates of digital and fiat currencies. “That was highly controversial, as it required miners to adopt a software upgrade.”
Bitcoin Cash offered a solution by increasing the block size from 1 megabyte — the size still in use by Bitcoin — to 8 megabytes. Now a whopping 32 megabytes, this transition effectively increased the number of transactions processed per block.
“Bitcoin Cash solved one of the biggest pains — the transaction speed.”
Dissenting camps advocated for different scaling solutions. They either wanted to keep the blocks small, installing storage and transfer solutions like Blockstream instead, or bundling transactions on sidechains external to the mainnet using the Lightning Network.
“The reasoning was very clear and made a lot of sense,” said David Kemmerer, co-founder and CEO of CoinLedger, a tax software made for crypto users. “Bitcoin Cash solved one of the biggest pains — the transaction speed.”
Nowadays, a single Bitcoin transaction takes about 10 to 30 minutes. But in 2017, that same transaction could take up to several days — during which time, the market could radically sway. While waiting for a transaction from the previous day to complete, Bitcoin’s price could change by 20 percent, Kemmerer recalled.
“Overall, Bitcoin Cash is designed to be a practical and accessible alternative to traditional fiat currency, providing more utility and flexibility for everyday spending,” he said.
What Is Bitcoin Cash Used For?
Bitcoin Cash is ideal for everyday use. Its standout feature is its large block size, which translates into lower transaction fees — as low as one penny — and speedy verification times.
Uses for Bitcoin Cash
- Everyday spending
- Online microtransactions
- Storing value
- Exchange with other digital and fiat currencies
- For market speculation
- To make returns
- International payments
- Privacy enhancement
This embeds a type of utility uncommon in crypto. The altcoin’s feasibility enables users to incorporate fintech into their real-world buying habits, like small-cart checkouts while online shopping or tipping content creators for their services.
“Bitcoin Cash is used as a form of digital currency for making transactions and storing value,” said Alex Faliushin, co-founder and CEO at crypto-lending platform CoinLoan.
The peer-to-peer token is often used to exchange for other cryptocurrencies or fiat currencies, Faliushin said, or for speculation and making returns.
“It’s a financial instrument,” he said. “People like to speculate on different financial markets and assets.”
Additionally, this same trait makes it ideal for international trade (if crypto usage isn’t already banned, of course).
Crypto users seeking more confidentiality of their online activity — whether for personal protection or business purposes — may also consider Bitcoin Cash. Its protocol supports certain privacy-enhancing applications like CashShuffle, a coin mixing service, and CashFusion, a privacy protocol built specifically for Bitcoin Cash that hides user information from chain analysis companies.
How Does Bitcoin Cash Work?
Like its predecessor, Bitcoin Cash runs on an open-source, proof-of-work protocol that operates on a distributed network of blockchain nodes, or moderating servers.
Proof of work is one of several consensus mechanisms, which are algorithms that synchronize a network into agreement by maintaining a single data set.
In this type of system, transactions are verified by solving complex, cryptographic proofs that require a significant amount of computational effort. Validation is undertaken by a network of computer rigs, known as miners, which simultaneously verifies transactions, adds blocks to the blockchain and generates new coins for circulation.
Bitcoin Cash’s greatest advantage — its 32-megabyte block size — can process 100 transactions per second versus Bitcoin’s seven transactions per second, according to Bitpay. On the other hand, an ample block size translates to a sizable blockchain that can become a pain for users to download a copy. Aside from storage and auditing costs, less eyes on the public ledger can be interpreted as a weakness in the platform’s security. Less blocks also means less mining power, making for a weaker verification process when compared to Bitcoin.
Furthermore, Bitcoin Cash matches Bitcoin’s hard fixed supply. By maxing its total possible assets at 21 million coins, scarcity is written into the code, ultimately driving the token’s market value.
Bitcoin Cash vs. Bitcoin
“Bitcoin has gained more popularity as a store of value — think gold — while Bitcoin Cash makes transactions faster and cheaper, like cash,” said William Zielke, chief revenue officer and chief marketing officer at crypto payment service provider Bitpay.
“Looking specifically at payment transactions and volume,” he said, highlighting the recent bull run in 2021, when cryptocurrencies across the board experienced rapid, exponential growth. “Bitcoin Cash has been less successful than its more famous counterpart.”
Between Sept. 1, 2017 and Sept. 1, 2021, Zielke noted that the value of Bitcoin Cash had only risen from $400 to $600. Bitcoin, however, experienced a 986 percent jump in its return on investment, valued at approximately $43,600 during that same time period, he said.
Here’s a closer look at how these two crypto platforms compare and contrast from one another.
Similarities Between Bitcoin Cash and Bitcoin
- Both are decentralized, digital cryptocurrencies that act as global payment networks.
- Each operates on a peer-to-peer, permissionless blockchain.
- They run on proof-of-work consensus mechanisms.
- On both systems, miners compete to solve complex mathematical puzzles to add blocks.
- Bitcoin and Bitcoin Cash each hold a total supply cap of 21 million coins, which creates a parallel in their supply-and-demand market dynamic.
Differences Between Bitcoin Cash and Bitcoin
- The altcoin boasts 32 megabytes to Bitcoin’s 1 megabyte in block size.
- Bitcoin Cash processes 100 transactions per second to Bitcoin’s seven transactions per second.
- Transactions fees consistently cost below one penny on Bitcoin Cash, whereas fees fluctuate between $1 and $5 per transaction on Bitcoin, according to Nasdaq.
- Less blocks means less mining power and a weaker verification system for Bitcoin Cash, comparative to Bitcoin.