On August 1, 2017, a schism among Bitcoin developers led to the creation of Bitcoin Cash. In this article written by Haithem Kefi, we tell you everything you need to know about Bitcoin Cash.
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Bitcoin, the oldest cryptocurrency, remains the most popular and widely traded. However, it is not without flaws. Bitcoin’s ability to scale effectively has been questioned since its foundation. Specifically, Bitcoin only allows a low number of transactions per second, which limits its utility for payments. To tackle this issue, Bitcoin Cash (BCH) was launched on August 1, 2017, through what is called a hard fork of the Bitcoin blockchain.
A hard fork is a split of the blockchain allowing developers to introduce changes in a new chain without changing the original chain, creating two separate blockchains. Hard forks usually happen when a consensus within the community cannot be reached, leading to the formation of a new independent blockchain.
“It felt almost like the fracturing of a religion,” said Henrik Gebbing, co-founder and co-CEO of Finoa, a digital asset custodian. “Miners had to decide which chain to allocate their efforts toward, exchanges had to decide whether or not to support trading of this newly forked currency, and market participants had to decide whether they had any interest in the new currency and what its fair price should be.”
Bitcoin Cash is similar to Bitcoin in all aspects except its block size. Blocks are groups of transactions added to the blockchain at the same time. Initially, Bitcoin’s block size was limited to 1 megabyte (MB); however, developers were able to increase the effective size limit through what is known as the Segregated Witness (SegWit) protocol upgrade. To be more specific, Bitcoin’s blocks now have a theoretical limit of 4 MB, but a more realistic limit of 2 MB.
On the other hand, Bitcoin Cash has increased Bitcoin’s block size from 1 MB to 8 MB at first, and later to 32 MB with the objective to grow the number of transactions that can be processed. While Bitcoin's block size limit allows it to process around three to seven transactions per second, Bitcoin Cash's expansion enables it for a greater process capacity of over 100 transactions per second.
Besides block size and transaction speed, Bitcoin Cash works quite similarly to Bitcoin given that they share the same source code. Like Bitcoin, Bitcoin Cash is an open-source and decentralized digital ledger operating on the proof-of-work consensus mechanism. Miners confirm and add transactions to the blockchain by using cryptography to solve equations, receiving Bitcoin Cash coins as a reward for their work. Moreover, BCH, just like BTC, is capped to release a total of 21 million coins.
Bitcoin and Bitcoin Cash share many similarities, but they are also different in some major areas. Below is a comparison between the two:
|Launch||Jan. 9, 2009||Aug. 1, 2017|
|Maximum total supply||21 million||21 million|
|Transactions per second||7||116|
|Average transaction fees (USD)||$1 to $5||Less than $0.01|
|Use case||A digital store of value||Peer-to-peer electronic cash|
As noted, the key difference between Bitcoin and Bitcoin Cash is the block size. Due to this change, Bitcoin Cash has significantly cheaper and faster payment transactions. At the time of this writing, the Bitcoin transaction fee costs generally between US$ 1 and US$ 5 (though it has gone as high as US$ 60) while Bitcoin Cash costs usually less than a cent.
However, the downside of this processing speed is that it’s potentially less secure than Bitcoin. Given that fewer users are needed to process and confirm transactions, Bitcoin Cash’s security becomes easier to breach. “Bitcoin Cash would be better for something like a cup of coffee, while a larger purchase, such as a car or house, may warrant a slower and more secure cryptocurrency like Bitcoin,” said Daniel R. Hill, president of Hill Wealth Strategies in Virginia.
Another major difference is market size. As of this writing, Bitcoin Cash has a total market capitalization of around USD 2 billion. This is a fraction of Bitcoin’s nearly USD 370 billion market cap.
Cryptocurrencies are prone to value fluctuations and therefore carry risk. As for any crypto investment, you need to be careful. Russell Star, head of capital markets at DeFi Technologies, has the following warning: “Anyone considering investing in Bitcoin or Bitcoin Cash should consider whether they can stomach a volatile asset class, which is what crypto is.”
As of this writing, BTC is traded at roughly CAD 26,000 whereas BCH is at nearly CAD 150. The higher price of Bitcoin might be a barrier to entry for some investors. Given that, Bitcoin Cash could be seen as a good option if you’re looking to start with a small investment that resembles Bitcoin.
However, you need to keep in mind that Bitcoin tends to be a better option if you are looking for a longer-term store of value. Bitcoin Cash, on the other hand, is considered more suitable if you are planning to use it as a medium of exchange for regular purchases. In that regard, Gebbing has said: “When measured in BTC, the price of BCH has fallen steadily since its inception. It stands to reason that the original Bitcoin should serve as a safer investment.” He also added: “If choosing a blockchain to transact with, though, BCH is accepted in many of the same places that accept BTC and can be used for near-zero fees due to the larger block size and the lesser utilization of that chain.”
While Bitcoin Cash has some potential, it still hasn’t reached its goal of replacing the original Bitcoin. Nonetheless, if it becomes more accepted as a medium of exchange, then it could give its older and bigger brother a tough run.
While most crypto transactions take place online, sometimes it is convenient to convert cash to cryptocurrency. In that case, you can buy Bitcoin Cash using a Bitcoin ATM (abbreviated as BATM or BTM).
Despite the name, a Bitcoin ATM does not quite work like a bank ATM. The main difference is that BATMs do not connect to a personal bank account. The Ottawa-based company bitMachina offers such Bitcoin ATMs in Ontario and Québec, providing a fast and easy way to buy BCH and other major cryptocurrencies with cash.
Alternatively, you can use a Bitcoin Counter if you prefer to have the entire transaction handled by a cashier, which is particularly suitable for beginners. You can find Bitcoin ATMs and Bitcoin Counters typically inside retail stores, shops, restaurants, and malls.See all Bitcoin ATMs and Bitcoin Counters in your area
A popular and simple way to buy BCH is online using your credit card. If you opt for this option, you will need:
For those looking to buy Bitcoin Cash in Canada, choosing a trusted exchange is an important first step. The two most popular choices in terms of safety and customer service are NDAX and Coinberry.
Established in 2018, NDAX is a cryptocurrency exchange platform exclusively available for Canadians. Moreover, it is regulated by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and it is registered as a Money Service Business (MSB). To purchase BCH and other cryptocurrencies on NDAX, you will need to:
Based in Toronto, Coinberry was founded in 2017 as a cryptocurrency exchange platform that offers Canadians the possibility to buy and sell BCH among other cryptocurrencies.
Like NDAX, Coinberry is registered as a Money Service Business (MSB) and is regulated by FINTRAC. To start trading on Coinberry:
A decentralized exchange (known as a DEX) is a peer-to-peer marketplace where transactions occur directly between crypto traders. In DEXs, trading using fiat money (such as USD and CAD) is not allowed. Users trade exclusively cryptocurrency tokens for other cryptocurrency tokens. To be able to trade in a DEX, you must have a crypto wallet.
The main advantage of using DEX platforms is that users are not required to provide any personal information. Anonymity is also preserved while making trades. Additionally, all tokens can be traded in DEXs. Users can trade new and obscure cryptocurrencies that are unavailable or difficult to exchange elsewhere. However, a user needs specific knowledge before starting to trade cryptocurrencies on these platforms. Without that knowledge, traders are prone to commit errors that could lead to losing funds. Therefore, you will need to be well-informed and prepared when you start trading in DEXs.
To store your Bitcoin Cash, you will need access to a crypto wallet. There are two main types of crypto wallets: hot wallets and cold wallets. The names simply infer the wallet’s connectivity status to the internet.
Hot wallets are digital crypto wallets that are connected to the internet. This means that you can trade crypto from anywhere in the world providing you have an internet connection. On the other hand, cold wallets are physical devices that are not connected to the internet. Most of them are variations of USB drives that keep your data offline. The table below will help you decide what is the right type of wallet for you.
|Hot wallet||Cold wallet|
|Price||Usually free.||Requires the purchase of an external device (About US$ 50 to US$ 250).|
|Better for||Convenient to access and use for trading.||Better suited for long-term storage.|
|Security||Average. Because they are connected to the internet, they could potentially be vulnerable to hacking.||Excellent. They cannot be accessed online and they require security measures to keep them from getting damaged, lost or stolen.|
|Loss protection||Good. Most have recovery and backup options and can be accessed from multiple devices.||Average. Most have recovery and backup options for a lost password, but not for a lost device.|
|Ease of transfer to exchanges||Excellent. Hot wallets are easily accessible as the wallet is already internet-connected.||Average. Cold wallets require an extra step to connect online through USB, Wi-Fi or QR code.|
Security – Winner: Cold wallets
Cold wallets are not connected to the internet; therefore, they are less vulnerable to online hacks or theft than hot wallets. Although hot wallets have built-in security measures to keep your funds safe, their safety is not comparable to the safety of offline storage.
Convenience – Winner: Hot wallets
Hot wallets are connected to the internet; therefore, they are much more convenient to access and use than cold wallets. Being offline, cold wallets require the extra step of connecting to your web-based account to access and move your funds.
The trade-off between hot and cold wallets is between security and convenience. Making a choice depends on whether you prioritize safety from potential online hacking or easy access to trading. However, you can use a combination of both wallet types to achieve different objectives. You can use hot wallets for frequent trading while using cold wallets for longer-term investments. Besides, it is worth noting that using hot wallets to store large amounts of crypto assets is not advised since your account could be a target for hacking.
Yes, it is currently legal to buy Bitcoin Cash in Canada. Canadian law treats businesses trading in cryptocurrencies as Money Service Businesses (MSBs). If you intend on investing in Bitcoin Cash, you should consider speaking to a registered accountant about your options and the related tax implications.
You can buy crypto from several regulated cryptocurrency exchanges such as NDAX and Coinberry. You can also buy crypto from bitMachina’s Bitcoin ATMs and Bitcoin Counters.
You will need a Bitcoin Cash wallet and you will need to get verified when purchasing for the first time. To buy BCH with a credit card, click on this link.
According to many experts, it seems that Bitcoin Cash is more suitable if you are looking to use cryptocurrency for day-to-day transactions whereas Bitcoin tends to be a better option for long-term investments.
To scale, Bitcoin Cash intends to continue increasing its block size. Its community has decided so far not to utilize any sidechain or second-layer technologies for that purpose.
The two main use cases of Bitcoin Cash are to be a digital store of value and facilitate fast and cheap payments across the internet. In addition, it has smart contract capabilities as well as a protocol that supports Non-Fungible Tokens (NFTs). However, these functionalities are yet to take off.