SFOX
SFOX
Nov 22, 2017 · 10 min read
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Bitcoin Cash (BCH) is a cryptocurrency, forked from the Bitcoin (BTC) blockchain, that envisions itself as a global peer to peer payments system. Bitcoin Cash has been designed specifically to increase the number of transactions that the network can process.

That’s become necessary to Bitcoin Cash proponents because while Bitcoin investing has gone up and the price is higher than ever (currently $8,114 per coin), Bitcoin payment usage has shown signs that it’s flat or actually declining. As the Bitcoin network has grown, transaction processing times and fees have gone up.

The debate of how Bitcoin should scale has deeply divided the community and ultimately resulted in a contentious hard fork. The different factions have coalesced into two major camps:

  • Bitcoin Cash as a currency and payment processing platform — i.e., PayPal 2.0 — with all transactions happening on-chain
  • Bitcoin as a store of value — i.e., digital gold — and a settlement system for layer 2 scaling solutions

Bitcoin Cash sees itself as the opportunity to make bitcoin an integral part of daily life. It wants to be as ubiquitous as the cash (or credit card) in your pocket today — as the way that you buy your cup of coffee in the morning and your groceries before you head home at night.

Here’s where Bitcoin Cash stands today and its progress so far towards its mission of becoming peer-to-peer electronic cash. Because Bitcoin Cash and Bitcoin are both complementary and competitive, we have to talk about Bitcoin Cash in the context of how it compares with Bitcoin. The interplay between the two networks will decide whether one coin takes the whole market or whether they coexist peacefully, side by side.

How do Bitcoin Cash and Bitcoin compare?

Bitcoin Cash forked from Bitcoin as of block 478588 on August 1, 2017, with only minor changes to the source code. They’re more alike than different, and that’s what’s made the rivalry so fierce.

Bitcoin Cash vs. Bitcoin features

Bitcoin Cash differs from Bitcoin in two key ways, both of which revolve around the question of how bitcoin should scale:

  1. Block size: Whereas Bitcoin’s block size is 1 MB for legacy blocks and around 2 MB for SegWit blocks, Bitcoin Cash’s block size is 8 MB which means — other things equal — that Bitcoin Cash can process 4x to 8x more transactions per second. Read our piece on block size to take a deeper dive on what it means for Bitcoin Cash.
  2. SegWit: While Bitcoin has activated SegWit, which enables layer 2 scaling solutions, Bitcoin Cash has not adopted SegWit to signal its intention to scale on-chain.

Most in the bitcoin community agree that bitcoin needs to scale to meet current demand and set the stage for future growth. Currently, each 1MB block contains approximately 2,000 transactions (with SegWit adoption around 10%), and a block is produced about every 10 minutes. That means that Bitcoin can process close to 300,000 transactions per day. That ceiling was hit as of Fall 2016.

300,000 transactions in a day passed on October 26, 2016 (via Blockchain.info).

How to scale and what that means for the future of bitcoin is where the two camps split. Otherwise, nearly everything about the two coins is the same.

Most obviously, they share “bitcoin” in the name. Bitcoin Cash proponents have often couched their vision in terms of the foundational Satoshi Nakamoto whitepaper on bitcoin, and frame their position as carrying on Satoshi’s original vision. To counter that, Bitcoin advocates have taken to calling Bitcoin Cash, “Bcash”, striking “bitcoin” from the name.

Bitcoin currently dominates mindshare heavily, but Bitcoin Cash has picked up steam in November as its price has gone up.

Bitcoin Cash (blue) search volume vs. Bitcoin (red) search volume (via Google Trends)

That’s why the debate has been so fractious in a nutshell — because it’s a fight over the very meaning of bitcoin. Bitcoin Cash has been designed to compete with Bitcoin when it comes to three key areas of building their network:

  • Mining: The coins use the same SHA256 hashing algorithm which means they’re fighting for hashing power from the same group of miners. Bitcoin Cash, however, uses a different difficulty adjustment algorithm, which makes it more profitable to mine at times than Bitcoin.
  • Trading: Everyone holding Bitcoin prior to the hard fork on August 1, 2017, holds both Bitcoin and Bitcoin Cash — which means that users and investors have been asking for exchanges and wallets to support BCH in addition to BTC.
  • Using: Bitcoin Cash’s larger 8 MB block size is designed specifically to offer users and merchants faster confirmation times and lower fees. Nearly identical to Bitcoin in every other way, Bitcoin Cash is a clear alternative that solves the major roadblocks to consumer Bitcoin adoption.

In each of the three areas, Bitcoin Cash has extracted value from Bitcoin based on direct competition. However, Bitcoin Cash has also added value to the ecosystem as a coin with a different value proposition that can enable more crypto adoption.

Mining Bitcoin Cash

Because Bitcoin Cash and Bitcoin share the same mining algorithm, miners can easily switch back and forth between mining Bitcoin Cash and Bitcoin. That means that the same major players dominate mining for both coins, switching between the two depending on which coin is more profitable at any given time.

Bitcoin Cash hash rate distribution (via Coin Dance taken 11/19/2017)
Bitcoin has rate distribution (via Coin Dance taken 11/19/2017)

ViaBTC, AntPool, BTC.com, BTC.top are four of the top six miners for both Bitcoin Cash and Bitcoin. In fact, ViaBTC was one of the driving forces behind Bitcoin Cash, and it continues to mine both coins because of the massive opportunity cost involved with only mining Bitcoin Cash.

Given the volatility in price and the current instability with the Bitcoin Cash difficulty adjustment algorithm, it is sometimes massively more profitable to mine either Bitcoin or Bitcoin Cash. That’s why so many of the majors mine both.

Mining profitability is a function of the value of the coin, the difficulty in mining, and fees. As more miners contribute their hash rate to a given coin, the difficulty in mining increases. As the difficulty increases, mining profitability goes down.

Mining profitability of Bitcoin and Bitcoin Cash alongside their mining difficulty (via fork.lol)

Within the last month, at times Bitcoin has been over 2x more profitable to mine than Bitcoin Cash, and the same is true in reverse.

As is typical with a new coin, early miners mine unprofitably at first with the hope of future appreciation. That mining activity seeds the network’s hashing power and kickstarts a network around the coin. With Bitcoin Cash, unknown miners contributed 97% of the hash power for the network. That number is now closer to 40% (in the diagram above as “Other”).

Today, Bitcoin Cash and Bitcoin oscillate between which is more profitable depending on the difficulty adjustment. Bitcoin continues to lead in diversity and strength of hashing power, but Bitcoin Cash is catching up fast. That has major implications for transaction speed, fees, and security for both coins. Over time, mining between the coins will need to reach some equilibrium to provide users network stability. Otherwise, both currencies will suffer.

Trading Bitcoin Cash

Bitcoin Cash currently has the second-highest 24-hour trading volume at $1.2 billion (or 15% of trading by volume) versus Bitcoin’s $3.2 billion (40%).

Anyone with Bitcoin before the Bitcoin Cash hard fork held the same amount of Bitcoin and Bitcoin Cash after the fork. As it became clear that Bitcoin Cash would have some value, exchanges and wallets were forced to support the new coin to some degree.

Exchanges like Bithumb, Bitfinex and HitBTC allow Bitcoin Cash to be deposited, withdrawn, and traded. Here are the current top 10 Bitcoin Cash markets ranked by volume per exchange and trading pair.

Top 10 markets for Bitcoin Cash (via Coin Market Cap on 11/17/2017)

A few exchanges are only allowing Bitcoin Cash to be withdrawn at this point:

  • Gemini credited customer accounts with BCH and allowed them to be withdrawn, but they have no plans for allowing trading of BCH.
  • GDAX promised that BCH would be credited and allowed to be withdrawn, but they’re taking a wait-and-see approach to trading.

When a cryptocurrency becomes easier to buy and trade, its price appreciates, according to crypto investor Ari Paul of BlockTower Capital.

On May 3rd, when Coinbase announced and enabled the trading of Litecoin, it rallied 32%. That’s after Litecoin had rallied more than 300% in the preceding two months. In the week following an announcement by Bithumb (the largest South Korean exchange) that it would begin trading Monero, that coin appreciated 145%.

At SFOX, we’re adding support for Bitcoin Cash to bring greater accessibility and liquidity to the market. On December 1st, we’re launching Bitcoin Cash trading on SFOX, which makes it easy to trade Bitcoin Cash directly with SFOX, by unleashing SFOX’s proprietary algorithms across multiple exchanges.

Using Bitcoin Cash

Bitcoin’s merchant acceptance has declined in the past year, according to a recent report from Morgan Stanley. A year ago, five of the top 500 online merchants accepted Bitcoin for payments. Today, only three of the top 500 do.

That’s a trend that Bitcoin Cash wants to reverse. By adopting bigger block sizes and refusing to adopt SegWit, Bitcoin Cash is focused on scaling Bitcoin Cash so that its blockchain can support more total transactions. This is called on-chain scaling and it’s contrasted with the off-chain scaling of Bitcoin:

  • On-chain: the blockchain as a payment layer that’s capable of recording every transaction.
  • Off-chain: the blockchain as a settlement layer for transactions happening off of the blockchain.

Given the current usage of Bitcoin Cash, the hashing power behind it, and the bigger 8 MB blocks, Bitcoin Cash has excess capacity to support faster, low-fee transactions for everyday use.

The Bitcoin Cash daily average block size has maxed out at 1.3 MB, far below its 8 MB limit.

Bitcoin Cash average block size by day (via BitInfoCharts)

Daily average transaction fees in November have ranged from 29 cents to 44 cents (in USD).

Bitcoin Cash average transaction fees by day (via BitInfoCharts)

Bitcoin Cash hasn’t dramatically reversed merchant adoption of bitcoin with limited adoption as of yet. Here are three of the ecosystem’s biggest wins so far:

  • Bitmain: the world’s biggest miner accepts Bitcoin Cash as payment for all of its mining equipment.
  • Rocketr: payment gateway Rocketr supports payment via Bitcoin Cash for all of its merchants.
  • Coinify: enables merchants to accept payment via Bitcoin Cash online or at brick and mortar storefronts.

Bitpay, one of the largest bitcoin payment processors, has added support for Bitcoin Cash for its Copay bitcoin wallet.

Rising transaction volume will be an indicator of increased merchant adoption and progress towards the ultimate vision of Bitcoin Cash as a peer to peer system of cash that you use every day.

Bitcoin Cash transaction volume by day (via BitInfoCharts)

In the past month, Bitcoin Cash’s transaction volume looks to be rising from less than 10,000 per day to between 20,000 and 30,000 per day — or about one transaction every 3 seconds.

What’s next for Bitcoin Cash

Bitcoin Cash has some of the biggest miners and holders of Bitcoin in the world behind it. Over the short term, these players have sustained the value of Bitcoin Cash and given it a high enough price floor to jumpstart the network’s growth.

After only a few months on the market, BCH has the third largest cryptocurrency market cap of roughly $18.5 billion. Whether the coin can continue to grow its network depends on whether they’re able to stabilize and secure their network, increase adoption on exchanges and wallets like Coinbase, and get users and merchants on board with its vision of peer to peer cash.

Ultimately the market will decide whether one coin wins or whether the two will coexist. In the meantime, grab some popcorn and enjoy the show.


The above references an opinion and is for informational purposes only. It is not intended as and does not constitute investment advice, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any cryptocurrency, security, product, service or investment. Seek a duly licensed professional for investment advice. The information provided here or in any communication containing a link to this site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject SFOX, Inc. or its affiliates to any registration requirement within such jurisdiction or country. Neither the information, nor any opinion contained in this site constitutes a solicitation or offer by SFOX, Inc. or its affiliates to buy or sell any cryptocurrencies, securities, futures, options or other financial instruments or provide any investment advice or service.

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Institution-Grade Crypto Insights and Analyses

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