Bitcoin Cash: Large Blocks Are Not a Proper Solution for Achieving Scalability

Ever since the major fork of Bitcoin that created Bitcoin cash in August 2017, there has been a major debate in the blockchain space about the advantages of Bitcoin Cash versus Bitcoin.

Bitcoin Cash was initially created as a result of major disagreements within the Bitcoin community about how to reduce fees and scale the Bitcoin blockchain so that it would be better equipped for handling everyday transactions. A group of developers felt that in its current state Bitcoin was setting itself up to remain nothing more than a digital investment rather than a transactional currency (as was originally described in Satoshi Nakomoto’s white paper).

The developers thought that the best solution would be to increase the block size. The fundamental difference between BCH and Bitcoin (BTC) is that BTC’s transaction speeds have been very slow (around 7 transactions per second). Visa, by comparison, processes 24,000 transactions per second.

The Bitcoin block size is only 2mb, which causes this lag in speed. Bitcoin Cash increased their block size to 8mb, which means it can handle about 61 transactions per second on average.

However, many have pointed out that the increase in block size may actually be insufficient for achieving scalability. For one, an increase in block size may put extra costs on users due to an increase in bandwidth, which may prove too much for people with slow internet connections living in third world countries to handle.

An increase in disk space to 2880 MB per day or 84.4 GB per month would force people to continue buying larger drives to accommodate the space. This requirement would result in fewer miners being able to participate, which could lead to centralization. Lastly, the processing power needed to verify the blocks would make it more expensive to run nodes, also reducing the number of miners who can participate and creating more centralization.

As highlighted by Ben Verret and others on Reddit, 8 MB blocks have a lot fewer transactions than Bitcoin’s 1.06MB Segwit blocks:

Transaction rate and Block size has had minimal influence on price

What’s also interesting to point out is that despite the claims from either side of achieving more transactions, Both Bitcoin and Bitcoin cash have experienced significant declines in recent months. However, what is clear is that Bitcoin cash isn’t immune to Bitcoin’s price movement. As Bitcoin now struggles to break through the $6,200-$6,400 range, Bitcoin Cash also finds itself at yearly lows of around $421.

Price history has shown that Bitcoin Cash is normally 1/10^th the price of Bitcoin, which may be an indication that Bitcoin cash has suffered more during this bear market despite their focus on usability and increasing the number of transactions.

Conclusion

Roger Ver is one of the founders of Bitcoin cash, and it’s most outspoken advocate. He has been quoted as saying that “Bitcoin Cash, unlike Bitcoin Core, is both a medium of exchange and a store of value”, and that Bitcoin Cash will Surpass Bitcoin Because of its ‘Formula’.

Only time will tell which version of Bitcoin will succeed and whether increased block sizes are truly the best route to scalability. In the meantime, cryptocurrency markets must first find a way to reverse the year-long bearish trend before there can be any chance of proving real utility and adoption for cryptocurrencies.

This post was first published on Sep 13, 2018