Bitcoin, Bitcoin Cash, Bitcoin SV – What Are the Differences?
Bitcoin Cash and Bitcoin SV are spin-offs of the original Bitcoin blockchain, but they target another use case. What investors need to know.
The Bitcoin (BTC) network can process about seven transactions per second. That’s not just slow; it’s at a snail’s pace. By comparison: The Visa payment network processes more than 1,700 transactions per second.
Bitcoin’s slow transaction speed is a roadblock to the network’s growth and makes it practically impossible to use the cryptocurrency as a reliable means of payment. The larger the network, the longer it takes to verify transactions. Energy consumption also increases. According to calculations by the University of Cambridge, the Bitcoin blockchain consumes more electricity each year than the whole of Switzerland.
The primary reason is Bitcoin’s mining algorithm because to verify transactions and create new Bitcoins, miners have to perform complex mathematical calculations. This consumes energy and takes time.
Bitcoin Cash and Bitcoin SV: increased block-size as a solution?
How can the Bitcoin network grow under these conditions? And how can it ever function as an effective means of payment? These were the questions that the developers of the Bitcoin Cash (BCH) network asked themselves. Their solution: an increase in block-size.
A block contains bundled transaction data that miners must verify. In the original Bitcoin Blockchain (BTC), a single block contains approximately 1 MB of transaction data. Blocks in the BCH blockchain, however, have a maximum size of 32 MB. Thus, one single verification process can verify a much larger amount of transaction data. This should increase transaction speed and reduce energy consumption.
To realize their idea, the BCH developers initiated a hard fork in August 2017, a spin-off from the original BTC blockchain, resulting in a new cryptocurrency: Bitcoin Cash.
However, parts of the BCH community believed the block size needed to increase further, so another hard fork took place in November 2018 – this time on the BCH blockchain. The goal was to further increase the maximum block-size to 128 MB and again, a new cryptocurrency was created: Bitcoin SV (BSV).
Different Use Cases: BTC is not a payment network
Even though BCH and BSV can theoretically process transactions much faster than the original BTC, the block size has so far had little impact on transaction volumes. The transaction volume on both blockchains is still significantly lower than on BTC.
The average block size on BCH is just 176 KB, 0.5% of the limit of 32 MB – on BSV the average block size is 340 KB – 0.3% of the limit, which is why the increased block size is mostly irrelevant.
BCH and BSV liquidity is also significantly lower than for BTC. This is mainly due to the different use cases: BCH and BSV are payment networks made for faster transaction speeds and therefore compete with payment service providers such as Visa or Paypal – tough competition.
BTC, often referred to as “digital gold,” is not used as a means of payment but as an investment vehicle – even though that may not have been the creator’s intention. That’s why transaction speed is not that relevant for BTC. Instead, the long-term growth prospective of the asset is what matters. For this reason, BTC also has significantly more liquidity that BCH and BSV and will remain the leading cryptocurrency for the foreseeable future.