This was when Bitcoin Cash entered the fray. But what is the difference between Bitcoin and Bitcoin Cash? And how do these cryptocurrencies deal with the problem of scalability?
What Is Bitcoin’s Scalability Problem?
The issue with most blockchain technology is that it’s very slow. This comes to light when we look at how fast banks process debit and credit card transactions. Visa, for instance, claims to be capable of processing as many as 65,000 transactions per second.
On the other hand, Bitcoin can only verify six transactions per second. Block-size limitations, together with the fact that a new block is added to the chain at random intervals averaging ten minutes, caps the number of transactions that the network can process.
This issue becomes a problem as the Bitcoin network continues to grow and the number of users issuing transactions every day. Bitcoin’s limitation to the number of transactions it can verify per second means that transactions take longer to process as more and more transactions are issued each day.
In 2017 the debate surrounding Bitcoin’s scalability issues peaked when the community rallied around two opposing factions, threatening with a split. One proposed SegWit to deal with scalability while decidedly keeping small blocks, whereas the other wanted to deal with it by increasing block size.
How to Solve the Bitcoin Scalability Problem?
Bitcoin’s proposed solution was outlined in 2017 in what is now known as the New York Agreement, which came as a compromise between the factions to prevent a split. They called it SegWit, short for Segregated Witness.
SegWit does what its name implies; it segregates the digital signature (witness data) from a transaction and attaches it as a separate structure at the end. The original section contains the sender and receiver info, while the witness section contains the scripts and signatures needed to confirm the transaction.
Digital signature amounts to around 65% of any given transaction’s data. When stripped from the transaction and included in the witness structure, digital signature data is counted as a quarter of its actual size, freeing up more space in each block for more transactions.
But SegWit wasn’t introduced only as a way to bypass Bitcoin’s block size limit. Instead, SegWit was originally conceived as a way to counter an old security problem, transaction malleability.
If an attacker changed the unique hash of a transaction before confirmation, they could claim that the transaction never happened, opening the possibility for fraudulent transactions. SegWit prevents malleability by storing the sender and receiver data separate from the witness data.
The Lightning Network
The problem with SegWit is that it only increases Bitcoin’s block size from one megabyte to a little under four. In the long run, SegWit alone could not possibly fix the scalability problem.
So, Bitcoin introduced the Lightning Network to address the scalability problem head-on, though off-chain. The Lightning Network is a “Layer Two” payment protocol designed to function on top of the Bitcoin network. It allows near-instant transactions between parties with no fees.
The problem? You need to run a Bitcoin node as well as a Lightning Network node to use it. This means that you first need to download the Bitcoin client, which currently requires around 200GB of hard drive space to use the Lightning Network.
Bitcoin vs. Bitcoin Cash
Around the time of the introduction of the Lightning Network, the Bitcoin Cash split took place. The faction that supported increasing block size as a solution for the scalability problem already had reservations against the implementation of SegWit, but when Bitcoin introduced the Lightning Network, they decided they were having no more of it.
Deeming the implementation of SegWit and the Lightning Network as undemocratic and against the principles initially laid out by Satoshi Nakamoto in Bitcoin’s original whitepaper, Bitcoin Cash forked.
Bitcoin Cash’s solution to the scalability problem was increasing block size. It has its own blockchain, specifications, and one big difference from Bitcoin: a block-size limit of eight megabytes. However, even when in 2018 the block-size limit was again increased to 32MB, the actual block-size has remained only a small fraction of that limit.
Why Did Bitcoin Cash Split from Bitcoin?
Although the official reason for the split was a disagreement over how to handle scalability better, there were underlying practical and ideological reasons for supporting one side or the other. These include how one faction or the other saw Bitcoin, what they envisioned it to be, and the ideological values each claimed to uphold.
The Bitcoin Cash faction saw Bitcoin as a medium of exchange and envisioned it as a micro-payments system, a sort of PayPal 2.0 if you will. This is the main reason they were so eager to increase the block size and get the scalability issue out of the way.
The Bitcoin faction saw Bitcoin more as a store of value. Not to say that they didn’t care about dealing with scalability or that they didn’t see the Bitcoin network’s potential as a virtual payment system. They just didn’t want to deal with scalability in a way that affected the core values of Bitcoin, and increasing block size would do just that.
Increasing block size means that nodes would require more resources to run. So, lacking resources they can’t afford, the average miner wouldn’t be able to operate a node anymore, ultimately resulting in only NGOs, universities, and private companies being able to run nodes. This, the Bitcoin faction claims, goes against Bitcoin’s core democratic values and decentralized philosophy.
What’s the Difference Between Bitcoin and Bitcoin Cash?
Bitcoin Cash forked from Bitcoin in 2017 due to the Bitcoin community’s inability to settle on how to best deal with scalability. It has its own blockchain and an increased block-size limit of 32MB, making it much faster than Bitcoin.
Bitcoin, on the other hand, though slower, managed to break past the one-megabyte limit by implementing SegWit, and now offers near-instant transactions through the Lighting Network. The actual difference between the two is speed and decentralization, in the case of Bitcoin, vs. a more centralized network of nodes, in the case of Bitcoin Cash.
