On August 1st last year, Bitcoin Cash forked from Bitcoin. When it launched, its developer community promised to realize a vision for digital cash that they felt Bitcoin itself had failed to deliver: a decentralized, high-volume payment system with low enough fees for anyone to use.
In the week from April 17th to April 24th, the price of Bitcoin Cash almost doubled from $762 USD to about $1460 USD. In that same period, Bitcoin's price increased only 15%, from ~$8100 USD to ~$9400 USD.
Bitcoin Cash advocates heralded this rally as BCH making good on its promise. So, has Bitcoin Cash achieved what it hoped? Is it better than Bitcoin? Do we have enough data to even answer these questions?
To understand what these numbers say about how BCH has grown and how it hasn't, we need to compare BTC and BCH across three dimensions:
Block size. How have BCH and BTC found their own solutions to the problem of scaling?
Transaction volume. What can current transaction volumes teach us about whether and how people are adopting BCH vs BTC?
Mining. How does the shared community of BTC/BCH miners influence the relationship between BTC and BCH?
Examining these dimensions makes it clear that Bitcoin Cash hasn't quite yet realized its lofty aspirations yet, though it has made important structural decisions that are setting it up to be very different from Bitcoin in the years to come.
BCH's bigger blocks haven't mattered yet
From today, Bitcoin Cash's block size will be 32 times as large as Bitcoin's (non-SegWit) 1-MB blocks, and it has always been the BCH position that block size matters. From the hard fork onward, the drastic difference in size between BTC's 1-MB blocks and BCH's 8-MB blocks has been a key differentiator between these networks.
BCH's bigger block sizes mean that it can currently support far more transactions than Bitcoin can in the same amount of time. While transaction volume now on BCH isn't close to what it can support, the block size debate shows how differently both networks think about scaling.
Where Bitcoin Cash supporters like to identify bigger block size with cheaper, faster transactions, the Bitcoin camp views Layer-2 solutions like the Lightning Network as a better method of scaling. Bitcoin Cash supporters believe that bigger block sizes will ultimately lead to a network that anyone can transact on—one that can serve as a ‘PayPal 2.0.’
The average transaction size for Bitcoin Cash is about 200 bytes, which means that each of the network's 10-minute, 8 MB blocks could support (on average) 40,000 transactions, for a total of 5,760,000 per day. In contrast, BTC's 1 MB (non-SegWit) blocks can each only support 5,000 transactions of the same size, for a total of 600,000 per day.
But even though BCH is built to handle huge numbers of transactions, it's only averaging around 20,000 per day in the last couple of weeks—just 0.34% of the daily volume it could support with its 8MB block.
So why double down on block size given that at only 8MB, BCH's transactions are nowhere near its block size limit? According to Bitcoin ABC, the developer team orchestrating the fork, this upgrade is designed to keep improving [BCH] as a form of money.
“We want to make it more reliable, more scalable, with low fees and ready for rapid growth. It should 'just work', without complications or hassles. It should be ready for global adoption by mainstream users, and provide a solid foundation that businesses can rely on.”
Bitcoin supporters, on the other hand, endorse Layer-2 scaling solutions over BCH's larger-blocks solution because they worry bigger isn't better when it comes to block size, as exceptionally large blocks could put mining beyond the reach of ordinary people's storage and bandwidth capacities.
Large blocks could have meant that only the largest, most organized mining pools would be able to mine new blocks—something which is antithetical to Bitcoin's core value of decentralization.
A Layer-2 protocol like Lightning Network promises to solve this problem by enabling ”millions to billions of transactions per second” off of the base blockchain—though this network is still in its early stages.
But the difference in block-size approach between BTC and BCH is even now setting the stage for two kinds of blockchain that will be very different in the future: one that supports huge numbers of instant, low-fee transactions on its own (Bitcoin Cash), and another that is investing in an ecosystem of off-chain scaling solutions (Bitcoin).
If you build it, they might come...
Mempool size, all else being equal, is directly related to transaction fee size: a smaller pool of pending transactions means you don't have to pay as much to get your transaction confirmed by miners. It makes sense, therefore, that BCH's relatively small mempool size has led to very low transaction fees—typically in the order of $0.004 USD.
Bitcoin, on the other hand, usually has a mempool of around 7,000 transactions these days—far more than BCH's. Bitcoin's transaction fees, correspondingly, are much higher than BCH's, with a median transaction fee between $0.15 USD and $2 USD - and yet it has maintained a transaction volume that exceeds BCH's by an order of magnitude.
Bitcoin Cash may eventually prove itself as the new, decentralized PayPal, but for now, it hasn't convinced the wider market that it's better suited for this task than Bitcoin is. That is not to say that there hasn't been any movement in that direction, however.
Back at the time of the fork, BCH had a mere ~0.11 transactions per second to BTC's ~2.42 tps. Nine months later, BTC's transaction volume has remained remarkably constant—stable at 2.42 tps—while BCH's volume has doubled to ~0.22 tps. In this case, the growth in BCH transactions could be due to a growing interest in crypto-based commerce, or just be the result of more widespread speculation in the crypto space overall.
Nonetheless, BCH's small transaction volume despite its mempool size (it usually doesn't have more than 500 pending transactions at any given time) and low transaction fees—shows the public just isn't flocking to it in the way the BCH community anticipated.
All this notwithstanding, it does seem that the market has recognized some distinct value in BCH, given its market cap has increased almost 300% from the hard fork to now, compared to just over 200% for Bitcoin.
The mining swings have settled down
Both Bitcoin and Bitcoin Cash use the same hashing algorithm: SHA-256. Because of this, many miners mine both the cryptocurrencies. Especially in the first few months of BCH's existence, there was huge variation in the profitability of mining BTC vs the profitability of mining BCH. This led miners to oscillate back and forth between the two networks, which resulted in commensurate variation in BTC and BCH's hashrate.
Now, though, we're seeing that the profitability of mining BTC and the profitablity of mining BCH are much closer to each other than they used to be, and the hashrates have balanced out accordingly. In the past few months, we've seen both hashrates gradually and consistently increasing—which is what you'd expect, given the continued adoption of and interest in cryptocurrencies more broadly.
For both BTC and BCH, over half the new blocks are created by the same six pools: BTC.top, ViaBTC, AntPool, BTC.com, Bitcoin.com and F2Pool. However, in recent months, given the differential in profitability between mining BTC and mining BCH has decreased substantially, the switching back and forth between the two cryptocurrencies by mining pools has decreased considerably.
The future: can Bitcoin Cash coexist with Bitcoin?
Bitcoin and Bitcoin Cash have distinct long-term aims, and the differences in how they're already handling transaction volume and block size reflect those aims.
Eventually, BTC and BCH may be able to peacefully coexist with different goals, with BTC acting like gold and BCH acting like PayPal—but BCH will have to grow far more before that possibility has a chance of being realized.
About the author
Akbar Thobhani is the CEO of SFOX — a broker-dealer for institutional cryptocurrency trading. He started his career as a software engineer at JPL / NASA, and began mining bitcoins while attending MIT. Akbar was head of growth and business development at Airbnb. Specializing in trading and payments platforms, he has developed solutions for ITG, Boku, and Stamps.com.