Bitcoin, once the only player in the cryptocurrency universe, is now facing competition that threatens to divide the entire crypto-community: Bitcoin Cash. Bitcoin began in 2009 with the promise of an easy, fast, and cheap method of transacting across borders. Lately, though, Bitcoin transactions have been anything but fast and cheap, with fees upwards of $6 per transaction. Some believe this is due to Bitcoin’s scaling issues finally manifesting themselves in the form of high fees. Others believe the spike in fees may have come from an attack on the network. While the truth is likely somewhere in the middle, a group of crypto developers finally had enough of the high fees and long confirmation times and decided to create a version of Bitcoin more aligned with the idea of an easily transact-able currency, rather than a digital store of value they felt Bitcoin had become.
Their vision became reality on August 1st, 2017, and the newly minted crypto adopted the name “Bitcoin Cash”. This new version of Bitcoin is almost identical to the old version, and anyone who owned Bitcoin prior to the August 1st creation date was credited with an equal amount of Bitcoin Cash. The primary difference between the two is that Bitcoin Cash has a higher cap on the maximum “block size”, allowing a larger daily throughput of transactions. The desired effect of the block size increase was to reduce fees and network congestion, which it appears to have accomplished. Here’s a chart showing average transaction fees for both Bitcoin and Bitcoin Cash.
It’s immediately noticeable that there’s a significant difference in fees between the two currencies. As of 11/23/17, the average Bitcoin transaction fee clocks in at $6.18, while the average Bitcoin Cash transaction fee comes in at a measly 19 cents. At first, it would seem obvious that Bitcoin Cash is the superior solution. Lower fees, faster transactions, what’s not to love? The changes in Bitcoin price vs Bitcoin Cash price tell a similar story (see chart below).
However, a deeper look reveals that it’s too early to know if Bitcoin Cash can really make good on its promises. Both Bitcoin and Bitcoin Cash can only process a limited number of transactions per day. This limit is determined by two factors: the size of each block in the blockchain and the intervals at which blocks are produced. Both cryptocurrencies have the same interval: 1 block every 10 minutes, but Bitcoin Cash has a larger block size – up to 8 times the size of the original Bitcoin blocks. In theory, a bigger block means less competition to get your transaction included in a block, resulting in lower fees. But in practice, this is not yet the reason for Bitcoin Cash’s lower fees. First, let’s look at the number of transactions processed on each blockchain.
Bitcoin Cash processes less than 1/10th the number of transactions that Bitcoin does. The fees are lower not because of the increased block size, but because a comparatively small number of people are using the Bitcoin Cash blockchain. For reference, when Bitcoin was processing 30k transactions per day, a similar number of transactions that Bitcoin Cash processes now, the average transaction fee was less than a cent. While the increased block size may be an aid to the high fees, it may also have a “centralizing” effect, which could ultimately reduce the robustness and attack resistance of the network. The full effects of the block size increase will remain unknown until the Bitcoin Cash blockchain sees as many daily transactions as Bitcoin.
Charts and data sourced from https://bitinfocharts.com/.