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What Are the Differences Between Bitcoin and Bitcoin Cash?

Sometimes, well-meaning people argue. This is part of the nature of humanity. The more important an issue is, the higher passions will rise, and the more likely fists will fly during disagreements.

Take, for example, bitcoin. Anyone that seriously studied the cryptocurrency knows that it is seriously flawed. Created to be a proof of concept of blockchains and the notion of cryptocurrency, the first racer off the block – so to speak – has revealed serious shortcomings. Some, like the vulnerability to a 51% attack, was known when the coin was launched. Others, like the transaction bottlenecking issue, only emerged when the coin became popular and the payment network came under strain.

In cryptocurrency, such fights usually do not resolve themselves, as there is no impetus to form a full consensus. Instead, the dissenting minority can fork the blockchain, forming a new cryptocurrency. This is exactly what happened in the case of bitcoin cash, which split from the main bitcoin blockchain August 1, 2017.

This article will discuss the differences between bitcoin and bitcoin cash.

 

The Difference between Bitcoin and Bitcoin Cash

Besides being separately traded cryptocurrencies, the difference between bitcoin and bitcoin cash is that bitcoin’s block size will eventually reach two megabytes, while bitcoin cash’s block size is eight. It also does not adhere to SegWit.

That’s it. That is the only notable difference between the two coins. Yes, bitcoin cash runs on Bitcoin ABC instead of Bitcoin Core, but ABC is just a clone of Core with minor alterations. The coins are so similar that investors that had bitcoin before the split automatically received an equal share of bitcoin cash.

For those who was only reading this article to answer the question poised in the title, you have what you are looking for. However, if you want more exposition on this, please stick around and we will attempt to explain all of this to you.

 

Scalability

The major problem behind bitcoin is that it is not scalability. Under a significant transaction load, the platform buckles. The situation became so acute that – during the early days of the 2017 bitcoin spike – transaction wait times would hit and exceed four days, making bitcoin useless as a payment method.

The problem can be illustrated like this: imagine the blockchain to be a clerk at a bank. The clerk is happily verifying transactions, which she will place in a storage box to permanently store once she is done. The problem is, she is not allowed to process anymore transactions once the box fills, and she is only allowed to have a new box on a set schedule. For those caught in line after the box fills, they will just have to wait, and as more people enter the bank to have their transactions processed, a bottleneck forms and overflows.

When Satoshi Nakamoto created bitcoin, it was not with the intentions it would become a major payment network. The settings he/she set for bitcoin (one megabyte a block and ten minutes block creation time), instead, was made to ensure that distributed denial of service (DDoS) attacks and other transaction blocking attempts have the least chance to succeed.

While a bitcoin user can, in theory, push to the front of the line by offering to pay a larger transaction fee, this is impractical for micropayments. If someone must pay $25 to send a $5 payment, it is not economically feasible to do it. Yet, this was the scenario facing bitcoin.

The way forward is simple: either increase the block size or decrease the regeneration period. There are coins, such as DASH, that did both and can claim, as a result, near-instantaneous transmissions. Two different camps formed to deal with this issue: Bitcoin Unlimited, which advocated the elimination of the block size limit; and Segregated Witness, which proposed stripping transaction elements like signatures from the record to be sent to the block and instead place them on an off-chain ledger.

Both presented new problems. Segregated Witness, or SegWit, was seen to be only a temporary solution. At best, SegWit would only double the block size effectively, which is the same as having our clerk tear the transaction in half and only storing one-half of each transaction in her box, while placing the other half on a memo spike. Eventually, the box will fill before a new box is ready – just not as fast.

Bitcoin Unlimited would let the miners vote for when to raise the limit which would effectively be giving our clerk a chute to drop transactions into instead of a box. This will get rid of the line and the transaction record will be unmolested. Better yet, it will give miners full control of the blockchain – as there is no side ledger – and full control of setting transaction fees, which would be important to keep miner interest up once coin mining becomes unfeasible.

However, as much of the mining today is done by major mining rigs outside the reach of the small miner, Bitcoin Unlimited would effectively centralize bitcoin around the major miners – most of which are based out of China. As a block must sit in memory for a node to process it, a larger block will take more memory and more electricity, freezing out home and small miners.

From Investopedia: “The block size limit was added to the Bitcoin code in order to prevent spam attacks on the network at a time when the value of a Bitcoins was low. By 2015, the value of Bitcoins had increased substantially and average block size had reached 600 bytes, creating a scenario in which transaction times could run into delays as more blocks reached”

“A number of proposals have been made to deal with transaction processing over the years, often focusing on increasing block size. Because the Bitcoin code is not managed by a central authority, changes to the code require buy-in from developers and miners. This consensus-driven approach can lead to proposals taking a long time to finalize. This has resulted in groups creating separate blockchain ledgers using new standards, called a fork. Several forks, such as Bitcoin XT and Bitcoin Unlimited, failed to be adopted by a wide audience. Bitcoin Cash, launched in August 2017, is another fork from Bitcoin Classic.”

“Bitcoin Cash differs from Bitcoin Classic in that it increases the block size from 1 MB to 8 MB. It also removes Segregated Witness (SegWit), a proposed code adjustment designed to free up block space by removing certain parts of the transaction. The goal of Bitcoin Cash is to increase the number of transactions that can be processed, and supporters hope that this change will allow Bitcoin Cash to compete with the volume of transactions that PayPal and Visa can handle by increasing the size of blocks.”

“Because the computer power required to process larger blocks could price out some smaller miners, critics worry that adopting Bitcoin Cash’s approach will lead to power being concentrated in the hands of companies that can afford more and better equipment. Opponents to the fork worry that this will threaten the consensus-driven approach to Bitcoin, as a small number of companies could control Bitcoin and more readily force changes on the community in the future.”

“A successful hard fork for Bitcoin Cash entails surviving long enough to entice individuals and companies to use and mine the new digital currency if it is able to build substantial interest and reach critical mass. Once this point is reached, however, Bitcoin Cash may find that its success has prompted others to develop their own alternative coins, which would put the same pressure on Bitcoin Cash that it had placed on Bitcoin Classic. Since the issue of scalability tends to be at the forefront of cryptocurrency debates, developers have made increasing block size and improving transaction processing speeds their top focus areas. “

So, you have one solution that is effectively just a bandage and another solution that would centralize the network. The option bitcoin settled for was somewhere in the middle. Bitcoin would gradually increase its block size to two megabytes while segregating signature information to a separate ledger. Additionally, bitcoin will implement the Lightning Network.

 

The Lightning Network

Yes, this is a tangent. But, to fully understand all of this, we will need to explain what the Lightning Network is. The Lightning Network – which bitcoin has, and bitcoin cash does not have – basically allows bitcoin to skate by without permanently dealing with the block size issue.

Going back to our bank example, say – for example – that there are three customers in line: Mary, Jake, and Jessica, who all just needed the bank to record transactions between them. Instead of waiting for the clerk, they decide to conduct the transaction peer-to-peer. Mary pays Jake one bitcoin, as agreed, and record the transaction onto a transaction commitment, which the clerk will record later. The commitment is a contract, with Jake paying a commitment fee that will be refunded to him once the clerk processes the transaction. If Jake was to run off with the bitcoin without letting the clerk process the transaction, his commitment fee would be forfeited.

Mary and Jake would have formed a “payment channel” What is happening is that Mary and Jake are both engaging in one transaction with two outputs and two inputs. Both partners sign the transaction. In order to participate in the channel, each partner must place a certain amount of money in the channel.

Say, each partner has two bitcoin in the channel. Mary opts to send Jake one bitcoin, so she creates an asymmetric transaction where Mary has one bitcoin in the channel and Jake has three. Mary signs the transaction and sends it to Jake, who countersigns it and keeps it. Jake would send a reciprocating transaction, confirming the transfer back to Mary. Since this process is self-confirming and penalizes aggressive parties, this is considered a scalable, secured way to move micropayments off the blockchain for settlement. This system even allows Jessica to get involved, considering she buys into the channel.

“Currently the solution to micropayments and scalability is to offload the transactions to a custodian, whereby one is trusting third party custodians to hold one’s coins and to update balances with other parties,” the Lightning Network whitepaper reads. “Trusting third parties to hold all of one’s funds creates counterparty risk and transaction costs.”

“Instead, using a network of these micropayment channels, Bitcoin can scale to billions of transactions per day with the computational power available on a modern desktop computer today. Sending many payments inside a given micropayment channel enables one to send large amounts of funds to another party in a decentralized manner. These channels are not a separate trusted network on top of bitcoin. They are real bitcoin transactions.”

“Micropayment channels create a relationship between two parties to perpetually update balances, deferring what is broadcast to the blockchain in a single transaction netting out the total balance between those two parties. This permits the financial relationships between two par-ties to be trustlessly deferred to a later date, without risk of counterparty default. Micropayment channels use real bitcoin transactions, only electing to defer the broadcast to the blockchain in such a way that both parties can guarantee their current balance on the blockchain; this is not a trusted overlay network —payments in micropayment channels are real bitcoin communicated and exchanged off-chain.”

 

Bitcoin Cash

The question of if the answer to solving bitcoin’s problem a deeper box or letting customers handle their own transactions is one that will only be proven with time. However, the question of forking to solve every cryptocurrency dispute is a far more important point to consider.

As it stands right now, there are more than 4,000 cryptocurrencies. Many of these are hard forks of existing cryptocurrencies. With a traditional fiat currency, there are disagreements over policy matters all the time. However, as splitting the currency is impossible, they are typically settled or – at least – push to the back burner for the sake of currency stability.

If bitcoin is ever to become a major currency, a better system of conflict resolution is needed. It is disturbing to investors to know a new currency has emerged over a policy dispute. Likewise, bitcoin would be stronger now if a solution that satisfied all could have been formed, instead of allowing the dissenters to go their own way.

It is unclear if Bitcoin Cash will cause the miner centralization that was feared. The network has yet to reach the point where all eight megabytes of block space is needed. The point that the coin exists, however, show that bitcoin and cryptocurrency is still developing, with miner attitudes being one of the main areas of needed growth.

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