What Is Bitcoin Cash?
Bitcoin Cash (BCH) is a hard fork away from Bitcoin (BTC). Essentially, certain developers saw issues with the Bitcoin blockchain and how the underlying technology affected transactions. They created a separate blockchain — and separate currency — called Bitcoin Cash.
More: How to invest in bitcoin
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Bitcoin vs. Bitcoin Cash: How are they different?
One main difference between Bitcoin and Bitcoin Cash is the size of the blocks on each chain. At a time when Bitcoin’s block size limit was 1 MB, Bitcoin Cash launched with a block size limit of 8 MB. Today, the block size limit for Bitcoin Cash is 32 MB, and Bitcoin’s limit remains much smaller.
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In general, the bigger block size allows Bitcoin Cash to process transactions at a much faster rate than Bitcoin. Bitcoin Cash can process about 116 transactions per second, while Bitcoin can process about seven on average. In comparison, Visa processes 24,000 transactions per second.
Although BCH has a faster transaction speed, it’s not as widely accepted as BTC, and is not as liquid. Bitcoin Cash is also subject to its own debate; a hard fork from Bitcoin Cash, known as Bitcoin SV, is also in existence.
What is Bitcoin Cash used for?
Like Bitcoin, Bitcoin Cash is a digital currency that can be used to complete transactions.
- You can buy and sell goods and services, and use BCH as a medium of exchange.
- Because of the speed at which BCH is processed, Bitcoin Cash could be used for everyday spending in a way that BTC, which is considered clunky by today’s standards, can’t.
- While it might make sense to use BTC as a store of value or for large purchases (think cars or houses) that don’t need instant processing, Bitcoin isn’t practical for quick transactions like paying for your lunch. BCH fills that role and can be used for daily purchases.
- It’s also used as a peer-to-peer system of sending money to others. You could send BCH to a friend, no matter where in the world they live, and the friend could use that BCH for transactions or convert it to their local currency.
- Finally, for those interested in cryptocurrency investing, BCH can be one way to diversify, and potentially add growth to, a portfolio.
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Why was Bitcoin Cash created?
Concerns about Bitcoin’s ability to scale began arising several years ago. As more people began using BTC, transactions took longer and longer to process. To address some of the issues surrounding scalability, a technology called Segregated Witness (SegWit) was added to Bitcoin. SegWit moved signature verification to an extended block so that each block could be processed faster.
However, some of the developers and miners associated with BTC didn’t think that SegWit was the right approach. Instead, they created their own protocol using Bitcoin blockchain technology and increased the block size. This resulted in transactions that were processed faster at a reduced cost. Developers also didn’t like the lack of transparency involved in the adoption of SegWit technology and thought that creating a hard fork would lead to greater decentralization and democratization of the currency.
In the end, the idea was to improve scalability while also following the vision laid out by blockchain pioneer Satoshi Nakamoto, the anonymous party behind a whitepaper that kicked off the age of cryptocurrencies. The future of Bitcoin is still a matter of debate. Bitcoin Cash's hard fork, Bitcoin SV, is gaining some popularity.
How does Bitcoin Cash work?
Bitcoin Cash works like other currency transactions that take place using Bitcoin blockchain technology.
Transactions are recorded in “blocks” of data that act as ledgers. These ledgers are distributed across the network, instead of being held in a central location. The addresses of wallets are usually a string of numbers and letters. It’s possible to see how much Bitcoin Cash one addresses sent to another, and get an idea of who owns what (or at least an idea of which addresses own how many Bitcoin Cash coins).
While some say cryptocurrencies are anonymous, the reality is that transactions are public on the ledger. Someone with the right know-how could track down who controls the wallet. However, because wallets appear as a string of numbers, it’s somewhat acceptable to say that transactions are at least semi-private.
The underlying idea is that transactions are verified through cryptography and other processes so that the network is trustworthy and reasonably secure.
Can you convert Bitcoin Cash and Bitcoin?
Depending on the wallet you have or the exchange you use, it’s possible to exchange your BCH for BTC, and vice versa.
Some exchanges and wallets, however, require you to first convert your coins to a centralized currency, like the U.S. dollar, and then convert that amount of currency into the new cryptocurrency. However, there are exchanges that will let you convert from one coin to another. For example, Coinbase and CoinSwitch allow for direct conversions between BCH and BTC.
More: How to sell Bitcoin and cryptocurrency
What is Bitcoin SV vs. Bitcoin Cash?
Bitcoin SV (BSV) is a cryptocurrency that is forked from the Bitcoin Cash protocol. It's a project that arose from a civil war inside the Bitcoin community about the best way to scale the blockchain. Bitcoin SV is backed by Craig Wright, who claims to be Satoshi Nakamoto, the creator of Bitcoin.
Bitcoin SV says that it's trying to stay more true to the original vision of Bitcoin. Specifically, it's trying to keep the block size large so that it can support more transactions while Bitcoin Cash wanted to solve the scalability problem by using second-layer solutions via the Segwit protocol.
Is Bitcoin Cash a good investment?
When considering BCH vs BTC as an investment, it’s a good idea to think about your goals and portfolio strategy.
It’s easier to invest in Bitcoin Cash because it costs much less than Bitcoin. For example, at the time of this writing, BCH costs a little more than $142.54, while BTC is at more than $24,000 (Bitcoin SV is just over $60). However, Bitcoin Cash is not as widely accepted by the general public and Bitcoin is better known.
Whether Bitcoin Cash constitutes a good investment also depends on how you expect the cryptocurrency to perform in the future. Although it's seen more as a medium of exchange, Bitcoin Cash could be considered a good bet if you believe its scalability and faster processing will lead to widespread adoption. Or if you believe that BCH will benefit from its association with Bitcoin.
On the other hand, cryptocurrencies are new assets, and it’s uncertain whether they will see widespread adoption. Blockchain technology could be surpassed by something else, and cryptocurrencies might drop dramatically. This could lead to losses in your portfolio.
In many cases, it makes sense to evaluate your portfolio strategy, investing in BCH only if it makes sense as part of your diversified effort, and you have the risk tolerance for the potential losses.
Does all this sound confusing?
Many people shy away from cryptocurrency investing due to confusion and a lack of knowledge. If that sounds familiar, Wealthfront has you covered.
With Wealthfront, you can gain exposure to cryptocurrency through one of two ETFs: Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE). This way, you can invest in crypto without the need to make individual decisions, such as Bitcoin vs. Bitcoin Cash.
You also gain access to automation features such as intelligent dividend reinvestment, tax-Loss Harvesting, and tax-sensitive rebalancing.
If you decide that you want to invest directly in Bitcoin, Bitcoin Cash, or both, you can do so on most crypto exchanges including Crypto.com, Binance and Gemini.
The bottom line
Bitcoin Cash (BCH) is a hard fork from the Bitcoin blockchain. It is a separate cryptocurrency from Bitcoin and it also has its own separate blockchain protocol. It’s possible to use BCH like any other cryptocurrency, as well as invest in it with the hope that it will increase in value and fulfill a role in your portfolio.
However, before investing in BCH, it’s important to carefully consider your risk tolerance and investing strategy to ensure that you are using it appropriately in your portfolio.
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