What Is Bitcoin Cash?

Bitcoin Cash is a type of cryptocurrency created from a fork of the original Bitcoin blockchain. A fork occurs when a change is made to the blockchain protocol or basic rules. A hard fork, like the one that created Bitcoin Cash, changes the original code so much that it will no longer work with older versions of the blockchain, thereby necessitating a new cryptocurrency. The Bitcoin Cash fork occurred when developers sought to increase the size of each Bitcoin block to accommodate more transactions.

The name Bitcoin Cash causes some confusion for crypto investors. Although it grew from the Bitcoin blockchain, it is an entirely separate cryptocurrency. 

History of Bitcoin Cash

Bitcoin Cash was created in 2017 to improve the efficiency and speed of the original Bitcoin blockchain. Though Bitcoin’s intended use was as a digital currency for making transactions, it became more of an investment vehicle as its popularity grew. Since Bitcoin was not built for scalability, the increased number of transactions resulted in higher fees and longer confirmation times. The developers saw the original 1MB Bitcoin block size as a limitation, and, with the hope of accommodating more transactions per block, set about increasing the size of each block to as much as 32MB to enable more efficient transaction verification and processing.

How does Bitcoin Cash work?

On a purely technical level, Bitcoin Cash works the same as Bitcoin. It’s an open-source, decentralized digital ledger. Transactions are confirmed and added to the blockchain by miners using cryptography to solve equations. Miners receive Bitcoin Cash tokens for their work. Bitcoin Cash is available to buy, sell, and trade on most crypto exchanges, and it may be used to make transactions with any business that accepts it for payments.

Bitcoin Cash vs. Bitcoin

Bitcoin Cash and Bitcoin are each built on a decentralized finance infrastructure. They each rely on a proof-of-work algorithm for mining coins, as opposed to a proof-of-stake model, and have established a hard cap of 21 million currency assets. The functionality is also the same: you can buy coins, store them in a digital wallet, and use them to make transactions or hold onto them as an investment. 

The key difference is block size. Bitcoin Cash’s larger 32MB block size supports speedier transaction times and usually leads to lower transaction fees. That said, larger block size can also contribute to security risks: because Bitcoin Cash requires less mining power to verify new blocks, it’s seen as inherently less secure than Bitcoin. 

Bitcoin remains the leading cryptocurrency on the market, both in terms of value and adoption. While Bitcoin Cash is widely accessible on most crypto exchanges, it has not been as readily adopted or demonstrated as much value as Bitcoin. 

Pros and cons of Bitcoin Cash

As with most crypto investments, Bitcoin Cash has advantages and disadvantages. While buying, selling, and trading this cryptocurrency is fairly accessible, the overall value of the currency remains relatively low compared to Bitcoin and other leading coins. Faster transaction times and lower fees may be a benefit, but they come with the security risks of larger block sizes. That said, many investors see Bitcoin Cash as promising due to the increased scalability of its blockchain technology. 

Is crypto right for you?

As you develop your investment strategy, you may be interested in adding crypto to your portfolio. At Stash, we recommend holding no more than 2% of your overall portfolio in any one cryptocurrency in order to limit crypto-specific risks.

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