Both Bitcoin (BTC) and Bitcoin Cash (BCH) have had a turbulent year in 2021. Due to their similar name, many confuse these two quite distinct assets. I’ve been tracking them both closely, so will summarize for you their main similarities and differences. I’ll also address the question as to whether you should buy Bitcoin or Bitcoin Cash.
Put simply, you should buy Bitcoin as opposed to Bitcoin Cash. Bitcoin is the original asset and has far better network effects, security, and future prospects. Bitcoin Cash is a fork of Bitcoin that has failed to deliver on its intended use case as a more distributed and more efficient BTC.
Let’s jump into the details to further understand the similarities and differences and why Bitcoin is a better investment.
If you’re looking for a Bitcoin investing and trading strategy, you need to check out this article. I think you can find a lot of new ideas and tactics to increase the returns of your crypto investing. Anyways, let’s get on with this one!
What are Bitcoin and Bitcoin Cash?
Developed by Satoshi Nakamoto, BTC is the original cryptocurrency. It facilitates trustless, decentralized, and uncensorable peer-to-peer transactions secured by a proof of work blockchain.
While originally designed as a secure online cash system, in recent years BTC’s main value proposition has emerged as being a store of value. Its fixed supply of 21 million BTC combined with an unchangeable (and ever-decreasing) inflation schedule has resulted in a perception of scarcity. As demand for the asset continues to grow this has led to significant price increases in USD terms. This is a trend that looks set to continue over the long term.
BCH is a fork of the original BTC. It is designed to solve scaling issues present in the Bitcoin network. By utilizing larger block sizes, it was hoped BCH would be much faster and cheaper per transaction.
Given that BTC is quite slow and expensive to use, improving scalability is an important goal. Indeed, if BTC is to achieve mass adoption, some scaling solution is essential. For this reason, BCH gained a lot of interest when it launched in mid-2017. Critics of the project noted however that the ideal scaling solution would be built on the Bitcoin network itself, not as a rival network.
How are Bitcoin and Bitcoin Cash Similar?
As a fork of BTC, BCH is naturally similar in many ways. At the time of the fork, all BTC holders were actually awarded an equivalent amount of BCH. For example, if you held 10 BTC you would also have 10 BCH after bitcoin nodes created the separate and unique BCH network. The main proponents of BCH were early Bitcoiners, who have a deep belief in the need for and value of a decentralized and secure online currency. The main similarities are listed below:
- Pre-fork data. As BCH is a fork of BTC, all onchain data for both networks is identical prior to the date of the split.
- Proof of work. Both networks are proof of work blockchains. This means they are secured by a mechanism which achieves consensus by nodes spending energy on solving complex mathematical problems.
- Fixed supply. Both networks share a fixed and total supply of 21 million coins.
- Fixed emmissions schedule. Both networks follow the same emmissions schedule (currently around 2% per annum). Both also follow the same halving schedule. This is the effect by which mining rewards halve every 4 years.
- Ethos. Both networks share the same philosophy and goals. They are both intend to provide a decentralized, trustworthy, fixed and uncensorable alternative to government issued fiat currencies.
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How are Bitcoin and Bitcoin Cash different?
Despite the many similarities, the two networks differ in some crucial ways:
- Block size. The reason for the fork was that BCH intended to use larger blocksizes. These larger blocksize means that more data can be uploaded and verified in each data ‘block’ in the blockchain. This in turn ensures faster performance and much lower transaction costs. In other words, BCH scales better than BTC.
- Network age. BTC is the orginal network and has been around since 2009. This compares favourably with BCH, which originated in 2017.
- Security. As discussed above, both networks are secured by a proof of work consensus. However, BTC’s hashrate (a measure of energy spent securing the network) is consistently higher than BCH’s. For this reason, we can conclude BTC is more secure and less vulnerable to attack than BCH. The chart below demonstrates this difference in hashrate.
- Investor confidence. While confidence is an intangible metric, it is clear that most investors favour BTC. Indeed, BTC is still seen as the premier crypto asset while BCH is a niche and often derided coin.
- Network affect and adoption. Crucially for price and future outlook, BTC has a far more established ‘network effect’. Network effect is the phenomenum whereby increased numbers of participants improve the value of a network. BTC has far more users than BCH, meaning that each user theoretically enjoys greater value of participating in the network.
Tokenomics and Price History of BTC and BCH?
As discussed above, BTC and BCH share very similar tokenomics. Total supply, circulating supply, and emissions schedule are in theory identical. This is by design and is a result of the shared ethos and history of the networks.
However, the two projects have very different price histories. BTC has seen huge volatility since inception, with a general trend of extreme upwards momentum. The all-time high (ATH) price of $64k is remarkable given it originally traded at less than one cent.
BCH, however, has enjoyed more mixed fortunes. After increasing from $341 in August 2017 to an ATH of $3,785 in January 2018, BCH has been very muted price-wise. Even after BCH experienced a significant price increase in Q1 2021 resulting in a local high of $1,547, it was still down 60% from ATH.
This is particularly disappointing given the performance of the wider crypto market. Most other major coins such as BTC and ETH smashed their prior ATH in 2021. So while the USD price performance of BCH has been adequate, there is a great opportunity cost to your crypto portfolio to having held BCH rather than BTC (or most other crypto assets) over the last four years.
The charts below show BTC/USD, BCH/USD, and BCH/BTC histories. The BCH/BTC chart is key, showing how BCH has underperformed BTC significantly. As BTC often acts as an index for crypto as a whole, BCH therefore also underperformed the wider crypto market. Learn why Bitcoin is the cryåto index in this article: Why Does Altcoins Follow Bitcoin?
Bitcoin versus Bitcoin Cash Price Outlook
We would expect BTC and BCH to be similar in price given the near-identical tokenomics and supply. However, at the time of writing BTC trades at a 75x multiple of BCH. This is a huge difference and implies the market has differing faiths in the long-term outlook of both assets.
So why is BTC valued higher? Mainly due to the following reasons:
- Network effect is greater. This leads to greater use cases and greater capital inflows
- BTC’s reputation is that of a market leader. BCH on the other hand is seen as a failed experiment by most experts.
- BTC is longer established and seen as much lower risk than BCH. This is especially true for insitutions, who may have stringent risk management protocols to adhere to.
- Store of value attributes are more important than low transaction costs. BTC succeeds as a store of value while BCH has struggled. Furthermore, there are numerous other BTC scaling solutions being developed that will lower BTC transaction costs.
This isn’t to say BCH is a terrible investment. For example, if you’d bought in January 2021 and sold in May 2021 you could have realized a 500% gain. As with most crypto assets, BCH does offer some good opportunities. However, over the long term, it appears likely that BCH will continue to depreciate in BTC terms. There are simply not enough solid narratives to support its growth relative to BTC and other major assets.
If you’re interested in reading more about the future outlook of Bitcoin, you need to read: “Can Bitcoin Reach $1 Million?“. It might happen sooner than you think…
Conclusion: Bitcoin is Better
When considering whether to buy Bitcoin or Bitcoin Cash, my conclusion is simple: BTC is a better asset and investment than BCH. Often in crypto, comparisons between assets are ambiguous and subjective. Here, however, BTC wins in almost every metric that matters.
To summarize, BTC outperforms BCH in the following key areas:
- Network effect
- Perception of risk
- Historical price performance
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