An investor’s guide to cryptocurrencies: Bitcoin Cash

4 Jun 2019
Getting Started

If the cryptocurrency Bitcoin Cash could be described as having a split personality, it’s not just because it was created by a hard fork in the Bitcoin protocol in 2017. Since then, Bitcoin Cash itself has forked into two competing versions: Bitcoin ABC and Bitcoin SV.

Why has Bitcoin Cash developed this way? The initial hard fork from Bitcoin came about because the user community couldn’t agree over how to deal with challenges facing the original protocol.

“The legacy Bitcoin code had a maximum limit of 1MB of data per block, or about three transactions per second,” states the Bitcoin Cash FAQ archived in December 2017. “Although technically simple to raise this limit, the community could not reach a consensus, even after years of debate. Was the 1MB block size limit causing problems for Bitcoin? Yes, [i]n 2017, capacity hit the ‘invisible wall’. Fees skyrocketed, and Bitcoin became unreliable, with some users unable to get their transactions confirmed, even after days of waiting. Bitcoin stopped growing. Many users, merchants, businesses and investors abandoned Bitcoin. Its market share among other cryptocurrencies quickly plummeted from 95 per cent to 40 per cent.”

Supporters of Bitcoin Cash weren’t the only ones unhappy with slow transaction times and fees: in October of 2017 – two months after the Bitcoin Cash hard fork – another hard fork spun off the new currency Bitcoin Gold, which did away with Bitcoin’s proof-of-work algorithm.

Shortly after its first birthday, Bitcoin Cash encountered new difficulties. In November of 2018, it split in two following a rift created by community differences over the currency’s basic identity.

For would-be investors, it’s important to understand some of the issues behind Bitcoin Cash in greater depth:

Duelling crypto visions

While Bitcoin Cash was born out of differences in how to resolve problems with the Bitcoin protocol, the second split stemmed from something even more basic. “Behind the split are long-standing, fundamental disagreements about how bitcoin should operate and what purposes it should serve,” Zheping Huang wrote in the South China Morning Post. On one side were people like Roger Ver (aka “Bitcoin Jesus”) and Wu Jihan, who envision a cryptocurrency that could enable not just financial transactions but smart contracts and other apps. On the other side were people like computer scientist Craig Steven Wright who want Bitcoin Cash to be a global digital currency as imagined by Bitcoin’s pseudonymous creator, Satoshi Nakamoto. (Wright has even claimed to be Nakamoto, although many doubt the claim.) With no way to resolve these differences to both sides’ satisfaction, Bitcoin Cash went in two separate directions.

Changing values and market positions post-split

After the hard fork that created Bitcoin Cash, people who held money in Bitcoin also held an equal number of coins in Bitcoin Cash, although the value of both differed. The price of Bitcoin Cash dropped after the split, mainly due to the number of people who sold off their new Bitcoin Cash holdings rather than retain them. In the same way, Bitcoin Cash holders owned both Bitcoin ABC and Bitcoin SV after the 2018 hard fork. However, not every exchange supported both new versions, and others waited to see which of the two would emerge as the leader.

Bitcoin Cash ABC or SV?

As of early March 2019, Bitcoin Cash – the ABC version – was the sixth-ranked cryptocurrency, and Bitcoin SV was in 11th place, according to CoinMarketCap, indicating Bitcoin ABC had become the dominant chain after the November 2018 hard fork. “In order to reflect the current market, we have merged our Bitcoin Cash (BCH) and Bitcoin Cash ABC (BCHABC) listings,” CoinMarketCap explained on its Bitcoin Cash page. “We have observed that a majority of exchanges are using the Bitcoin Cash (BCH) to refer to the Bitcoin Cash ABC implementation.” After a post-split drop in values, both Bitcoin Cash and Bitcoin SV (BSV) have rebounded a bit in prices since then.

Different uses, different opportunities

The decision to buy Bitcoin Cash (ABC) or Bitcoin SV will depend on what users hope to do with it, as the philosophical split between them indicates. Would-be investors should also pay attention to which markets are important to them. For example, Bitcoin Cash was recently among the cryptocurrencies to lose support from Thailand’s Securities and Exchange Commission. On the other hand, the currency appears to have strong support from a number of merchants in Japan. So it’s always wise to research your particular markets and goals before choosing which cryptocurrency to invest in.

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