Scalability issue — the point where BTC and BCH divided

After the release of the Bitcoin white paper describing the creation of a decentralized digital P2P system, the coin became the world's first cryptocurrency. Currently, Bitcoin is a recognized alternative currency with a market capitalization of over $50 billion, and the price of one coin has long surpassed the value of a troy ounce of gold. Now, Bitcoin is used as a currency for online payments, fund storage, or a new alternative investment.

However, with the growing interest in Bitcoin, the load on its network has increased enormously, which has led to slower transactions and higher fees for users. It became obvious that Bitcoin needs to be modernized for further development.

Several solutions have been suggested to solve the scalability issue, but the brightest among those solutions was Segregated Witness technology, also known as SegWit. SegWit is a blockchain upgrade that removes some data to free up space in blocks, allowing more transactions to be made during the same period of time. Segwit opponents instead offered to increase the block size.

On May 23, 2017, the New York Agreement was published. This agreement was introduced as an option for solving BTC’s scalability issues. The agreement proposed integrating SegWit with a 2MB block size increase. The agreement was signed by 50 different BTC-related companies. BTC’s development team, however, did not support this resolution, and neither side achieved the necessary 50% support from miners, despite their compelling arguments. Eventually, a compromise was reached wherein SegWit would be activated in August and BTC’s block size would be doubled in November. The new plan received 80% approval from the mining community, and for a brief moment, everything was calm.

However, the BTC block size was never increased. On August 2, 2017, SegWit was introduced, and simultaneously with this upgrade, a blockchain split occurred to create the altcoin Bitcoin Cash, which allowed for the generation of larger blocks. Via SegWit, the original Bitcoin got the opportunity to make far more transactions than before.

Bitcoin vs Bitcoin Cash hashrate

The key difference between BTC and BCH is the block size. The Bitcoin block size is limited to 1 MB, while Bitcoin Cash offers a block size of 8 MB. A Bitcoin block holds about 2500 transactions, whereas for the first BCH blocks, this figure reached 7000. Thus, the prospects of Bitcoin Cash in terms of scalability initially looked much better.

However, most Bitcoin infrastructure (wallets, payment services, etc.) does not support Bitcoin Cash and consider it just another altcoin, not a "new Bitcoin." This means that its use is limited to speculation on stock exchanges.

All this leads us to the question of the real value of BCH. If it is not ready to be used and accepted by buyers and sellers, why would its value rise?

BCH/BTC chart and prices

If you look at the current weekly graph of BCH/BTC, you can see a palpable potential BCH rise. One can’t help saying again that the graph is always the prime thing in taking any market decision, and here in particular, Bill Wolfe “speaks for himself” with his bullish pattern.

So Bitcoin Cash is back. It’s back in the way that the entire market is back, if this is the beginning of a new bull market. However, BCH is also back in another, perhaps more significant, sense. Crypto watchers will recall when BCH had a near-death experience in November 2018. Many will remember that month as the time when the hard fork of the blockchain triggered a crash in the wider market, pushing Bitcoin below $6,000.

Bitcoin Cash forks: ABC and SV

Bitcoin Cash, itself a fork from Bitcoin, split into ABC (today known by most of the world as Bitcoin Cash) and SV (BSV), and while at first there was a tussle between the two to see which chain would grab the most hash power, a winner did eventually emerge. BCHSV is the winner, with a 3x price rise since the split (from 65 to 195), whereas BCHABC has so far failed to triple its initial split price of 165.

Reading the UK Financial Conduct Authority’s interviews with consumers who entered the market in the wild ride to $20,000, we are reminded of one of its key findings – the ignorance of many market participants. Getting skilled up is essential in this space for reasons we do not need to reiterate here.

One of the buyers in the FCA survey said she wasn’t aware that you could buy fractions of Bitcoins and thus decided to buy coins with a smaller unit price. This tendency, driven by buying psychology that dictates that it is more palatable to purchase a coin with a smaller unit price, was seen among new consumer entrants in the previous bull market. It seems to be happening again, and BCH is a prime candidate for attention.

Bitcoin Cash has a high profile because it is a top-10 crypto asset and can exploit the famous halo effect of the Bitcoin brand name. The source of the momentum behind BCH may in part be influenced by any or all of the factors already mentioned, but most important is that it presented the least friction for potential buyers, priced at $165 as opposed to the Bitcoin price of $4,150 at the point of take-off.

BCH has tripled its gains against the USD since then, whereas the BTCUSD pair has managed to make only 2x.

Bitcoin Cash had fallen 98% from its all-time high, compared to Bitcoin’s smaller 84% drop, which further accentuates the risk–reward ratio.

BTC vs BCH mining profitability

In its most recent issue, crypto-oriented research startup Diar revealed that the total mining revenue across popular proof-of-work (PoW) blockchains had exceeded more than $21.3 bln. As expected, Bitcoin is accountable for the lion’s share of this sum ($11.3 bln).

Bitcoin Cash miners have earned only $911.6 mln.

Comparing Bitcoin to Bitcoin Cash in figures

“I think both Bitcoin and Bitcoin Cash are a great bet. Bitcoin is like the monetary base, and Bitcoin Cash is a transactional currency similar to a global M1.”

Brian Kelly
CEO & Founder of BKCM LLC