Bitcoin Cash vs. Bitcoin – Which Is Better And Why Does It Matter?

It’s been a long time since I’ve made a bitcoin post.  Long time readers may be aware that some of the very first posts on this blog were about bitcoin, way back in 2011.  I’ve been following this currency from the start.

I declared back then that bitcoin would go on to topple nation states and supplant national currencies.  This is something we are already seeing in places like Venezuela, where the state has destroyed the means of exchange.  It is this function of bitcoin as a system of digital cash that concerns us today.  For those of you who are unfamiliar with the current rift in the bitcoin universe between Bitcoin and Bitcoin Cash, I’ll attempt to give you a brief overview the current problem.

Basically the blocks of transactions that miners process on the bitcoin blockchain are full.  This means many transactions are left waiting to be processed by the miners.  Those who really want their transactions processed quickly have to fork over large transaction fees in order to get their transactions placed at the head of the line, while those who don’t pay or pay too little are left waiting perhaps weeks for their transactions to clear.

This means that over time, bitcoin has gone from a system where there were basically no transaction fees or very low transaction fees to one that has extremely high transaction fees, even higher than credit cards.  It also means that transaction times have increased from a few minutes to a few hours or even days.

Bitcoin Cash is a split from the current Bitcoin core development branch that attempts to alleviate the large fees and long transaction times by increasing the block size.  This means more transactions are included in each block the miners mine.  Miners on the Bitcoin Cash blockchain are able to process nearly an order of magnitude more transactions per block than Bitcoin core.  This has indeed proven to be an effective means of reducing fees and transaction times.

So what’s the problem?  Why hasn’t the Bitcoin core team implemented the changes made by the Bitcoin Cash team on the original Bitcoin core blockchain?  What are they waiting for?

Well, here’s where the fight starts brewing.  There are decent arguments to be made on each side, but I think one side does indeed have a better argument.

Bitcoin core developers are taking the position that leaving the block size small forces transaction fees to be higher, which they claim makes the chain less susceptible to spam attacks.  The core people want high transaction fees and don’t see them as a fundamental problem.

High fees also ensure miners keep getting paid even when the block reward goes to zero.  The block rewards are the bonus coins miners get from mining each block.  These reward coins are the only way new coins enter the system.  Once the system hits 21 million coins, no new reward coins will be created.  So here we have a financial incentive for people that are invested in bitcoin mining to want the block size kept small.  

The core developers also argue that increasing block size is a ‘simplistic’ means of addressing the problems and that a more elegant, yet vastly more complex, solution is to create side-chain transactions that act as a second layer on top of the existing block chain.

These side-chain transactions would allow bitcoin to be sent point to point instead of having to broadcast the transaction to the entire block chain.  Such a proposed system is called the Lightning Network.  If all of the major exchanges, wallets and merchants were to implement such a network, it would vastly increase transaction speed and reduce cost across the network.

The Cash developers argue that there’s no reason they can’t do both – dramatically increase the block size AND work on Lightning Network side-chain transactions.  They point out that increasing the block size offers an immediate solution to the problems of high transaction fees and long wait times, and that this was the original plan laid out by Satoshi Nakamoto in his initial white paper on the subject to deal with these issues.

I highly recommend listening to this debate between Bitcoin core developer Jameson Lopp and Bitcoin Cash founder Roger Ver to get a better understanding of each sides position.

After listening to this debate, along with many others, and doing additional research on my own, I think Roger’s side has the better arguments.  Roger actually got Jameson to admit that Bitcoin Cash was more inline with Nakamoto’s original paper than the current core branch.

Bitcoin is rapidly losing market share to alt coins, even though it’s price is rapidly rising.  It’s no longer possible to use bitcoin to buy smaller every-day items because the transaction fees are often more than the item itself, and the wait times are far longer than most merchants are willing to accept for a transaction to verify.

To me, it doesn’t make sense to worry about possible issues that may arise far into the future when an immediate fix is needed in order solve imminent problems and help drive wider adoption.

I think there is a strong financial incentive for people who are heavily invested in mining or have large positions in bitcoin to prevent a block size increase, and that this is the primary reason we don’t see the core branch increasing the block size.

I also think Roger has a real point when it comes to online censorship as well.  I tried to post this debate to the Reddit bitcoin boards and it was immediately banned with a nasty messianic message declaring that the original bitcoin is the ‘one true bitcoin’ and that all others are impostors or some other such nonsense.  So the people on r/Bitcoin are all basically sticking their fingers in their ears when it comes to this stuff.

Jeff Berwick recently did a couple of great interviews that cover this topic in more detail.  Again, I highly recommend listening to these if you want a better understanding of this important topic.

Sticking To Satoshis White Paper with Amaury Sechet – Lead Developer of Bitcoin Cash

Why Bitcoin Is So Important For The Future Of The World with Jimmy Song – Developer of Bitcoin Core

 

Full disclosure:  I have a large position in Bitcoin core mining and I hold roughly equal amounts of Bitcoin and Bitcoin Cash.

 

  • Jay

    Thanks for the debate link. I am more sympathetic to the small-block argument. I find that most of the big blockers don’t fully understand how big blocks really paint the blockchain, the full nodes, and even the miners into a corner as adoption increases. Try running a BTC full node to get a first-hand feel for the problem. Full disclosure: I own no BTC or BCH. I prefer Litecoin.

    • 99% of full nodes are being run by professional organizations such as cloud miners, professional miners, exchanges, etc.. etc.. etc.. It hasn’t been profitable to desktop mine bitcoin for ages now. So this notion that we need small blocks so small time players can still run full nodes is antiquated. It doesn’t reflect the way the network is currently running in the real world.

      Mean while, 30 dollar transaction fees are the new norm. This makes bitcoin completely impossible to use for micro-payments and it also destroys the adoption rate, which is why bitcoin has lost so much market share over the past year.

      • Jay

        Full nodes don’t necessarily mine. In fact, the vast majority don’t. The ten thousand or so BTC full nodes spread around world support the network by maintaining the blockchain. They make sure transactions are properly signed, enforce consensus rules, store unconfirmed transactions (the mempool), and make available the blockchain to users, especially mobile users, that don’t have the memory to store it. Full nodes are vitally important to the network but don’t get paid. The full nodes are decentralized for now, but they’ll have to move out of the home and into the data centers if the blockchain grows at an uncontrolled rate.

        https://en.bitcoin.it/wiki/Full_node
        https://bitnodes.earn.com/

        The big block/small block argument reminds me of the fable where the king of India wants to reward the inventor of chess with gold. The inventor asks for rice instead. He wants 1 grain on the first square 2 on the 2nd, 4 on the third; doubling each square. The king fetches a bag of rice. By the time he reaches square 16 there’s just under 2.5lbs of rice on the square and just under 5lbs total on the board. This is where we are with the BTC blockchain. The small blockers understand the magnitude of the problem and realize that transactions have to go off-chain as much as possible and soon. The big blockers see that there’s plenty of rice still left in the bag and think they can get to square 64. They can’t. By the 25th square (not even halfway) they need 2.4 tons of rice on the square. The 64th square needs 663 trillion tons of rice and 1,326 tons total for the board.

        So it ends up as an argument between those who can grasp exponential functions and those who can’t. The big blockers yearn for the good ol days when you could spend bitcoin, as does everybody, but they aren’t going to get there with bigger blocks.

        • I don’t see 8 meg blocks as breaking the system. Terabyte drives are cheap. The present BCH database size is 155.95 GB. You’re acting like 8 meg blocks will end any possibility of people running their own node. I’m just not seeing your argument as being valid. I think you might have a point if they were asking for 128 meg blocks or something, but they aren’t.

          In the mean time, BCH will also benefit from all the sidechain work that’s being done, so I don’t see the arguments against it there either.

          Further, the original proposal for segwit and the lightning network included a 2 meg blocksize increase IIRC.

          In the end, the market will decide. I think the high transaction fees and processing times are going to drive more and more people away from the network. Bitcoin will be around long term, but it will not be the major player it once was.

  • Ernie Garrett

    “I declared back then that bitcoin would go on to topple nation states and supplant national currencies.”

    Yes you did. They had no idea, brother.