Bitcoin and Bitcoin Cash are both digital currencies that might interest investors, but they have some important differences. Bitcoin was the first digital currency to achieve widespread adoption, whereas Bitcoin Cash is a fork of the original Bitcoin. Put differently, Bitcoin Cash is an "altcoin," or alternative cryptocurrency.
This piece will help provide some background on the aforementioned cryptocurrencies, and it will explore some important differences.
Bitcoin was the first digital currency to scale. At the time of this writing, it was the most valuable cryptocurrency in terms of total market capitalisation, with a total market value of close to US$900 billion. This is compared to Ether, the second-largest cryptocurrency, which had a market cap of roughly US$170 billion.
Bitcoin had been around for more than a decade at the time of this writing in February 2021. The Bitcoin Whitepaper, titled "Bitcoin: A Peer-to-Peer Electronic Cash System," was published in 2008, and the first units of this digital currency were mined in January 2009.
Since then, Bitcoin has been singled out, among other things, for experiencing some very impressive upsides. The digital currency, which was worth close to US$100 in late 2013, climbed to more than US$58,000 in February 2021, according to CoinDesk figures.
A whitepaper authored by ARK Invest analyst Chris Burniske and Adam White, VP & general manager of Coinbase, emphasized that Bitcoin did not correlate strongly with several other assets. The paper explored the price correlation between the digital currency and asset classes like U.S. bonds, stocks (as represented by the S&P 500) and emerging-market currencies.
Because Bitcoin does not correlate with other asset classes, investors can incorporate it into their portfolios to potentially achieve greater diversification.
Bitcoin Cash came into existence on 1 August 2017 as a result of something called a hard fork. This event left Bitcoin's blockchain intact, but also resulted in the creation of Bitcoin Cash, a separate blockchain that had the exact same history before the fork.
It is worth keeping in mind that Bitcoin Cash was not the first Bitcoin fork. However, Bitcoin Cash was created right around the same time that BIP 148, a proposal designed to improve the Bitcoin network's ability to process transactions.
Bitcoin Cash was designed to provide greater network bandwidth, but it did so using a completely different approach, leveraging 8MB blocks. The new protocol lowered the amount of information that needed to be confirmed with every transaction, making it so this new network could process more than 100 transactions per second, significantly more than the seven transactions per second afforded by the Bitcoin network.
Hard Fork: Bitcoin ABC and SV
In May 2018, Bitcoin Cash's block size increased once again, expanding to 32MB. In November 2018, the digital currency's blockchain experienced another hard fork, dividing into Bitcoin ABC and Bitcoin SV.
The proponents of Bitcoin ABC, which included Roger Ver, wanted to leave Bitcoin Cash's block size as-is. The individuals backing Bitcoin SV, including Craig Steven Wright, had a different point of view, as they wanted to increase the block size to 128MB. The majority of exchanges ended up siding with Bitcoin ABC, letting investors trade that particular asset using the ticker symbol BCH, which had been traditionally used for Bitcoin Cash.
Another Hard Fork: Bitcoin Cash Node
Bitcoin Cash underwent another hard fork in November 2020, which resulted in its network splitting into Bitcoin Cash Node and Bitcoin ABC. Miners signaled in favour of Bitcoin Cash Node using their hashing power, causing it to become the dominant chain. In other words, it was the chain that would continue to trade under the BCH ticker symbol on exchanges.
Investors should keep in mind that like many other digital currencies, Bitcoin Cash has experienced significant volatility at times. A perfect example is the price fluctuations that the digital asset that Bitcoin Cash had on 1 August 2017, when it rose to as much as US$424 and dropped to as little as US$218, losing roughly half of its value in a single day, according to figures from CoinMarketcap.
The digital currency experienced some significant gains later that year, rising to more than US$4,200 on 20 December 2017. However, Bitcoin Cash lost all these gains, falling below US$100 in December 2018. At the time of this writing, it was trading at US$479.04.
Market History Of Bitcoin vs Bitcoin Cash
One important factor that investors should consider is that Bitcoin Cash has only been around since August 2017, compared to January 2009 for the original Bitcoin, and therefore interested parties have far less market history they can study. While Bitcoin Cash had been in existence for 3 years at the time of this writing, Bitcoin had been available for over 12 years.
Bitcoin Cash Controversy
Bitcoin Cash in particular has helped generate significant controversy in the digital currency industry. The cryptocurrency has undergone multiple forks, and Bitcoin SV, which resulted from a network split, is backed by Craig Steven Wright, an individual who has claimed to be Satoshi Nakamoto, the pseudonymous creator of Bitcoin.
Bitcoin and Bitcoin Cash are similar, but they have important differences. Bitcoin was the first digital currency to scale, and Bitcoin Cash was a fork of this cryptocurrency. As a result, one is an original, and the other is a modification of this original.
While the former has been around for more than 12 years, the latter has been in existence for 3 years. As a result, investors have far more market data they can study when considering Bitcoin and Bitcoin Cash.
Investors should also keep in mind that Bitcoin Cash has experienced multiple hard forks, and it has been quite successful in generating controversy since its creation in August 2017.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…