By now, I’m sure you’ve heard of bitcoin, the 800-pound gorilla of cryptocurrencies that investors and other wide-eyed enthusiasts just keep buying. Some businesses now accept bitcoin as legal tender for goods and services. The hope is that every business will eventually follow suit. That's the whole point that drove its creation in 2009.
Today, the popular digital currency is worth over $50,000 per coin, according to Gold Price, and has over $900 billion in total value by market cap. Wow, indeed.
Bitcoin Hits the Wall
But in late 2017, bitcoin became a victim of its own success: The capacity of the bitcoin network simply hit a wall. With so many people buying and using the coin, the bitcoin folks couldn’t keep up with the volume of transactions.
As a result, fees soared, and some users had to wait days to get their transactions confirmed. Usage and demand dried up as both investors and businesses fled.
Then, on August 1 of the same year, the bitcoin brainiacs (i.e. computer scientists, software developers, and “crowd miners”) decided to stick a fork and knife in bitcoin to slice off a meaty piece of the older technology. They created a twin for the cryptocurrency: bitcoin cash.
What Is Bitcoin Cash?
It’s basically a faster version of bitcoin, designed to speed up the verification of transactions. The other hope is that quicker approval times will lower usage fees.
A Little Background
I should take a step back and remind readers that bitcoin (and the other cryptocurrencies) run on blockchain technology, the secure digital ledger that records all transactions while ensuring trust among all users.
All transactions are recorded in “blocks,” which are separate files of data that need to be validated by those crowd miners I mentioned earlier. Once the blocks get validated and permanently recorded, the next block in the chain gets the same treatment. And so on.
Remember, all cryptocurrencies are decentralized. This means that nobody owns the currency, and anyone can participate in validating the transactions and be paid in Bitcoin tokens for their work.
What’s the Difference Between Bitcoin Cash and Bitcoin?
Two things. First, when certain bitcoin users created bitcoin cash on August 1 2017, they carried out what is called a “hard fork.” As a result, a new currency and a new blockchain were born.
Bitcoin cash recognizes the same old blockchain as bitcoin up until the time of the fork.
If some of your friends owned bitcoin prior to the fork, they can basically turn their bitcoins into bitcoin cash.
But the biggest difference between the two cryptocurrencies is the size of the “blocks” on the blockchain — a response to bitcoin being overwhelmed by the volume of transactions. With bitcoin cash, the block size is now eight megabytes, rather than bitcoin’s measly one.
Again, the hope is to process more transactions faster. After all, time is money!
Was the “Fork” to Create Bitcoin Cash Successful?
It’s too soon to tell, but let me focus on the positive first:
Bitcoin cash currently trades at around $500 a coin. Although it’s fallen a bit in price, it still ranks as the 16th-largest cryptocurrency on the market. But from there, the potential promise of bitcoin cash becomes a bit murky.
Should Potential Investors Be Wary of Bitcoin Cash?
The short answer is yes. The rollout for bitcoin cash didn’t go smoothly, as underscored by a couple of problems. People who tried to buy bitcoin cash ended up sending their money to the wrong digital wallets (kind of like a PayPal account), effectively losing their money.
This also had the effect of depressing the value of the currency.
And there was a second problem: Some of the well-known U.S. exchanges where you can buy and sell cryptocurrencies were reluctant to support it at first.
However, due to high demand — and to the simple fact that bitcoin cash is valued at around $9 billion — some of the exchanges have since warmed up to it. Several of them support it now, and Coinbase, the granddaddy of cryptocurrency exchanges, now backs bitcoin cash.
Will Bitcoin Cash Stay Relevant?
Investing in general is a risky business. Investing in cryptocurrencies is even riskier. But if everything goes well, the potential reward is huge.
Many critics contend that cryptocurrencies are a massive bubble that will eventually explode. The autocratic Chinese and Russian governments have effectively banned them, and U.S. regulators have been sniffing around for several years (and even tax their earnings as capital gains).
Then you have bitcoin itself. Despite losing value in early 2019 (and again in March of 2020), bitcoin has roared back to its highest valuation in years. So if bitcoin can maintain its relevancy and value (based on consumer consensus), then bitcoin cash could become irrelevant. No need for two competing-yet-overlapping cryptocurrencies.
Additional background information for this article was provided by Jack Pearson of Coinjournal.