Bitcoin is the largest, most valuable cryptocurrency in the world. Bitcoin refers to the digital currency that’s specific to the Bitcoin blockchain. After hearing about the new Bitcoin Cash, new investors may be interested in jumping in with the newer coin, particularly since Bitcoin Cash can currently be purchased a fraction of the cost of Bitcoin. Despite the significant price difference, the experts at Agora Financial agree that new investors are better off investing in Bitcoin rather than in Bitcoin Cash.
Why Was Bitcoin Cash Created?
Bitcoin Cash is a relatively new digital currency, created to address some of the limitations of Bitcoin – namely processing times and transaction costs.
Each block in a Bitcoin blockchain I limited to a 1 MB block size. Because of the size limitations mean that can only seven transactions can be processed per second. To put that in perspective, Visa can process 24,000 transactions per second. If Bitcoin is ever to become a mainstream currency and completely overthrow banks, it has to be able to process transactions faster than its current 10 minutes.
Increased demand has also increased the cost of processing Bitcoin transactions – the average Bitcoin transaction fee is more than $6. In the regular banking world, transaction costs are generally paid by merchants and passed to customers through increased prices. Bitcoin users pay their own transaction fees. And some customers might end up paying much higher transaction fees, particularly if they want to have their transactions processed faster. (Higher transaction fees incentives miners to prioritize those transactions). As more users begin to use Bitcoin, both the transaction fees and the amount of time it takes to complete a transaction will increase.
And a Fork is Created…
On August 1, 2017, a hard fork was created in the Bitcoin blockchain to address Bitcoin’s issues and Bitcoin Cash was created by a group of miners, developers, investors and users. A hard fork essentially duplicates a currency’s current blockchain and adds new blocks based on the new protocol. Up to the hard fork, Bitcoin and Bitcoin Cash transactions are identical. From the point of the hard fork forward, the transactions and balances are totally independent from each other.
Bitcoin Cash increased the block size limit to 8MB, is eight times more than that of Bitcoin, which allows Bitcoin Cash to process more transactions per day, at a faster speed and a lower cost. Transaction fees are currently a mere fraction of that of Bitcoin, but it’s worth noting that the fee may increase as demand for the coin increases.
Bitcoin Cash isn’t without its problems. Unlike Bitcoin, which is create to be a decentralized currently not control by any person or entity, Bitcoin Cash has a CEO. Only a few mining pools make up half the hash power of Bitcoin Cash, which means that these three parties could come together and make an attack on the coin. And because Bitcoin Cash is not separate from Bitcoin, it won’t receive any of the technology upgrades made to the Bitcoin network.
By comparison, the hash power of Bitcoin is far more widely decentralized, which makes it less susceptible to being overpowered by a group of miners. Bitcoin also is not a company and does not have a group of people that control it. If Bitcoin is upgraded or forked, the community is polled first.
The Bottom Line
While the allure of a Bitcoin alternative might be quite strong, beginners are better off purchasing Bitcoin, rather than the forked Bitcoin Cash. Once Bitcoin Cash had demonstrated security, stability, and scalability, it will be safer bet.