What is Bitcoin Cash? How does it work, and how is it different to Bitcoin?

Find out where Bitcoin Cash came from and what makes it different to Bitcoin.

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Bitcoin Cash physical coin

Bitcoin Cash (BCH), which is sometimes called Bcash, was created on 1 August 2017 as a fork of Bitcoin (BTC).

It’s similar to Bitcoin in many ways but has some technical differences which also makes it very different.

This guide explains what Bitcoin Cash is, how it works and what makes it different to Bitcoin.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade.

What is Bitcoin Cash?

IconSymbolInitial release dateAlgorithm typeMax. supply
Bitcoin Cash symbolBCH, BCC, Ƀ1 August 2017SHA-25621 million BCH

How is Bitcoin Cash different from Bitcoin?

Just like Bitcoin (BTC), Bitcoin Cash (BCH) is a peer-to-peer cryptocurrency, which can be sent directly to anyone, anywhere in the world without the use of a third-party intermediary.

There are two differences between Bitcoin Cash and Bitcoin:

  • Bitcoin Cash has a larger block size, which results in lower transaction fees and faster transfers on average.
  • Bitcoin is much more valuable than Bitcoin Cash

Because of these differences, many people think of Bitcoin as a kind of digital gold, and Bitcoin Cash as a kind of digital cash.

What makes Bitcoin Cash better than Bitcoin?

Bitcoin Cash has some technical differences which make it cheaper to use than Bitcoin.

Specifically, it has a 32MB (megabyte) block size, while Bitcoin has a 1MB block size. This means the Bitcoin Cash blockchain can carry a lot more transactions, which keeps its fees low even in times of high use.

By contrast, in times of high activity the Bitcoin blockchain fills up and transactions have to start queuing, which slows down transfer times and raises fees.

In a nutshell, BCH is much faster and cheaper than BTC.

What makes Bitcoin Cash worse than Bitcoin?

The main technical downside of larger blocks is that they’re harder for miners to “digest”, which can lead to problems like unintentionally splitting the blockchain into multiple branches. It also gives an extra advantage to the miners who are able to digest them more easily, which increases the risk of a blockchain centralising around those kinds of miners.

Fortunately, in the case of Bitcoin Cash this is more of a theoretical problem than an actual one, as 32MB is not large enough to cause these kinds of problems.

The main reason BCH is worse than BTC is simply because BTC is worth a lot more, so more people use BTC than BCH.

In fact, Bitcoin Cash has never even come close to fully utilising its large block size.

In cryptocurrencies like Bitcoin and Bitcoin Cash, the value of a coin is also functionally very important because it determines how secure and reliable the network is. This is because the more valuable a coin is, the more miners it can support.

The chart below shows the mining power (known as hashrate) of Bitcoin (blue) vs Bitcoin Cash (red).

Bitcoin Cash Hash Rate

As you can see, Bitcoin consistently has a much higher hashrate than Bitcoin Cash, and so is more resistant to certain types of attacks.

Still, despite the huge difference, Bitcoin Cash is still believed to have sufficient hashrate to withstand realistic attacks.

Why is Bitcoin worth more than Bitcoin Cash?

But if Bitcoin Cash is cheaper and faster, why is Bitcoin worth more?

No one knows for sure, but there are two main theories: an economic one and a social one.

The economic theory

One theory holds that frictions, such as higher fees and slower transfers, are actually good for maintaining the value of assets.

This is because it makes it more difficult and expensive to dispose of, either by selling or spending. These high fees and slow transfers subtly encourage people to hold onto their Bitcoin instead of spending it, which reduces the total amount of Bitcoin available on the open market and drives prices upwards.

The social theory

The social theory is that people are simply more attracted to Bitcoin because it’s worth more, which in turn makes it even more valuable and more attractive.

BTC also bears the original Bitcoin name, which helps increase its brand recognition.

How Bitcoin Cash is developing

Current development in Bitcoin Cash is largely geared towards utilising its large block size for purposes other than simply carrying BCH transactions.

The large block size creates ample room to carry “smart contract” type programs on the Bitcoin Cash blockchain, although there are some challenges associated with adapting the underlying Bitcoin framework for smart contracts, which other blockchains don’t have to contend with.

What to consider before buying Bitcoin Cash

Bitcoin Cash functionally performs much better than Bitcoin and its larger block size hasn’t resulted in any significant downsides. But is that enough?

When considering Bitcoin Cash…

  • As a store of value: The cryptocurrency market has shown a clear preference for BTC over BCH, and despite the functional benefits of BCH, it has far fewer users than BTC. When viewed as a store of value people can believe in, Bitcoin Cash appears to be getting outclassed by Bitcoin.
  • As a digital currency: The functionality of payment-oriented cryptocurrencies like BCH is limited by their volatility, while stablecoins do not have this problem. Bitcoin Cash (as well as Litecoin, DASH and many more) may be outclassed by stablecoins and other developments outside of cryptocurrency. However, BCH’s volatility may also be seen as an advantage for those who want a digital currency whose value is completely independent of existing fiat currencies.
  • As a digital currency: As a holistic utility blockchain, the rigid framework underpinning Bitcoin Cash may put it at a disadvantage compared to more smart-contract-specific blockchains such as Ethereum. Similarly, its comparatively small developer community may limit the pace and scope of application development on the Bitcoin Cash blockchain.

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Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.
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