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Bitcoin vs Bitcoin Cash Debate

Aug 30, 2018

The cryptocurrency community has been focused on widescale adoption of digital currencies since Satoshi Nakamoto first released the Bitcoin whitepaper in 2008, but notoriously slow processing times in the digital coin industry’s benchmark crypto, Bitcoin (BTC), serve as the primary factor in limiting mainstream use of the cryptocurrency. Current transaction times of up to 10 minutes won’t allow BTC to scale well in comparison to best of class electronic payment options like Visa, which takes milliseconds. This is a hotly debated topic that continues to be discussed by miners and developers. 

The Bitcoin Cash Hard Fork

Over the past decade, many alternatives have been considered but there has been no general consensus on how to best address the issues surrounding transaction speeds.  Tensions between groups of developers and miners came to a head just over 12 months ago, when a core group of miners forced a hard fork from the original blockchain. The result of the hard fork was Bitcoin Cash (BCH). Even though BCH measures up with the same hard limit and supply rules as BTC, BCH offers scalability that BTC currently does not.  

Bitcoin Cash Edge

BCH transaction times and transfer fees are significantly lower than BTC due to a protocol that supports greater transfer efficiency. This results from the fact that BCH permits larger block sizes than BTC, allowing more transactions in the same amount of time. While BCH appears to have implemented a solution to address BTC’s scalability problem, the price of the two cryptos have remained highly correlated.  

The BCH development team continues to implement additional enhancements to the network. As an example, BCH developers introduced an algorithm to adjust mining difficulty as needed to bring consistency to erratic transaction times. Similarly, BCH recently increased its block size limit from 8mb to 32mb, compared to a mere 1mb limit for BTC. 

Average transaction fees for BCH are around $0.024 while Bitcoin has an average fee of $0.984 -- 41x BCH’s transaction fee. Transaction speed score (tps) refers to the maximum transactions a coin can theoretically process and BCH’s 61tps is almost 9 times more efficient than BTC’s max of 7tps. 

In terms of profitability, BCH is 4.5% more profitable to mine versus BTC.  This compares to measures of difficulty of mining where BCH is operating at difficulty level 10% less than that of BTC.

Bitcoin Strikes Back

While BCH has been working to address scalability, BTC developers have been attempting to do the same. BTC developers expect to implement the Lightning Network by mid-September to address issues of low transactions per second (tps). The Lightning Network would act as a layer on top of the Bitcoin Blockchain and utilize smart contracts to allow for multiple small transactions between two parties without adding those transactions to the physical blockchain. Two parties would deposit funds at a neutral bitcoin address, known as a ‘channel’, allowing for limitless transactions between the two parties. Once one party decides to end transacting, the channel is closed and the aggregate transactions are added to the physical blockchain as one transaction. The Lightning Network is capable of handling “millions to billions of transactions per second”, and if successfully implemented, will address BTC’s scalability issues.

In terms of real use, for the 24-hour period leading up to the evening of Monday, August 27th, there had been over 500,000 active BTC addresses while for BCH, this figure hadn’t yet crossed the 50,000 level. This suggests real life everyday use for BCH to be at 10% of BTC even though data clearly supports the scalability potential of BCH vs. BTC. Despite last year’s hard fork, the BCH blockchain is already 6,500 blocks ahead of the BTC blockchain. And while the BTC blockchain may have grown 50x more than the BCH blockchain, it’s also 50x more expensive to transact on the BTC network in USD$ (vs. the BCH blockchain network). 

The “Real” Reality on the Ground is Mixed

BTC boasts close to 1 million Reddit subscribers while BCH is playing catch-up with just 3% of that. BTC is mentioned over 20,000 times on Twitter every day, BCH is again languishing around the 3% mark. This underscores the difficulty BCH has with mainstream adoptions despite seemingly solving the scalability problems of BTC. 

The fact that mining costs were made similar between the two has created another drag on adoption rates for BCH. Whenever its price is lower than BTC, as has been the case all summer, miners will be less incentivized to mine it, limiting the ability of BCH to gain widespread embracement. 

BCH is viewed as a newer, less established BTC which translates to lower investor confidence. It has fewer pairs than BTC, and as a result, is harder to trade P2P because there are less available liquid markets in comparison to BTC. BCH suffers from a reputation of being a copycat coin trying to cash in by using the Bitcoin name, rather than just simply offering an improved version of BTC. 

BTC on the other hand carries a brand name and reputation that hedges its risk of being replaced by a competitor digital coin. BTC is the flagship cryptocurrency of the blockchain movement; with all other coins trading against it, BTC is responsible for over 50% of the cryptocurrency market cap – almost 10x BCH’s market-share. Like with any established brand, BTC is slower to change and the concerns around its mainstream scalability haven’t gone away. For example, median transaction fees for BTC are around $0.0690, significantly higher than BCH’s $0.0014. 

The battle between the two also plays out across hashrates. BTC’s hashrate fell by 50% in November of 2017 but has since steadied and spent May through August increasing from 35.02E to 49.24E (+40%). BCH has struggled to maintain momentum and has seen its hashrate fall from 4.09E to 3.73E (-9%) for the same period this year. BTC’s protocol for block time has stayed steady between 8 - 11 minutes, whereas BCH’s fluctuates with difficulty setting, resulting in ranges between 2 and 102 minutes last winter.

The future of cryptocurrency overall relies on it being treated and regarded by investors and non-investors alike as a reliable medium of exchange instead of as an asset of speculation. To that end, security and transaction speeds are paramount to the concept’s success. BTC’s main selling point is its benchmark reputation which allows it to act as a store of value, while BCH’s main selling point is one that offers faster and cheaper transactions. Its existence and success are anchored to being the scalable version of BTC. Proponents and opponents of each will share similar arguments to gold bullion and cash advocates. As BTC begins to adopt and implement the Lightning Network, we should see less correlation between the two cryptos and we will learn what investors prefer. 

 

Name Market Capitalization Average Transactions per Hour Average Transaction Value Median Transaction Value Average Transaction Fee Median Transaction Fee Average Time Between Blocks Total
Blocks Count
Average Blocks Size Hashrate
Bitcoin US$121,719,480,248                        9,145 7.13 BTC 0.0450 BTC US$0.9840 US$0.0690 8m 05s                   538,895 564.830 KBytes 58.51 EH/s
Bitcoin Cash US$9,631,839,627                        1,039 10.50 BCH 0.0018 BCH US$0.0240 US$0.0014 9m 52s                   545,397 90.438 KBytes 4.004 EH/s

Sources: 

https://bitinfocharts.com/bitcoin/
https://bitinfocharts.com/bitcoin%20cash/
https://bravenewcoin.com/news/bitcoin-cash-vs-bitcoin-how-is-bch-measuring-up/
https://lightning.network/
https://www.coindesk.com/information/what-is-the-lightning-network/