Two Sides of The Same Coin?
Hopefully, you are not here because you sent Bitcoin to a Bitcoin Cash address or vice versa. It is true that the two can be confusing for most people who are new to the cryptocurrency world. In this article, the main technical differences between the two cryptocurrencies as well as what these differences mean are discussed.
The Origins of Both Coins
Bitcoin (BTC) is the original cryptocurrency created by Satoshi Nakamoto in 2009. The sharp increases in its price over the years followed by increased adoption led to more congestion on the network, which was built to handle only a handful of transactions in a second. The congestion became more apparent and problematic in the latter part of 2017 when the price continued to soar. This congestion came with high network fees since users had to pay higher fees to get their transactions confirmed earlier. Different groups within the Bitcoin community had different views when it came to how this problem would be solved. This was known as the scaling debate and went on for over a year.
The thing about Bitcoin is that it has different uses and means different things to different people. Some people want to be able to use the cryptocurrency for micropayments. Others simply want to protect their wealth from inflation and/or confiscation. For another group of people, Bitcoin is an important tool for making cross-border transactions. There is also the day trader who is here for the volatility. For all these different types of users, an improvement in the technology would not necessarily mean the same thing.
Also, what one user considers a serious problem could actually be what another type of user loves about Bitcoin. Those who make more small transactions or merchants accepting Bitcoin as payment would want a less volatile Bitcoin but speculators and traders would beg to differ. High fees and a slow network is also not too much of a problem for users who are simply protecting their wealth or trying to avoid censorship.
A section of the community led by Roger Ver was keen on going for quick solutions to the scaling problem that would make Bitcoin more suitable to be used as a currency. They rejected Segregated Witness (SegWit) as a solution and opted for a larger block size. SegWit, which excludes signature data from transactions to allow room for the addition of more transactions, was implemented on the Bitcoin network on August 24th, 2017.
Bitcoin Cash was created on August 1st, 2017 as a result of a change in the protocol to increase the 1-megabyte block size limit to 8 megabytes.
Main Technical Differences and their Implications
As stated earlier, the main reason for the Bitcoin Cash fork were opposing views when it came to solutions to the scaling problem. In the same vein, the main differences between the two cryptocurrencies are updates made to improve scalability.
On Bitcoin (BTC), we have SegWit which reduces the size of the transaction data that needs to be verified. Later on, in March 2017, the much-awaited Lightning Network was launched on the mainnet. Lightning was to bring instant, low fee transactions to Bitcoin again while keeping the microtransactions off the main chain. The idea was/is that there was no need to overload the already fast-growing blockchain with records of tiny transactions.
Bitcoin Cash, on the other hand, stuck to its 8-megabyte block size limit as a means of keeping a decongested mempool and maintaining very low fees. Supporters of this idea do not believe the hardware requirements to download a huge blockchain is a problem. There have been concerns that the need for more space to download an entire blockchain would in the future lead to fewer people running full nodes and hence, less decentralization. Proponents of the “larger block size” argument have shifted focus from decentralization to censorship resistance. Bitcoin Cash’s leader has maintained that censorship resistance and not decentralization is the purpose of having cryptocurrencies. Ironically, there is very little activity on the Bitcoin Cash blockchain as compared to that of Bitcoin. Unless Bitcoin Cash sees massive adoption in the future, there would be no need to worry about hardware requirements.
Bitcoin’s SegWit adoption has continually gone up since it was activated in August 2017, reaching over 30% of all transactions on the network. The second layer, Lightning is still in its early days but has 801 nodes and 2,677 channels at the time of writing. Interestingly, even though Bitcoin fees are currently low, the price isn’t doing as well as it was doing when there were several complaints about the rising fees in late 2017.
The Future Bitcoin and Bitcoin Cash
After a couple of years, we could have one coin failing or both coins coexisting. We would, however, not go on and on about which version of Bitcoin is using the right approach. That is for the individual to decide for himself after looking at what both have to offer. As mentioned earlier, each user’s view of Bitcoin is based on what she uses it for and wants from it. For now, we can continue to watch and learn.
It has to be said, that it is wrong to try to create confusion by referring to Bitcoin Cash as Bitcoin.