Bitcoin Blocksize Debate - Bitcoin vs Bitcoin Cash

You may have just entered the cryptocurrency space and be wondering why there are multiple versions of Bitcoin - Bitcoin, Bitcoin Cash, Bitcoin SV, etc. In this post, you'll learn the major difference between the two biggest variants - Bitcoin (BTC) and Bitcoin Cash (BCH), namely the blocksize, along with my thoughts on how they'll fare in the future.

The Bitcoin blockchain is a series of blocks containing the transactions of all Bitcoin ever sent or received since its creation in 2009. Currently the size of each Bitcoin (BTC) block is limited to one megabyte (1MB), which allows for about 3-7 transactions per second across the network.

In the early days, Satoshi Nakamoko (the creator of Bitcoin) set this artificial 1MB limit on the blocksize to prevent spam attacks on the network, with the intention of lifting it when legitimate usage of the network increased. However, Satoshi left the project around 2011 and a group of other developers took over from him.

As merchant adoption of Bitcoin grew throughout 2013 to 2017, so did the number of transactions, and concerns were raised that payments would become unreliable as the blocks started to reach the 1MB limit. Gavin Andreson, the lead developer of Bitcoin who took over from Satoshi, recommended a protocol upgrade (or removal of the temporary 1MB limit) to allow this organic growth to continue, but the other developers refused to implement it.

Why? Their primary argument was that if the blocksize were increased, hardware upgrades would be required, and it would become more expensive to run a full Bitcoin node, centralizing Bitcoin amongst only those who could afford the upgrades. This in turn would make Bitcoin less secure.

The counterargument to that is Moore's Law - that computing power doubles every two years while the price of that hardware tends to decrease. Think of how much power the first Apple computer had in the late 1970s compared to what the latest iPhone can do today. Computing power has increased exponentially while prices have been dropping at the same time. Therefore, the cost of owning a Bitcoin node should not increase significantly, even as adoption picks up.

Sure enough, the community's concerns were realized in 2017 when the bull run caused the number of Bitcoin transactions to skyrocket. Blocks became full due to the legacy 1MB blocksize, average fees reached around $28, and it took days for transactions to be confirmed. Bitcoin had basically become unusable as a payment method.

Merchants who were accepting Bitcoin started to receive complaints from their customers and had to stop taking it. All the business development efforts to push for merchant adoption seemed to have gone to waste, as businesses began to see Bitcoin as a payment method that simply doesn't work during times of high usage.

This is why we have Bitcoin Cash (BCH), which forked from Bitcoin (BTC) in 2017. The BCH crowd believes that transactions can scale on-chain, as they always have, and have raised the blocksize above 1MB. The BTC camp believes we need off-chain scaling solutions like the Lightning Network to allow for micro payments.

While the Lightning Network is an interesting solution to the scaling problem, it's complicated and difficult to use, especially for beginners who can barely operate a crypto wallet. This is why I believe that when the next bull run comes, Bitcoin transactions will once again become unreliable, and instead of adopting the Lightning Network, most consumers will opt for easier alternatives like Bitcoin Cash, DASH, and others.

Bitcoin (BTC) is no longer the peer-to-peer cash it was originally meant to be according to its whitepaper, but has rather transformed into a Store of Value asset, like digital gold. I believe that Bitcoin (BTC) will always be valuable, even if only as a collector's item - "Wow - I own one whole Bitcoin!" But those who actually want to use crypto for payments will migrate to coins that are faster and easier to use, cutting into Bitcoin's overall market share.

I hope this post has helped you to understand the major difference between Bitcoin and Bitcoin Cash, and the reasons why they exist. The great thing about crypto is that it's a free market and we have the freedom to choose whichever coin serves us best. May the competition continue and may the best coins win!