Bitcoin Cash (BCH +2.09%) is a faster, cheaper alternative to Bitcoin (BTC +0.24%). It was created through a hard fork of Bitcoin, meaning that its own blockchain was split off from the Bitcoin blockchain, due to a disagreement in the cryptocurrency's community.
Supporters of Bitcoin Cash believe it's fulfilling Bitcoin's mission of being peer-to-peer electronic cash. However, it has also been called a scam, trash, and, worst of all, irrelevant.
Due to its much lower price, Bitcoin Cash is popular with new crypto investors looking for a more affordable alternative to Bitcoin. In this Bitcoin Cash guide, we'll cover what it does and whether it's worth buying.
What makes Bitcoin Cash unique?
Bitcoin Cash is structurally very similar to Bitcoin but with small adjustments. The simplest way to explain the overall difference is that Bitcoin Cash is designed to be the digital equivalent of cash, whereas Bitcoin is more a store of value, like digital gold.
The biggest change in Bitcoin Cash compared to its predecessor is the block size limit, which is the maximum amount of data stored in a block. Since blocks contain a cryptocurrency's transactions, block size is instrumental in transaction processing.
Bitcoin Cash's block size limit was originally 8MB and has since grown to 32MB, far larger than Bitcoin's maximum block size.
This has a significant impact on the speed and cost of transfers on each network. Here's how Bitcoin Cash outdoes its predecessor in these areas:
- Bitcoin Cash can process 116 transactions per second on average. Bitcoin can process about seven.
- Transaction fees with Bitcoin Cash are less than $0.01. Transaction fees with Bitcoin generally range from about $1 to $5, although they can be much higher during periods of network congestion.
Considering those differences, why wouldn't developers want to increase block sizes? The problem is that bigger block sizes limit who can run a node that validates transactions. Set it too high, and large organizations will be the only ones with enough processing power, resulting in a more centralized network.
Where Bitcoin Cash came from
The team behind Bitcoin Cash began as part of the Bitcoin community. In 2017, network congestion was becoming an issue for Bitcoin, and transaction fees were increasing.
A software upgrade to help address the scalability problems was approved by a vote of Bitcoin miners, but not everyone was happy with it. Roger Ver, an early Bitcoin investor, was part of a group that felt the upgrade would push Bitcoin more in the direction of an investment than a digital currency. They wanted to increase Bitcoin's block size limit from 1MB to 8MB instead of implementing the upgrade.
On Aug. 1, 2017, Bitcoin Cash was created through a hard fork. Anyone who held Bitcoin at the time of the fork received Bitcoin Cash as well.
How Bitcoin Cash works
In many ways, Bitcoin Cash works just like Bitcoin. It uses cryptocurrency mining to validate transactions and release new coins, and it has the same 21 million coin limit as Bitcoin.
Since Bitcoin Cash uses a proof-of-work consensus mechanism, miners must prove they've expended computing power to validate transactions. To do that, they need to solve complex mathematical equations. The first miner to do so can confirm a block of transactions and add it to the blockchain.
In return for their efforts, miners receive a block reward of BCH coins for every block they add. The block reward is cut in half every 210,000 blocks to reduce the supply over time.
Bitcoin vs. Bitcoin Cash
Bitcoin and Bitcoin Cash have quite a few similarities but are also different in a few important areas. Here's a breakdown of each one:
Metric | Bitcoin | Bitcoin Cash |
|---|---|---|
Launch | Jan. 9, 2009 | Aug. 1, 2017 |
Maximum total supply | 21 million | 21 million |
Consensus mechanism | Proof of work | Proof of work |
Transactions per second | 7 | 116 |
Average transaction fees | $1 to $5 | Under $0.01 |
Use case | Digital store of value | Peer-to-peer electronic cash |
Connections
Bitcoin Cash's focus is increasing its acceptance as a currency. Its ultimate goal is to be like cash, meaning you can pay with it, get your salary in Bitcoin Cash, etc. While it has had mixed results and still lags far behind Bitcoin in adoption, it has made some connections:
- Bitcoin Cash was accepted at more than 2,900 merchants as of April 2022, according to Cryptwerk. That's the fourth-highest acceptance rate among cryptocurrencies.
- Several cryptocurrency payment service providers allow businesses to accept Bitcoin Cash, including BitPay, GoCrypto, and Coinbase Commerce.
- Two of the more notable companies that have chosen to accept Bitcoin Cash are fantasy sports provider FanDuel and travel company Travala.
- In St. Maarten, a member of Parliament requested his entire salary be paid in Bitcoin Cash.
Can I make passive income with Bitcoin Cash?
You can make passive income with Bitcoin Cash by lending it through a crypto lending program. The most user-friendly option is Gemini Earn, which is offered by the popular Gemini exchange. If you buy Bitcoin Cash on Gemini, you can transfer it to Gemini Earn and start collecting interest on it. Other platforms that offer Bitcoin Cash lending are CoinLoan and KuCoin, although KuCoin isn't available for U.S. residents.
Keep in mind that there is risk involved with lending cryptocurrency. Just like any other type of loan, you may not be repaid if the borrower defaults.
Unique risks
Bitcoin Cash has numerous issues, most notably a lack of user adoption, relatively high levels of centralization of both mining pools and governance, and no competitive advantages. Here are more details on the biggest problems with Bitcoin Cash:
- Despite forking away from Bitcoin to be a better electronic currency, Bitcoin Cash is still far behind in terms of use. In the first quarter of 2022, Bitcoin regularly recorded 250,000 or more transactions per day, compared to only about 50,000 for Bitcoin Cash.
- Its network is dominated by a small number of mining pools. As of April 2022, seven mining pools were responsible for mining more than 50% of Bitcoin Cash blocks.
- It may be faster than Bitcoin, but there are plenty of other cryptocurrencies that beat Bitcoin Cash in this area. Algorand (ALGO +0.84%) processes 1,000 transactions per second, and Solana (SOL +0.13%) can reportedly process 65,000.
Even though Bitcoin Cash was supposed to be true to the original vision for Bitcoin, its new community couldn't quite agree on that. Somewhat ironically, Bitcoin Cash went through a hard fork of its own a little over a year later, leading to the creation of Bitcoin SV (BSV +0.66%).
The "SV" stands for "Satoshi Vision." Satoshi was the pseudonym used by the original creator of Bitcoin. For those keeping score, that's three versions of Bitcoin, all claiming to be the one that fulfills the creator's original vision.
Is Bitcoin Cash a good investment?
There are too many weak points of Bitcoin Cash to recommend it as an investment. It's also not intended as an investment to begin with; one of the ways it distinguishes itself from Bitcoin is that it's designed to be used as a currency.
In a crowded field of cryptocurrency projects, Bitcoin Cash doesn't set itself apart. Offering faster and cheaper transactions than Bitcoin isn't a big deal anymore. If you're looking to invest in an ultra-fast, scalable blockchain, there are better options than Bitcoin Cash.
While Bitcoin Cash has had brief periods of success, it has been unimpressive overall. To put its performance in perspective, from Bitcoin Cash's launch on Aug. 1, 2017, through the end of 2021, its returns were 46%. Bitcoin's returns during the same period were 1,513%.
If you want to transfer money quickly and at a low cost, you could do it with Bitcoin Cash, or Nano (NANO +1.71%), or Stellar (XLM +2.37%), or many other coins. If you want to invest in cryptocurrency, Bitcoin Cash doesn't have much to offer.
How to buy Bitcoin Cash
Most places that sell cryptocurrency have Bitcoin Cash, so it's one of the easiest cryptocurrencies to buy. You can find it on cryptocurrency exchanges, stock brokerages, and even payment apps such as PayPal (PYPL +0.18%). Here are a few more options if you want to buy Bitcoin Cash:
- Coinbase Global (COIN +9.82%)
- Robinhood Markets (HOOD +4.02%)
- Kraken
- Venmo
With low fees and fast transactions, Bitcoin Cash has utility for money transfers. Just don't fall into the trap of investing in it because it costs less per coin than Bitcoin. The lower price doesn't make it a better or more accessible investment since Bitcoin has historically performed much better.
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