Since its inception, there have been questions about bitcoin’s ability to scale effectively. Transactions involving the digital currency bitcoin are processed, verified and stored within a digital ledger known as blockchain. Blockchain is a revolutionary accounting logging technology. It makes the big books much harder to manipulate because the reality of what has happened is verified by the rule of the majority, not by an individual actor. In addition, this network is decentralized; it exists on computers around the world.
The problem with blockchain technology on the Bitcoin network is that it is slow, especially compared to banks that deal with credit card transactions. Popular credit card company Visa, Inc. (V), for example, processes about 150 million transactions per day, averaging about 1,700 transactions per second. The company’s capacity actually far exceeds that, at 65,000 transaction messages per second.1
How many transactions can the bitcoin network process per second? Seven.2 transactions may take several minutes or more to process. As the bitcoin user network has grown, wait times have become longer because there are more transactions to process without a change in the underlying technology that processes them.
Ongoing discussions about bitcoin technology have been concerned about this central issue of scaling up and increasing the speed of the transaction verification process. Cryptocurrency developers and miners have found two main solutions to this problem. The first involves reducing the amount of data that needs to be verified in each block, thus creating transactions that are faster and cheaper, while the second requires enlarging the blocks of data, so that more information can be processed at the same time. Bitcoin Cash (BCH) was developed from these solutions. Below, we will take a closer look at how bitcoin and BCH differ from each other.
Bitcoin Cash was started by bitcoin miners and developers concerned about the future of the bitcoin cryptocurrency and its ability to scale effectively.
While bitcoin blocks are limited to 1 MB, BCH blocks are 8 MB.
In July 2017, mining groups and companies representing approximately 80 percent to 90 percent of bitcoin’s computing power voted to incorporate a technology known as Segregated Witness, called SegWit2x.3 SegWit2x makes the amount of data to be verified in each block smaller by removing data from signature data has been estimated to account for up to 65 percent of the data processed in each block, so this is not a negligible technological change. Talk of doubling the size of blocks from 1 MB to 2 MB increased in 2017 and 2018, and, as of February 2019, bitcoin’s average block size increased to 1,305 MB, surpassing previous records. In January 2020, however, the block size has decreased towards 1 MB on average.4 the larger block size helps in terms of improving the scalability of bitcoin. In September 2017, research published by cryptocurrency exchange BitMex showed that the implementation of SegWit had helped increase the size of the block, amid a steady rate of adoption of the technology.5
Bitcoin Cash is a different story. Bitcoin Cash was started by bitcoin miners and developers equally concerned about the future of cryptocurrency and its ability to scale effectively. However, these individuals had their reservations about adopting a segregated witness technology. They felt SegWit2x did not address the fundamental problem of scalability in a meaningful way, nor did it follow the roadmap initially described by Satoshi Nakamoto, the anonymous party who first proposed the blockchain technology behind cryptocurrency. In addition, the process of introducing SegWit2x as the way forward was anything but transparent, and there was concern that its introduction would undermine the decentralization and democratization of the currency.
In August 2017, some miners and developers initiated what is known as a hard fork, effectively creating a new currency: BCH. BCH has its own blockchain and specifications, including a very important distinction from bitcoin. BCH has implemented a larger block size of 8 MB to speed up the verification process, with an adjustable difficulty level to ensure chain survival and transaction verification speed, regardless of the number of miners supporting it.6
Therefore, Bitcoin Cash can process transactions faster than the Bitcoin network, which means wait times are shorter and transaction processing fees tend to be lower. The Bitcoin Cash network can handle many more transactions per second than the Bitcoin network. However, with faster transaction verification time there are also disadvantages. A potential problem with the larger block size associated with BCH is that security could be compromised in relation to the Bitcoin network. Similarly, bitcoin remains the most popular cryptocurrency in the world, as well as the largest by market capitalization, so BCH users may find that liquidity and usability in the real world are lower than for bitcoin.
The debate over scalability, transaction processing and blocks has continued beyond the fork that led to Bitcoin Cash. In November 2018, for example, the Bitcoin Cash network experienced its own hard fork, resulting in the creation of another bitcoin derivation called Bitcoin SV. Bitcoin SV was created in an effort to stay true to the original bitcoin vision that Satoshi Nakamoto outlined in the bitcoin white paper while making modifications to facilitate scalability and faster transaction speeds.7 the debate over the future of bitcoin seems to show no signs of being resolved.