So let's look at Bitcoin vs. Bitcoin Cash. What’s the difference? Is one really better than the other, as many on both sides claim? Read on to find out.
Origins of Bitcoin Cash
Bitcoin Cash is a “fork” of Bitcoin. A fork occurs when a group of miners make changes to the Bitcoin source code. This is why there can never be more than 21,000,000 bitcoins— if you try to change that segment of the program, everyone else in the network will reject your transactions, as if you took a different direction at a fork in a road.
If you can get enough people to agree on the modifications you make, however, you can form a new network. That’s exactly how Bitcoin Cash was born.
The community that now supports the Bitcoin Cash network formed from opposition to an upgrade to Bitcoin called SegWit— short for “segregated witness.” This was an attempt to accommodate Bitcoin’s increasing popularity by “segregating” some data from bitcoin transactions in order to increase the capacity of the network.
At this point, the story gets very messy, and very political. Some opposed SegWit because they believed it was just a short term fix, and that a more permanent fix was needed. Miners, who earn money from transaction fees, wanted to immediately increase transaction volumes, which would increase their profits.
We can call those who opposed SegWit “big block” advocates, since they were in favor of adopting bigger Bitcoin blocks, which are the basic units that blockchains like Bitcoin are made out of.
Bitcoin ($BTC) Vs. Bitcoin Cash ($BCH) - what's the difference?
Opponents of big blocks had their arguments as well. One point was the issue of decentralization, which is core to Bitcoin’s value proposition. Governments cannot shut down the Bitcoin network because there are a large number of people maintaining the network all around the world, and shutting off the network would require tracking them all down— which is more or less impossible.
If the network capacity was increased with big blocks, however, it would mean only people with more powerful hardware would be able to operate the network. This would mean progressively fewer people could participate in the network, making Bitcoin more vulnerable to government intervention or the possibility of a cartel taking control of the network.
Another point of contention was that increasing the block size would require a “hard fork,” while SegWit could be accomplished with a “soft fork.” A soft fork means the new version of the software would still be compatible with older versions of the software. A hard fork, on the other hand, would require everyone to update their software, and many believed this would be highly disruptive and could harm the network.
Accusations were leveled on both sides. Big block proponents accused Canadian firm Blockstream, a company founded by one of Bitcoin’s earliest developers, of using SegWit to push its own agenda and gain more influence over Bitcoin.
Big block opponents accused Chinese miners of using closed-source software to mine at an unfair advantage, and opposing SegWit on those grounds, at the expense of the well-being of the Bitcoin network.
A battle ensued, as a consortium of miners and others tried to get everyone to adopt the big block version, but this ultimately failed. After years of bickering, fighting, and arguing, the “big block” advocates finally split off of the network, creating Bitcoin Cash.
Bitcoin vs. Bitcoin Cash: Essential Differences
In short, the main difference between Bitcoin vs. Bitcoin Cash is that Bitcoin Cash is intended as a means of exchange while Bitcoin has now become a store of value.
As Bitcoin increased in popularity the network started to see high traffic volumes and transaction fees started to increase as a result. Fees got so high that it made small purchases impractical.
In order for Bitcoin to replace a currency like the US dollar, Bitcoin Cash advocates argued that it would have to be usable for everyday purchases, like buying a cup of coffee.
Others didn’t think this was a problem if Bitcoin was used primarily to protect wealth from inflation. Supporters of SegWit argued that Bitcoin could still be used as cash, but that this would require “second layer” solutions which are independent of the core Bitcoin software.
The second layer solution, called "the Lighting Network," was spearheaded mainly by Blockstream, and is presently still under development.
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Remaining Faithful to Satoshi’s Vision
Since early on in Bitcoin’s development, many observers have noticed a religious element among hardcore bitcoiners, and disagreements about the “pure” ideology of Bitcoin played a major role in the debate. One of the main points in the argument was about Bitcoin inventor Satoshi Nakamoto’s whitepaper, in which he introduced Bitcoin to the world.
The paper detailed a technological innovation of such significance that some compare it to the printing press, so it’s not surprising that some Bitcoin proponents view it as miraculous.
The most devoted Bitcoin advocates view Nakamoto as a sort of savior that came to liberate the world from the tyranny of the world financial system, so while much of the debate was technical, there was also an element of debate about what Satoshi’s “true” vision actually was.
Adding to the religious element of the story is the fact that “Bitcoin Jesus” played a central role in the debate. “Bitcoin Jesus” was a nickname given to Roger Ver, an early Bitcoin adopter who became famous (or infamous, depending on who you ask) for his relentless Bitcoin evangelizing and support for the budding cryptocurrency ecosystem.
Ver emphatically argued that small blocks and high transaction fees were a deviation from Satoshi’s original vision, since the original paper described Bitcoin as a “peer-to-peer electronic cash system.” If Bitcoin transaction fees got too high, it would no longer be suitable as cash, and instead could only be used as a store of wealth.
The Deflationary Currency Argument
It may be that the argument about whether or not Bitcoin should be viewed as cash or not is pointless anyway. Bitcoin was developed in response to the perception of irresponsible money creation by central banks. For this reason, Bitcoin was designed to be deflationary, with the supply of Bitcoin shrinking over time, rather than expanding.
One of the most common criticisms leveled at Bitcoin by mainstream economists is that because it is deflationary, people won’t want to spend it. This is also known as Gresham’s law, which is summarized as “Bad money drives out good.”
This law was observed when gold and silver coins were still in wide circulation, and governments would devalue the currency by mixing cheaper metals into the coins. People would try to spend the lower value coins first, while hanging on to pure gold and silver coins.
Regardless of what Satoshi Nakamoto’s vision for Bitcoin was, it may well be that a deflationary cryptocurrency like Bitcoin is simply better suited to be a vehicle for saving, rather than spending. If this is the case, then both Bitcoin Cash’s big blocks and Bitcoin’s Lightning Network would be relatively unimportant in the grand scheme of things.
Related: Free Guide - Invest in Bitcoin and Bitcoin Cash (Tax-Free) with a Cryptocurrency IRA
The Bitcoin Cash fork is an interesting example of the dynamics of open source software development. Part of the appeal of cryptocurrencies is that they do not have a central command structure, which is why they cannot be shut down by governments. At the same time, this makes the task of updating the software extremely difficult.
Bitcoin Cash still has a strong community of supporters, but the market has clearly signaled that it is not the “real” bitcoin, as some supporters claim. There is no denying, however, that Bitcoin Cash transactions are cheaper than Bitcoin transactions, making it more suitable for buying a cup of coffee.
While the Lightning Network is also much cheaper than normal Bitcoin transactions, Bitcoin Cash supporters argue that it will also compromise decentralization. It’s unlikely that normal people will care about ideological arguments if either Bitcoin Cash or the Lightning Network are widely adopted for everyday spending.
If either Bitcoin or Bitcoin Cash are going to replace the US dollar and other central bank currencies as the money-of-choice for everyday purchases remains to be seen. If either one succeeds in capturing significant market share from the dollar, it would mean massive price increases, which drives speculative interest in both currencies.
Both networks have many supporters with deep pockets who are strongly incentivized to promote the success of their chosen networks, so for the short to medium term, there is no doubt both Bitcoin and Bitcoin Cash will hold some value.
In the long term, however, there is no doubt that Bitcoin supporters have deeper pockets and are greater in number, so there is basically no chance that Bitcoin Cash can dethrone Bitcoin.
At best, Bitcoin Cash can hope to capture a niche market for low cost transactions among a community of supporters that align with Bitcoin Cash’s ideology. How big that community grows will ultimately determine its long term valuation.
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