Is Bitcoin Cash the Electronic Cash System We’ve Been Waiting For?
Segwit2x has collapsed, and we’re now left with two “Bitcoins” — Bitcoin (Segwit), commonly known as just “Bitcoin,” and Bitcoin Cash, which forked back in August. This split neatly represents the Bitcoin community itself: divided between “small blockers” and “big blockers.”
But the divide has always been about more than blocksize. The underlying priorities of the two camps are fundamentally different. Bitcoin (Segwit) prioritizes the importance of Bitcoin as a store of value, and believes on-chain scaling would lead to undesirable centralization. Bitcoin Cash, on the other hand, prioritizes the use of Bitcoin as a payments system, and believes on-scale solutions are best for achieving that goal. In a sense, the two coins are no longer even competitors — they now have different goals.
Bitcoin, of course, originally began as a “peer-to-peer electronic cash system,” and there is still a need for a cryptocurrency to achieve that goal. Is Bitcoin Cash the fulfillment of that original vision? Or are there any other cryptocurrencies competing with Bitcoin Cash in that respect?
Before merchants and users who want a crypto-based payments system move from Bitcoin (Segwit) to Bitcoin Cash, two other coins should be considered as well: Litecoin and Dash. Both coins are Top 10 cryptocurrencies, both have been around for years, and both desire to be a payments system like Bitcoin Cash. It would be helpful to compare these three cryptocurrencies, along with Bitcoin (Segwit), to see how they size up.
Note: no matter which coin you currently prefer, there is no question that competition is good, and having such a competition will only help achieve the goal of a global crypto-based payments system.
For purpose of this comparison, I’ve selected what I believe are the most important features for a peer-to-peer electronic cash system. They include: fast transactions, low fees, privacy features, ability to scale, ease of use, and the ability to develop and add features in the future.
Let’s look at those primary features an electronic cash system needs to be successful.
Since the early years of Bitcoin, there have been concerns that slow confirmation times could prevent the acceptance of Bitcoin in many arenas. What coffee shop wants to wait 10+ minutes for a transaction to clear before moving on to the next customer? One proposed solution was zero-confirmation transactions, but that led to security concerns. Bitcoin Cash has the same confirmation times as Bitcoin (Segwit) — every 10 minutes — so it is no better or worse than Bitcoin (Segwit) in this regard. Litecoin and Dash both have 2.5-minute confirmation times, which is four times faster than Bitcoin (Segwit) or Bitcoin Cash. Dash, however, also has InstantSend, which allows for locking in transactions in a couple of seconds. Only InstantSend mimics an actual cash transaction when it comes to speed.
One of the primary advantages Bitcoin Cash has over Bitcoin (Segwit) is reduced fees. Over the past three months, Bitcoin (Segwit) fees have averaged above $3 per transaction, spiking to $10/transaction at times. Bitcoin Cash, on the other hand, has averaged around 10–20 cents per transaction. The lower fees are directly related to larger blocks, as more transactions can fit in each block.
Litecoin and Dash have had comparable fees to Bitcoin Cash in recent months, but with the recent release of Dash version 0.12.2, Dash’s fees will experience a 10-fold drop, leading to transaction fees of a fraction of a cent.
Cash is the most private means of financial transaction available today. To be an electronic cash system, privacy must be possible for consumers. As is well-known, Bitcoin (Segwit) is pseudonymous, not anonymous. Bitcoin Cash and Litecoin are the same. However, Dash, which is also by default a pseudonymous network, has an optional PrivateSend feature that allow users to anonymize their transactions. Note that this capability is built in to the network and does not require trust of a centralized service.
Both Bitcoin Cash and Dash are committed to true on-chain scaling. Bitcoin Cash currently allows for 8MB blocks, while Dash recently upgraded to 2MB blocks. But both look to a future of significantly larger blocks. Bitcoin (Segwit) and Litecoin both hope and pray that future technologies will magically scale their networks.
However, Dash has an advantage over Bitcoin Cash. While Bitcoin Cash must depend on volunteer nodes to run the network, Dash has a 2nd-tier network (aka “Masternodes”) which are incentivized with block rewards to perform services for the network (such as InstantSend). This built-in incentive allows Dash to both look to software and hardware for scaling solutions. While Bitcoin Cash is bound to organic advances in hardware for volunteer nodes to handle larger blocks and more traffic, Dash can require its Masternode owners to upgrade to beefier hardware now — or risk losing their block rewards.
In order for a cryptocurrency to be used as cash by regular people, it must be easy to use. Currently, no cryptocurrency can claim to be truly user friendly, and that includes Bitcoin (Segwit), Bitcoin Cash, Litecoin, and Dash. The first three coins will need third parties to create ease-of-use solutions, but Dash, through its Dash Budget System, has internally funded a development team to make Dash easier to use. Known as Evolution, the project will cross the usability barrier and make Dash accessible for the everyday user.
The Great Bitcoin Scalability Debate should have taught us that how a cryptocurrency achieves consensus matters. Is consensus gained by social media astroturfing campaigns, hashtags, custom hats, and character assassination? Or should the main investors in a cryptocurrency determine the future of the coin in a decentralized fashion?
Whereas Bitcoin Cash and Litecoin share Bitcoin (Segwit)’s lack of any consensus mechanism, Dash is governed by the diverse Masternode owners through the Dash Budget System. Because of this, Dash can reach decisions in a much more efficient, while still decentralized, manner. For example, the Dash Masternodes quickly voted on an increase to a 2MB blocksize, approving it within hours, and it was implemented recently without controversy.
The Winner is…
Clearly, Bitcoin Cash is superior to Bitcoin (Segwit) and Litecoin when it comes to being a peer-to-peer electronic cash system. But that doesn’t make it the top cryptocurrency in that category. Both Bitcoin Cash and Dash have plans for on-chain scalability, and the main advantages of Bitcoin Cash are the Bitcoin name, and that it started with an airdrop to existing Bitcoin holders. Because of this, it is currently more popular than Dash as measured by market capitalization. But considering both the features and the ability to adapt and develop in the future, Dash is clearly superior to Bitcoin Cash. Merchants who are thinking of abandoning Bitcoin (Segwit) should consider Dash as the fulfillment of Satoshi’s vision of a peer-to-peer electronic cash system.
Full Disclosure: I currently hold Bitcoin (Segwit), Bitcoin Cash, and Dash.