Bitcoin took the world by storm through its ethos of a peer-to-peer electronic cash system, rewriting the very definition of traditional trade and commerce.
But, while Bitcoin is revolutionary, it isn’t perfect.
Ever since its inception, there have been two pressing problems regarding its scalability (amount of transactions that a network can process).
Firstly, the huge influx of users caused a substantial delay in the processing of transaction, often taking hours and days. This issue arose due to a small size of a transaction block. Here’s a great example to make it clearer (Thank you www.finder.com). “Think of block size as a vehicle which carries transactions to their destination i.e., the blockchain. With each transaction being a passenger- Less would fit into a car as opposed to a bus.” Hence, with a 1MB block size, Bitcoin was only capable of processing 7 transactions per second (tps). With financial giants like Visa having a whopping volume of 24,000 tps, transaction speed is contrastingly low.
Secondly, the high number of unprocessed transactions meant that users willing to pay higher transaction fees would have their transactions prioritized and processed quickly. Subsequently, the fees sky-rocketed to as high as $55 USD.
Both the scenarios go against the very essence of the Bitcoin, and hence the main reason behind user dissatisfaction.
Increasing block size seemed the most appropriate solution, but opposing parties heatedly disagreed about just how to do so. Some wanted to implement a larger block size to allow more data to fit in a block, while others pushed for implementing the SegWit upgrade that compressed data to make more space.
On August 2017, Bitcoin forked into its variant called Bitcoin Cash (BCH), meaning to say that the network split into two separate chains. At the time of the split, Bitcoin holders automatically also became the owners of Bitcoin Cash. The nascent cryptocurrency suddenly became the third largest in terms of market capitalization.
Essentially the same, Bitcoin Cash has a significantly larger block size (8MB), thus transaction are processed faster.
Another difference is the use of mining algorithms. Bitcoin Cash initially employed the use of a simple mining algorithm, therefore, so blocks were fast and easy to mine. This further cut down on processing times. This seemed like a good thing short-term, but the currency would have evidently faced rising inflation rates and devaluation in the long run. The algorithm was basically an initiative to attract prospective miners and earn a market edge. However, inconsistency of transaction times arose when miners would only validate data as they pleased, usually only at profitable times. Thus, the concept of a dynamic algorithm was introduced to Bitcoin Cash- the algorithm would get easy or difficult as needed by the network.
So the question of what is a better currency, is honestly quite difficult to answer.
Bitcoin has greater stability, support, distribution and infrastructure. Even though a small block size does unnecessarily extend transition times, it also lowers the possibility of spam attacks. However, the higher transaction times and fees are very off-putting. The design of a such block size and a complex mining algorithm was intended to make Bitcoin as a ‘digital gold’; a store of high value and liquidity. Although, this does limit its usage.
Bitcoin Cash, on the other hand, is easy for transactions and spending, and empowers the users through fast transaction processing and low transaction fees. Though a larger block seems an advantageous feature, on the downside it also brings higher hardware and storage costs with it. There is also a possibility and fear of centralization of the currency since only high-end computing power would be able mine the data, leaving out the smaller miners. Some critics also believe that the split was nothing more than a money-making scheme since everyone with Bitcoins also received Bitcoin Cash at the split. Another loophole was the possibility that two transactions could be conducted from a wallet using the same keys, similar to the double-spending problem. Bitcoin Cash, also, does not have much community support as compared to its rival.
On a closing remark, the future of both currencies seems a little unclear. With Bitcoin Cash’s success being tied to Bitcoin troubles, Bitcoin Cash seems to getting widely popular and garnering much acceptance. Whereas at the other end, with Bitcoin upscaling and improving the network, could mean many reverting back to the original cash system.