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Bitcoin Vs. Bitcoin Cash: What’s The Difference?

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Bitcoin Vs. Bitcoin Cash: What’s The Difference?

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Bitcoin is by far the most well-known name in cryptocurrency — for many casual observers, it’s the only name.

As Bitcoin has grown in popularity and, more importantly, value, since its inception, developers have created thousands of competing coins to challenge it and better meet market needs. One of those challengers sprang from the Bitcoin community itself.

Bitcoin Cash is an alternative cryptocurrency that acts much like the original Bitcoin and is available to purchase through many of the same platforms. But the two are distinct currencies.

Here’s everything you need to know about Bitcoin vs. Bitcoin Cash and how to figure out which cryptocurrency is worth your money.

What is Bitcoin?

10 Best Cryptocurrencies To Add To Your Investment Portfolio - Bitcoin

Bitcoin (BTC) is a digital currency (aka, cryptocurrency) that’s not controlled by a central entity, like a bank or government. It’s measured in units, like dollars are, but there’s no paper, coin, or other tangible asset to represent it or back it up.

Instead, cryptocurrency is created on a database called a blockchain, a digital, computer-based record that gets added to each time a “coin” — one unit of the currency — trades hands.

A blockchain database collects information in digital “blocks” of information and “chains” them together to form a record. They’re used for a lot of things, but cryptocurrency is the most notable. A blockchain forms the history of a single bitcoin, acting like the physical currency we use to pass value to one another.

Anyone can view records on a blockchain, since it’s not controlled by a central entity. But they’re pretty complicated, and most users don’t need to, nor would they know how to read it.

Even though it’s completely digital, Bitcoin was created with a limit on how many can ever exist. They’re created through a resource-intensive process called “mining” that requires expensive hardware and a lot of computing power. After 21 million bitcoins are mined, no more can be created (theoretically).

You don’t have to be a miner to own Bitcoin. Most people simply buy existing coins through Bitcoin exchanges.

Bitcoin pros and cons

Pros:

  • Not subject to inflation or fluctuation due to actions by the Federal Reserve.
  • Significant growth in value since its inception (though gains aren’t guaranteed).
  • Minimal block size keeps processing open to individual users.

Cons:

  • Slow processing when used as currency to make direct purchases.
  • Significant energy consumption to provide computing power for mining and processing transactions.

What is Bitcoin Cash?10 Best Cryptocurrencies To Add To Your Investment Portfolio - Bitcoin Cash

Like Bitcoin, Bitcoin Cash (BCH) is a decentralized digital currency that lives on a blockchain. It’s not regulated by any government or backed by any physical assets, and no paper or other physical note to represent it.

Bitcoin Cash is one of the thousands of so-called altcoins — a term used for any cryptocurrency other than Bitcoin. Though it shares a name and some technology, BCH is as distinct a currency from BTC as U.S. Dollars are from Canadian or Australian Dollars.

Where did Bitcoin Cash come from?

Bitcoin Cash is a spinoff from the original Bitcoin that addressed issues with using the currency for payments as it became more popular.

The original Bitcoin blockchain limited BTC blocks to 1MB of information storage, which meant slow processing times for transactions. Processing became even slower as the coin grew in popularity and more transactions put more strain on the blockchain software.

To address that problem, Bitcoin miners and developers created a fork in the Bitcoin blockchain to develop Bitcoin Cash.

Different blockchains (with varying protocols for speed and transparency) exist to support various cryptocurrencies — for example, thousands of currencies run on the Ethereum blockchain, an alternative to Bitcoin. Bitcoin Cash runs on the Bitcoin blockchain but follows a different path from the original Bitcoin. Like Bitcoin, the Bitcoin Cash supply is limited to 21 million.

The upgrade on the blockchain that created Bitcoin Cash is called a “hard fork,” where the new protocols make it impossible for the old fork to process and transfer information passed down the new fork. Kind of like when Instagram makes an update and the app is no longer supported by your old iOS.

That separation in the blockchain makes Bitcoin and Bitcoin Cash two distinct coins.

Bitcoin Cash uses an increased block size of 8MB to facilitate more and faster transactions and keep the coin viable as a payment option as it scales.

For some developers, the larger block size was the best solution to Bitcoin’s limitations. Others were hesitant about increasing the block size, worried it would make it harder for individuals to process transactions and make way for a limited number of companies to take control of Bitcoin transactions.

Those concerned developers have remained loyal to Bitcoin and developed an alternative solution called segregated witness, or SegWit, for the original blockchain. SegWit reduces the amount of data needed to process a Bitcoin transaction. It increases the transaction speed, but is still significantly slower than Bitcoin Cash transactions.

Other hard forks in the Bitcoin blockchain

Bitcoin Cash isn’t the only Bitcoin spinoff in recent history. Over the years, we’ve also seen these currencies spring from the Bitcoin blockchain:

  • Bitcoin XT. This coin was an earlier attempt to increase the block size, boosting it to 8MB, just like with Bitcoin Cash. It was developed in 2014, but fell out of favor within a few months into 2015. It’s still available but largely out of use.
  • Bitcoin Classic. Confusingly, this is actually a separate currency from Bitcoin. It launched in 2016 and increased the block size to just 2MB. After some early interest, users dropped off, and the coin is largely not in use anymore.
  • Bitcoin Unlimited. Launching in 2016, this coin increased potential block size up to 16MB but gave miners the option to decide the size of block they’d accept. It was confusing for many users and never caught on.
  • Bitcoin Gold. Developers created this fork to make mining the coin easier. It works much like Bitcoin, but the algorithm is different in an aim to reduce the pricy equipment and processing power required to mine Bitcoin. The value of Bitcoin Gold has remained fairly stable since the initial spike at launch, rising in recent months with the overall boom in the crypto markets. It’s still a fraction of the price of Bitcoin.

Just like Bitcoin Cash, these are each distinct coins that run on the Bitcoin blockchain. Each has its own value and would be subject to availability on cryptocurrency exchanges.

Bitcoin Cash pros and cons

Pros:

  • Not subject to inflation or fluctuation due to actions by the Federal Reserve.
  • Increased transaction speed leaves room to scale as a decentralized payment option.
  • More access to transactions generally mean lower transaction fees for buying, selling, and trading.

Cons:

  • Slow growth in value since its inception, after dropping from a huge spike in 2017.
  • Valued at a fraction of the price of Bitcoin.
  • Potential for the concentration of power because of computing power needed for transactions.
  • Significant energy consumption to provide computing power for mining and processing transactions.

How to buy Bitcoin and Bitcoin Cash

To buy any cryptocurrency, including buying Bitcoin or Bitcoin Cash, you’ll need three things:

A cryptocurrency wallet

A wallet is a software that stores information about your cryptocurrency holdings. Its function is similar to a bank account, though it’s not regulated by federal law in the same way.

You get a wallet the way you get any software: download it for your desktop, as a mobile app, or use a web wallet that’s built into a cryptocurrency trading platform. Alternatively, you can purchase a hardware wallet that connects to your computer via USB.

Desktop, web, and mobile wallets are “hot” wallets because they’re connected directly to the internet and at risk of contracting malware. Hardware wallets are “cold” wallets and mostly immune to attacks or theft.

A crypto exchange

These platforms are like stock exchanges (though, like wallets, not regulated by federal laws). Cryptocurrencies are available to buy, sell, or trade, and different exchanges give you access to a different selection of currencies. To buy Bitcoin or Bitcoin Cash, look for platforms where they’re available.

Bitcoin is the most popular coin, so it’s available on most exchanges. Many of the same exchanges also make BCH available, but it’s less common.

Regulations on exchanges vary by country, so you also have to find a platform that operates in your country and, in the U.S., in your state. Around the world, hundreds of crypto exchanges are in operation, including  Coinbase and Gemini™, among the largest. For new buyers, user-friendly platforms with bank-account-esque features, like Coinmama and BlockFi, might be more attractive.

You can also buy Bitcoin and Bitcoin Cash through regular investing apps, like Robinhood. Bitcoin is available on the popular Cash app, but Bitcoin Cash is not.

Bank account, credit, or debit card

Exchanges let you purchase cryptocurrencies through a bank transfer, wire transfer, credit card, or debit card. Some are limited only to bank or wire transfers, but card purchases are becoming more popular — usually with higher fees. Depending on the platform, you might be able to purchase or trade Bitcoin or Bitcoin Cash with other cryptocurrencies you already own.

You can buy Bitcoin or Bitcoin Cash either as an investment — like you do with things like stocks and bonds — or as an alternative currency. The process of buying the coins is the same for either purpose.

If you buy cryptocurrencies to spend, you’ll shop markets and sellers that accept Bitcoin or Bitcoin Cash as payment. To make a purchase with cryptocurrency, the process usually includes sending money from your wallet to the seller’s wallet. You do that by entering their wallet address, which is like a bank account number. The whole thing is a lot like sending regular money to friends with apps like Venmo.

More opportunities for shopping with Bitcoin or Bitcoin Cash are opening up as both become more popular. Some platforms are even developing debit cards that let you shop in the real world, spending directly from your Bitcoin balance to pay vendors in fiat currencies.

Bitcoin vs. Bitcoin Cash: which should you buy?

Now that you’ve parsed the differences between these similar-sounding currencies, which sounds like the best buy for you?

They each have benefits and drawbacks, so which is best depends on your circumstances and financial goals.

For long-term investors…

If your main goal in buying crypto is to enjoy the potential return on your investment, Bitcoin is the better asset. Even though the coin’s value is volatile in the short term, it’s increased significantly overall since its creation in 2008.

If you want to spend with crypto…

You can make purchases with both Bitcoin and Bitcoin Cash. But because Bitcoin Cash was created specifically to facilitate faster transaction processing as the market grows, it’s likely to be the better option for direct purchases in the long run. 

Note that, for crypto novices, Bitcoin might be your better option, even for shopping with the coin. Simplified platforms making the coin work with credit and debit cards typically cater to the more well-known Bitcoin and not BCH.

If you’re committed to the original vision of decentralized currency…

Many of the developers who supported Bitcoin Cash’s creation wanted the increased capacity to keep transactions viable and affordable. They believed this was necessary to maintain the original vision of Bitcoin: a worldwide peer-to-peer cash system.

If you agree with this vision and with the increased block size as the best way to achieve it, purchase Bitcoin Cash to support the proliferation of the coin.

For investors willing to take big risks for potentially big rewards…

Either BTC or BCH could be sound additions to your portfolio if your main goal is to put some money into a new kind of — albeit risky and uncertain — investment asset.

Given its newness and potential for scale, Bitcoin Cash might have the potential to grow in value as Bitcoin has over the past decade, meaning you could buy in low now, at a much lower price than Bitcoin. However, crypto values have always been volatile, and growth is never guaranteed.

In either case — whether you buy Bitcoin or Bitcoin Cash — you should only invest in crypto with money you’re willing and able to lose. Don’t count on these investments to make you rich (as too many people do) — just enjoy the spoils if they come!

Summary

Bitcoin is the OG and by far the most popular and well-known type of cryptocurrency on the market. It rocked the financial world a decade ago when it launched as the first decentralized, fully digital currency to take hold worldwide.

As it became more widespread and widely accepted, limitations were bound to arise. Developers concerned about Bitcoin’s ability to scale to meet growing demand came up with competing solutions, broke into factions, and Bitcoin Cash was born as an alternative currency with increased capacity to process transactions.

If you’re mainly interested in Bitcoin for the investment potential, the soaring value and historical growth of Bitcoin suggest the original currency is a good bet for your portfolio.

But if you’re committed to the vision of Bitcoin as a decentralized, peer-to-peer payment option, Bitcoin Cash might be the solution that allows that vision to scale.

If neither of these sounds like the right solution to you, keep an eye on developments in segregated witness technology, which could bring the scalable processing power of BCH to Bitcoin.

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