in Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), Asset Explainers, Learn, Comparisons
“What are all the different Bitcoins out there?” is one of the questions troubling a cryptocurrency neophyte. The short answer is: they are coins that derive from the original Bitcoin but at some point they differentiated in one way or the other. The long answer is a bit more convoluted.
In this article we look at the top three “contenders” that have the closest relation, both between them and to the original Bitcoin white paper: Bitcoin, Bitcoin Cash and Bitcoin SV. We will also explain how they came to be, what their differences are and what each one has to offer going forwards.
What caused the schism?
In one word? Scalability. Ever since Bitcoin became more popular and was adopted by people other than cryptography fans, it’s been plagued by the inability to accommodate the transactions all these people make. Bitcoin can process a max of 7 transactions per second. And that’s no good if it’s going to accomplish its purpose and become the digital currency of the new age.
The reason Bitcoin is so slow depends on two factors: block size and frequency. In order for a transaction to be confirmed and be considered valid, it needs to be added to a block in the blockchain. That’s the task miners are performing. However, only a certain number of transactions can fit in a block - limited by the block size - and a new block is found, by design, every 10 minutes on average - that’s the block frequency. These two things determine how many transactions per second the network can process.
So, why not change those parameters and increase the network’s capacity, one might ask. Well, the block frequency cannot be changed, at least without deviating significantly from the original protocol. It is hardcoded in Bitcoin’s code and it’s how it was built. But block size can be changed, and the disagreement on that is precisely what this “feud” has been (mostly) about.
One side, which became Bitcoin Cash, wanted to take the direct approach and increase the block size and with it the network’s capacity. The block size limit of 1MB was imposed about a year after Bitcoin’s inception as a measure against spam transactions, but it was now limiting Bitcoin’s scalability. To add gravitas to their argument, they quoted Satoshi Nakamoto, Bitcoin’s mysterious founder, who didn’t mention a limit in Bitcoin’s whitepaper and in forums had mentioned that the 1 MB cap was meant as a temporary measure.
The other side wanted to keep the block size at 1 MB and believed scalability should be accomplished by other means, mainly by reducing the size of transactions, through a technique called Segregated Witness (SegWit), and by building a second layer of transactions on top of the Bitcoin blockchain, the Lightning Network. The main argument against increasing the block size is that it would lead to centralization. With a bigger block size the blockchain would become very large very quickly and then only a few could afford to run a full node. Full nodes are computers that keep a complete copy of the blockchain and are essential to its security and decentralization, since they validate transactions put there by miners and keep everyone honest.
But no agreement could be found. So, on August 1st, 2017, the Bitcoin blockchain split - or forked, as it's called - and from the split Bitcoin Cash (BCH) was created, with a block size of 8 MB that was later increased to 32 MB. A year later, on November 15, 2018, a similar dispute within the Bitcoin Cash community led to another fork, that gave birth to Bitcoin SV (BSV), or Bitcoin “Satoshi Vision”, with a block size of 128 MB, that was later increased to 2 GB and has now been completely lifted.
Bitcoin features, times three
So, where are the three coins now?
Well, Bitcoin - or ‘Bitcoin Core’, as Bitcoin Cash founder Roger Ver likes to refer to it - still has the 1 MB limit on block size, but with SegWit the effective limit has been raised practically to 2 MB, with a potential for up to 4 MB. Lightning Network is live and operational, but has yet to find wide adoption. If (or when) it does, it will be able to accommodate thousands, perhaps even millions, of transactions per second, instantly and with near-zero fees. For the time being, however, the average transaction fee is about $8.
But that doesn’t seem to deter users from using Bitcoin. Despite each camp’s claims that they’re the ones serving Satoshi’s original vision of what Bitcoin should be, the people’s verdict is clear. Bitcoin has remained the king of crypto, with a market cap 60 times larger than both other coins combined.
In mitigation however, BCH and BSV both have average transaction fees that are tenths and hundredths of a cent cheaper, respectively. In that regard, they have delivered on the promise of making Bitcoin a coin that can be used for everyday transactions, and even for micropayments of just a few cents. Furthermore, both support zero-confirmation transactions, where a transaction is considered final even if it’s not yet confirmed, mainly because of the certainty that it will make it on the blockchain in the next block.
However, BTC supporters commonly criticize BCH by pointing out that the block size limit increase was pointless since it has never been utilized. The average block size on BCH has seldom risen above 200 KB, a tiny fraction of the 32 MB limit, while BTC consistently has blocks near the limit of 1 MB. This is, of course, due to the fact that not that many people ended up using BCH.
BCH does however have smart-contract support. In fact, the last days of 2020 saw the birth of the first DeFi platform on Bitcoin Cash. Furthermore, it has the potential of supporting atomic swaps in the future, meaning exchanging between BCH and other coins without the need of an intermediary.
BSV is a different matter. The limitless blocks have given rise to a lot of apps that use the blockchain as immutable, decentralized storage, storing data as diverse as weather records, social media posts, podcasts and any other kind of file.
These apps can take advantage of micropayments to promote their business model, or a combination of both. In fact, the BSV camp advertises BSV as “Bitcoin ready for business”. That has resulted in bigger blocks on average, consistently bigger than BTC, but still way below the multi-gigabyte blocks that the BSV camp envisioned.
The reasons behind the forks and the conflict as to which blockchain truly fulfills ‘Satoshi’s original vision’ don’t really matter to most people. And I would argue, rightly so. Everything evolves, after all. But understanding some of the fundamentals behind them helps understand each coin's capabilities going forwards.
Despite the fact that more and more global freelancers are being paid in Bitcoin (BTC), it is still primarily used as a store-of-value coin, rather than a medium of exchange. And it won’t be long until Lightning Network is as widely adopted as BTC is. Bitcoin is the undeniable leader of crypto and is still the coin that drives adoption of the entire ecosystem.
Bitcoin Cash (BCH) is the cash version of Bitcoin, allowing for fast, cheap transactions by favoring scaling on-chain, rather than on a second layer. Furthermore, it’s the smart-contract enhanced version of Bitcoin, with the first Bitcoin DeFi platform.
Similarly, Bitcoin SV supports on-chain scaling to unprecedented heights, that allows for fast, cheap transactions too, but additionally opened the road for other use-cases of the blockchain, ones that go towards a global, decentralized database.
Both Bitcoin SV and Bitcoin Cash however, saw a persistent decrease in active developers during 2020, a year when many other blockchains saw their development accelerate.
These 3 different coins share the same roots but are growing in quite different directions. But the beauty of cryptocurrency is that each user has the financial liberation to inform themselves, and choose the currency that most fits their needs.
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This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.