Bitcoin vs. Bitcoin Cash: Key BTC & BCH Differences

Bitcoin (BTC) and Bitcoin Cash (BCH) are cryptocurrencies that originated from the same source but have diverged significantly over time, leading to distinct features and uses.

In this guide, we’ll compare Bitcoin and Bitcoin Cash, highlighting their key differences and market impacts. We'll cover Bitcoin’s scalability issues that led to the creation of Bitcoin Cash and its larger block sizes for faster transactions. Additionally, we'll explore the varying levels of adoption, liquidity, and real-world usability between the two cryptocurrencies.

For cryptocurrency traders, understanding the differences between BTC and BCH is crucial for making informed trading decisions. Let’s explore these differences and their origins now.

BTC and BCH: Origins and Background

Often referred to as the original cryptocurrency, Bitcoin (BTC) was created in 2009 by an anonymous individual or group known as Satoshi Nakamoto. Bitcoin’s history is marked by its vision of becoming a decentralized digital currency intended to operate without a central authority (like a central bank), providing a peer-to-peer (P2P) payment system outside the control of governing bodies or other third parties.

The vision behind BTC was to create a form of electronic cash that could facilitate transactions securely and efficiently, utilizing blockchain technology to ensure transparency and consistency. Network users validate these transactions, or “blocks,” through what’s known as Bitcoin mining. Once a transaction is validated, it’s “chained” to previous blocks and becomes a permanent record.

Bitcoin's economic model includes a process known as "halving," where the reward for mining new blocks is cut in half approximately every four years. This mechanism reduces the rate at which new Bitcoins are generated, influencing the supply and, consequently, the market price. The last halving occurred in April 2024, with the next expected in 2028.

As BTC grew in popularity, scalability issues began to emerge. The primary issue was the 1 MB limit on block data, causing transaction fees to rise as users paid more to prioritize their transactions. Since 2014, transaction volumes often exceeded 1 MB, leading to delays as excess transactions had to wait for future blocks.

Consequently, a “hard fork” of the Bitcoin blockchain occurred in 2017, leading to the creation of Bitcoin Cash (BCH), a new cryptocurrency with a larger block size. The split was primarily driven by differing opinions on how to increase transaction capacity. BCH supporters wanted BTC to add features that would make it more competitive with traditional payment systems like Visa (V) and PayPal (PYPL). They believed that increasing the block size would allow for more transactions to be processed quickly and cheaply, addressing what they saw as BTC's critical limitation.

Over time, the differences between Bitcoin and Bitcoin Cash expanded further, driven by the differing objectives of the developers working on each network. These distinctions have become so pronounced that the two cryptocurrencies are now regarded as separate assets within the community.

Key Differences Between Bitcoin and Bitcoin Cash

Understanding the unique aspects of BTC and BCH is essential for grasping their respective roles in the cryptocurrency market. Let's explore the specific features and technical and philosophical distinctions that set these two digital currencies apart.

Block Size Limits

One of the most significant differences between Bitcoin and Bitcoin Cash is their block size. Bitcoin's block size limit is 1 megabyte (MB), which restricts the number of transactions that can be processed per block.

In contrast, Bitcoin Cash increased the block size limit to 8 MB and later to 32 MB, enabling it to handle more transactions per second.

Transaction Speed and Fees

Transaction speed and fees are also significant differentiators. Bitcoin transactions can sometimes take longer to process, especially during periods of high network congestion, leading to higher transaction fees. BTC averages one block every 10 minutes, so one could expect their transaction to take over 10 minutes to process. Anyone who wants to send it faster would need to try to have their transaction prioritized by paying a higher fee to jump ahead in the queue.

With its larger block size, Bitcoin Cash aims to process transactions more quickly and at a lower cost, which can make it more suitable for everyday transactions.

For user experience, BCH's faster and cheaper transactions can make it more appealing for those who need to conduct numerous small transactions. BTC, on the other hand, is often seen as a store of value, akin to digital gold, rather than a day-to-day transactional currency.

Security and Difficulty Adjustments

Security and difficulty adjustment mechanisms further distinguish the two cryptocurrencies.

Cryptocurrency mining difficulty measures how hard it is to mine a new block relative to the easiest it can ever be. Bitcoin adjusts its mining difficulty every 2,016 blocks, which is approximately every two weeks, while Bitcoin Cash adjusts its difficulty after each block. The average block time for Bitcoin Cash is between about eight to 10 minutes, which means the difficulty adjustment for Bitcoin Cash happens much more frequently than Bitcoin, or approximately every 8 to 10 minutes. This can lead to more predictable block times for Bitcoin Cash.

Both Bitcoin and Bitcoin Cash use a Proof of Work (PoW) consensus mechanism, where miners solve complex mathematical problems to validate transactions. However, Bitcoin has a more established network of miners, contributing to its higher security. Bitcoin Cash has implemented an Emergency Difficulty Adjustment (EDA) to ensure blocks are mined more consistently, providing more stable transaction processing times.

Replace-by-Fee

Replace-by-fee (RBF) is a feature on the BTC network that allows users to replace a "stuck" unconfirmed transaction with a new one that includes a higher fee, ensuring quicker processing. While RBF can expedite transactions, critics argue it could facilitate double spending. An attacker might initially send a low-fee transaction for a good or service and then replace it with a higher-fee transaction to a wallet they control if the recipient doesn't wait for enough confirmations.

To mitigate this risk, most RBF implementations require the transaction to include the same outputs. Additionally, waiting for a few network confirmations renders RBF ineffective as the transaction becomes confirmed.

However, Bitcoin Cash has removed RBF, making unconfirmed transactions irreversible. BCH’s larger block size and faster transaction times reduce the likelihood of double spending.

Advanced Contract Capabilities and DeFi

Bitcoin does not inherently support smart contracts, which are self-executing contracts with the terms directly written into the code. These contracts ensure transactions occur when specific conditions are met. However, there are ongoing efforts to develop decentralized finance (DeFi) services using Bitcoin.

In contrast, Bitcoin Cash has begun implementing smart contract languages like Cashscript to enable more sophisticated functionalities within its network.

Blockchain Tokens

To create tokens on the Bitcoin blockchain, projects must utilize the Omni layer, a platform designed for developing and trading custom digital assets and currencies. Omni transactions are essentially Bitcoin transactions with advanced features, but the platform's primary use has been for stablecoins, which peg to other assets, such as fiat currency or commodities held in reserve.

On the other hand, Bitcoin Cash has developed the Simple Ledger Protocol (SLP), allowing developers to issue tokens on its blockchain, similar to how tokens are created on the Ethereum network.

Philosophical Divergences

The philosophical differences between the Bitcoin and Bitcoin Cash communities are rooted in their visions for the future of cryptocurrency.

Bitcoin supporters tend to emphasize its role as a store of value and focus on maintaining a secure and decentralized network, even if it means slower transaction times and higher fees. They believe that second-layer solutions like the Lightning Network can address scalability issues without altering the fundamental protocol.

In contrast, Bitcoin Cash proponents advocate for larger block sizes to enable faster and cheaper transactions directly on the blockchain. They tend to prioritize usability and transaction efficiency, even if it means potential compromises on decentralization, aiming to create a digital currency that functions more like cash for everyday use.

Market Popularity and Liquidity

Bitcoin remains the world's most popular cryptocurrency, with the largest market capitalization, about US$1.2 trillion as of June 29, 2024. Consequently, users of Bitcoin Cash, with a market cap of approximately $7.5 billion on the same date, might encounter lower liquidity and more real-world usability compared to Bitcoin.

Despite its increased block size aimed at faster transactions and better usability, Bitcoin Cash doesn't match Bitcoin's popularity in terms of market cap, user adoption, or trading or transaction volume. Bitcoin is also more extensively integrated into financial services, including wallets, exchanges, and payment processors.

BTC vs. BCH: A Side-by-Side Comparison

Trading BTC and BCH as CFDs

Contracts for difference (CFDs) is one popular method for trading cryptocurrencies like Bitcoin and Bitcoin Cash without owning the underlying asset. In CFD trading, traders can speculate on the Bitcoin price movements instead of buying the Bitcoin cryptocurrency.

Both BTC CFDs and BCH CFDs work in the same way. Traders may take a long position if they believe the price will rise or a short position if they believe the price will fall. This enables traders to potentially benefit from market movements in either direction, whether prices are increasing or decreasing.

However, cryptocurrency CFD trading also has risks. It involves leverage, which can magnify gains as well as losses.

Bitcoin vs. Bitcoin Cash for CFD Trading

Both Bitcoin and Bitcoin Cash can be suitable for CFD trading, but they offer different opportunities.

BTC's high liquidity and widespread acceptance make it a popular choice for CFD trading. Its large market capitalization and established reputation may provide a stable foundation for speculation. However, traders should be aware of the potential for high transaction fees and slower processing times.

Bitcoin Cash, with its lower price and higher transaction capacity, may be an attractive option for CFD traders looking for more frequent and smaller transactions. While BCH may not have the same level of acceptance as Bitcoin, its focus on usability can make it an option for those who prioritize transaction efficiency.

It’s important to note that both cryptocurrencies face competition from other digital currencies and technological advancements.

Conclusion: Understanding the Differences Between BTC vs. BCH

Bitcoin and Bitcoin Cash, while sharing a common origin, have diverged significantly in terms of technology, philosophy, and use cases. Bitcoin is often seen as a store of value, offering high security and liquidity but with potentially higher transaction fees and slower speeds. Bitcoin Cash, on the other hand, aims to provide a more efficient and cost-effective transactional currency with its larger block size and faster processing times.

For traders, understanding these differences is crucial for making informed decisions, whether trading the cryptocurrencies directly or through CFDs. Each has its own advantages and challenges, and the choice between BTC and BCH will depend on individual trading goals and preferences.

Remember, whether you choose to trade Bitcoin, Bitcoin Cash, or any other cryptocurrency, it’s important to do your research and understand the risks involved.

If trading Bitcoin or Bitcoin Cash CFDs piques your interest, you can start trading BTC CFDs and BCH CFDs on Plus500.