Bitcoin Cash

chart-5
Bitcoin Cash Percentage Increase Compared to the Average (Bit20 ETF) Starting in 2017

Bitcoin Cash is a hard fork of Bitcoin – meaning that it shares almost all of the same characteristics with Bitcoin except one: Bitcoin Cash uses 8 MB blocks while Bitcoin uses 1 MB. This adjustment to the Bitcoin protocol was made to address Bitcoin’s scalability issues. By using larger block sizes, the Bitcoin Cash protocol is designed to increase transaction speeds and decrease fees compared to Bitcoin. Those in favor of Bitcoin Cash argue that the larger block size solves Bitcoin’s scaling problem making it useful for daily transactions (e.g., for a cup of coffee) including micropayments. They also claim that the cryptocurrency that can handle small, constant transactions can also be used as a store of value, thereby replacing the need for Bitcoin. However, those opposed cast Bitcoin Cash in a much different light. They argue that a larger block size does not permanently solve the scaling problem and instead is a temporary solution that Bitcoin could easily adopt if it’s successful. Instead, Bitcoin Cash is one of many cryptocurrencies competing to be the leader in daily transactions. There are strong arguments on both sides making Bitcoin Cash very difficult to evaluate. 

Pros: Contains many of the benefits of Bitcoin including decentralization, security, immutability, and limited supply in addition to improved scalability due to the 8 MB block size; fast confirmation times (~a few seconds); low transaction fees (~$.10 per transaction); decentralized development

Cons: Provides a quick fix to the scalability issue without finding a long-term solution; Bitcoin could always increase its block size in the future to match or exceed the Bitcoin Cash block size; vulnerable to a 51% attack if a mining pool or anyone else controls over 50% of the mining power; Bitcoin Cash mining is centralized

Analysis

To perform an objective analysis, each cryptocurrency is rated based on the following factors: (1) validation method; (2) leadership; (3) community participation in development; (4) transaction volume and market capitalization; (5) industry participation; (6) security; (7) usability; (8) technical features; (9) growth; (10) legal risks; and (11) estimated time of arrival.

Validation Method

Bitcoin Cash uses the same proof-of-work (POW) system as Bitcoin to validate transactions. But its larger block size leads to expensive data storage costs, and as a result, only a few miners participate in the Bitcoin Cash network.[1] Thus, Bitcoin Cash is highly centralized (only three miners control over 50% of the hash power: Antpool, ViaBTC, and BTC.com), making it vulnerable to a 51% attack.

Leadership/Community Participation

Unlike many other cryptocurrencies, Bitcoin Cash has a decentralized development team made up of developers from Bitcoin ABC, Bitcoin Classic, Bitcoin Unlimited, Bitcoin XT, and several others.[2] This prevents any single group of developers from controlling the code. Although Bitcoin Cash does not have a prestigious leader like Vitalik Buterin of Ethereum or Brad Garlinghouse of Ripple, the cryptocurrency has many influential supporters such as Roger Ver, better known as “Bitcoin Jesus.”[3]

Transaction Volume and Market Capitalization

Bitcoin Cash has about 1/10 the transaction volume of Bitcoin (~$400M in transactions per day). Even though confirmation times and transaction fees are significantly lower for Bitcoin Cash, the network has not been fully tested. On the other hand, Bitcoin Cash does have the 4th largest market cap (~$20B) of all cryptocurrencies and just recently came into existence after the hard fork of August 2017.

Industry Participation

Bitcoin Cash is accepted at some retailers, such as Overstock.com.[4] Additionally, it can be purchased through several exchanges, such as Coinbase, Bitstamp, Binance, and many others. However, Bitcoin Cash has yet not received widespread acceptance and may only be used at very limited locations.

Security

In terms of security, Bitcoin Cash has many of the same advantages and disadvantages as Bitcoin.

Usability

Many argue that Bitcoin is meant to be used as a store of value, while Bitcoin Cash is better suited for day-to-day transactions including micropayments.[5] Although this idea makes sense in theory, it is yet to be seen whether Bitcoin Cash can maintain low transaction fees and fast confirmation times when the network is flooded with billions of transactions per day. It appears that off-chain solutions like the Lightning Network or solutions that do not require a blockchain are better suited to handle exponential increases in transaction volume[6] and micropayments.

Technical Features

As described above, Bitcoin Cash has almost all of the same features as Bitcoin. The main difference is its block size of 8 MB. This means 8 times as many transactions are included in a block, preventing the network from overloading and having a backlog of transactions that need to be confirmed. While Bitcoin’s mempool had been reaching close to 300 MB of unconfirmed transactions in January, the amount of unconfirmed transactions for Bitcoin Cash is typically under 1 MB.[7]

Growth/Legal Risks

Even though it may appear that Bitcoin Cash is a direct competitor with Bitcoin, there is an argument that the two can coexist and users can have both for different purposes. Bitcoin may end up being used as a store of value while Bitcoin Cash is the cryptocurrency for day-to-day peer-to-peer transactions. As such, Bitcoin Cash’s main competitors are other cryptocurrencies that intend to be used in a similar manner, such as Litecoin, Dash, Nano, etc. Although there are many competitors in this space, Bitcoin Cash is currently the leader according to market cap, and has room to grow as the demand for cryptocurrencies that can perform day-to-day transactions and micropayments increases. On the other hand, if Bitcoin can address its scaling issues Bitcoin Cash may lose its advantage as the leader of a niche market within cryptocurrency.

Estimated Time of Arrival

Because Bitcoin Cash shares almost all of the same features as Bitcoin, the protocol is fully developed and ready for use. Nevertheless, the Bitcoin Cash network has not been tested to the same extent as Bitcoin’s, and we won’t know for sure how well Bitcoin Cash can handle daily transactions until its required to confirm hundreds of millions or even billions per day like a credit card company.

ETA: Now

Conclusion

The future of Bitcoin Cash is very hard to predict as there are so many possible outcomes when it comes to this cryptocurrency. It may emerge as the cryptocurrency used as a store of value and for daily transactions while Bitcoin is considered old technology. On the other hand, Bitcoin Cash may become obsolete when developers discover a more permanent solution to the scaling problem, such as by using off-chain transactions or a data structure other than blockchain. Of course, the ultimate fate of Bitcoin Cash is likely somewhere in between, but because their solution to the scaling problem doesn’t seem to be a permanent one, it’s value may be surpassed by other coins down the road.

[1] https://coinsutra.com/btc-vs-bch-bitcoin-cash/

[2] https://news.bitcoin.com/developer-amaury-sechet-discusses-the-values-of-bitcoin-abc-development/

[3] https://www.cnbc.com/2017/12/20/bitcoin-jesus-says-investors-should-be-ready-in-case-bitcoin-falls-out-of-favor.html

[4] https://acceptbitcoin.cash

[5] https://bravenewcoin.com/news/for-bitcoin-is-being-a-store-of-value-more-important-than-a-payment-system/

[6] https://lightning.engineering

[7] https://dedi.jochen-hoenicke.de/queue/#30d

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