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Bitcoin Cash and Ethereum are among the top five cryptocurrencies in the world (by marketcap). Both of them serve two very different functions in the crypto space. While Bitcoin Cash wants to bring in fiat-currency like functionalities into space, Ethereum has built a smart contract platform, where developers from around the world can create their own decentralized applications. In this guide, we are going to take a look at the differences and similarities between these projects. If you are already well-versed in both the projects, then you can click here and buy them with just your credit card.

Bitcoin Cash at a glance



Key Highlights

August 1, 2017, Bitcoin Cash forks away from Bitcoin.

November 13, 2017: BCH upgrades to fix the Difficulty Adjustment Algorithm (DAA).

May 15, 2018: Block size increased to 32 MB and some Satoshi OP-Codes are re-enabled as well.

August 2018, a bug was discovered and resolved in the main Bitcoin ABC software.

November 2018: Bitcoin SV splits away from Bitcoin Cash

Ethereum at a glance

Key Highlights

November 2013: Vitalik Buterin publishes the Ethereum whitepaper.

January 2014: The development of the Ethereum platform was publicly announced. The original Ethereum development team consisted of Vitalik Buterin, Mihai Alisie, Anthony Di Iorio, and Charles Hoskinson.

August 2014: Ethereum ends their ICO and raises $18.4 million

May 2015: “Olympic” the Ethereum testnet releases.

July 30, 2015: The first stage of Ethereum’s development, “Frontier” was released.

March 14, 2016: Homestead, the first “stable” Ethereum release, went out on block 1,150,000.

June 2016: The DAO hack happens and the $50 million worth of Ether, which was 15% of the total Ether in circulation back at the time.

October 25, 2016: Ethereum Classic forks away from the original Ethereum protocol.

October 16, 2017: The Metropolis Byzantium hardfork update happens.

February 28, 2019: The Metropolis Constantinople hardfork update happens.

Bitcoin Cash vs Ethereum: A Comparison

Before we delve into the differences, let’s look at the similarities. Both Bitcoin and Ethereum are blockchain-based decentralized entities. Bitcoin and Ethereum are both fueled/powered by their native coin BTC and ETH. Both these coins can be used outside their ecosystem as an exchange of value.

Now, let’s talk about the differences between the two. We will be mainly focussing on the following categories:

Purpose

Mining

Gas vs Transaction Fees.

Block Size

#1 Bitcoin Cash VS Ethereum: Purpose

As we have briefly touched on before, Bitcoin cash and Ethereum are both driven by two entirely different purposes. Many people tend to wrongly group them together as “cryptos.” Let’s dive deeper and find out more about them.

Bitcoin Cash

An unknown programmer, going by Satoshi Nakamoto utilized cryptographic hash functions and public key cryptography to create Bitcoin. Bitcoin’s purpose has never changed since the very beginning of its inception. Bitcoin wants to be a global decentralized financial system while empowering people to have full control over their finances. When Nakamoto was coding Bitcoin, he put a 1 MB block size limit to limit the number of spam transactions per block.

However, according to a segment of Bitcoin’s community, led primarily by Roger Ver, this limit was supposed to be a temporary measure. As Bitcoin grew more popular, it found a hard time to scale up and meet the escalating demand. A possible solution called “SegWit” or Segregated Witness was suggested, which would take the bulky signature data and put it inside a parallel sidechain, but it received heavy criticism from parts of the community since it brought significant changes to the original architecture.

These sections demanded an increase in block size. According to them, Satoshi always meant to increase the block size as the coin got more popular. After a lot of back-and-forths, which has been since labeled the “block size debate,” they finally branched off the main Bitcoin chain on August 1, 2017, and created Bitcoin Cash.

This is how Bitcoin Cash project website is defining itself: “Bitcoin Cash is peer-to-peer electronic cash for the Internet. It is fully decentralized, with no central bank and requires no trusted third parties to operate.” Did you notice the emphasis on the words “peer-to-peer electronic cash”? It is done by design because the primary motivation of bitcoin cash’s existence depends solely on carrying out more transactions.

According to them, by increasing the block size, they will be able to allow for faster and more efficient transactions. Initially, Bitcoin Cash had an 8 MB block size, as opposed to Bitcoins 1 MB block size. Since then, they have adopted an “adjustable blocksize cap” approach, wherein blocks could be mined with an upper cap of 32 MB.

Ethereum

Ethereum, on the other hand, is not a payment-only system. Ethereum founder Vitalik Buterin believes that the blockchain has more utility than just being a payment service provider. Buterin thought that by leveraging the blockchain technology, developers could create real-world applications on top of it. The way they can do that is by creating smart contracts and executing them on top of Ethereum.

Smart Contract is a computer code running on top of a blockchain containing a set of rules under which the participants of the contract agree to interact with each other. There are certain features of smart contract interactions:

The participants of the smart contract can directly interact with each other without the need for a middleman or a third-party.

Each step of a smart contract can only be implemented after the execution of the immediate former step.

The smart contract acts as a blueprint for a decentralized application (DApp).

All the contents and data inside a DApp is not owned by one single entity.

#2 Bitcoin Cash VS Ethereum Mining

Both Bitcoin and Ethereum are currently using the proof-of-work (POW) consensus mechanism. However, Ethereum plans to move on to proof-of-stake (POS) soon, using the Casper protocol. Let’s run through both POW and POS in this section.

Bitcoin Cash VS Ethereum – Proof of Work

The idea of POW is for miners to use their computational power to solve cryptographically hard puzzles. The miner who gets to solve the problem, adds a new block to the blockchain and receives a block reward in return. Bitcoin Cash uses the SHA-256 hashing algorithm for its mining purposes. This how the process works:

A random string called the “nonce” is appended to the hash of the previous block.

The resultant string is hashed and then checked against the network difficulty.

If the hash satisfies the conditions, then the block is added to the chain.

If not, the process repeats until the desired result is achieved.

There are two essential things to note about POW:

The process of getting the required result to meet the difficulty conditions should be extremely hard, time-consuming, and resource-heavy.

The process of checking whether the miner was successfully able to mine a block should be easy.

Before long, miners discovered that they could exponentially increase their mining power by joining together and forming mining pools via parallel processing.

In parallel processing, program instructions are divided among multiple processors. By doing this, the running time of that program decreases, and that is basically what the mining pools are doing.

The biggest asset of POW mechanism is the security it brings in to the system. Since mining on the Bitcoin chain is so expensive, the miners don’t have any incentive to work against the system, and mine on any parallel chains just to waste their money for no reason.

However, POW chains definitely do have a lot of flaws:

They are slow.

They tend to be centralized.

They waste a lot of energy.

This is why many new crypto projects are looking to use alternative consensus mechanisms like proof-of-stake.

Ethereum in the future – Proof of Stake

Ethereum currently uses POW consensus mechanism for mining, however, they are looking to move onto Proof-of-stake (POS) mechanism using Casper Protocol.

Proof of stake will make the entire mining process virtual and replace miners with validators.

This is how the process will work:

The validators will have to lock up some of their coins as stake.

After that, they will start validating the blocks. Meaning, when they discover a block which they think can be added to the chain, they will validate it by placing a bet on it.

If the block gets appended, then the validators will get a reward proportionate to their bets.

As you can see, the POS protocol is a lot more resource-friendly than POW. In POW, you NEED to waste a lot of resources to go along with the protocol, and it is resource wastage for the sake of resource wastage.

Casper is the POS protocol that Ethereum has chosen to go with. Casper is a protocol that utilizes POS with a punishment mechanism. delves how POS under Casper would work:

The validators stake a portion of their Ethers as stake.

After that, they will start validating the blocks. Meaning, when they discover a block which they think can be added to the chain, they will validate it by placing a bet on it.

If the block gets appended, then the validators will get a reward proportionate to their bets.

However, if a validator acts maliciously and tries to do a “nothing at stake,” they will immediately be reprimanded, and their entire stake slashed.

As you can see, Casper is designed to work in a trustless system and be more Byzantine Fault Tolerant.

Anyone who acts in a malicious/Byzantine manner will get immediately punished by having their stake slashed off. This is where it differs from most other POS protocols. Malicious elements have something to lose so it is impossible for there to be nothing at stake.

Flawlessly implementing Casper and Proof Of Stake will be critical if Ethereum plans to scale up.

Bitcoin Cash VS Ethereum difficulty stats

During the stat checks, we will be dealing with a data set between 3rd-7th July.

Bitcoin Cash Difficulty

Bitcoin Cash reached peak difficulty on 7th July with 290.54G. On 3rd July they experienced the least difficulty with 208.39G.

Ethereum Difficulty

Ethereum reached peak difficulty on 6th July with 2.16P. On 4th July they experienced the least difficulty with 2.12P.

Bitcoin Cash vs Ethereum hashrate stats

BItcoin Cash Hashrate

Bitcoin Cash reached peak hashrate on 6th July with 174.36 EHash/s. Conversely, a low of 168.94 EHash/s on 4th July.

Ethereum Hashrate

Ethereum reached peak hashrate on 6th July with 174.36 THash/s and a low of 168.94 THash/s on 4th July.

#3 Bitcoin Cash VS Ethereum = Gas vs Transaction Fees

All the transactions line up in a mempool. The miners can pick up the transactions and put them inside the blocks that they have mined. The moment the transaction is put inside the block, it gets fulfilled. Since miners are performing such a critical task, it is important to incentivize them correctly.

Miner incentivization works differently in Bitcoin Cash and Ethereum. Before we take a look at that, check out the following graph. This is a graph of the average transaction fees of both Bitcoin Cash and Ethereum between 3rd-7th July.

As you can see, Bitcoin Cash’s transaction fees are minuscule when compared to Ethereum.

Bitcoin Cash Transaction Fees

In Bitcoin Cash, miners charge some transaction fees for each and every transaction. If you want your transactions to process faster, then you can attach larger fees to your transaction to incentivize miners. One of the core ideas behind the creation of Bitcoin Cash was to make the currency more accessible but making sure that the transaction fees don’t reach astronomical heights.

Another thing that the Bitcoin Cash developers did was to remove the “replace-by-fee” system.

What is replace-by-fee?

Suppose Alice is sending 5 bitcoins to Bob, but the transaction is not going through because of a backlog. She can’t “delete” the transaction because bitcoins once spent can never come back. However, she can do another transaction of 5 bitcoins with Bob but this time with transaction fees which are high enough to incentivize the miners. As the miners put her transaction in the block, it will also overwrite the previous transaction and make it null and void. While the “replace-by-fee” system is profitable for the miners, it is pretty inconvenient for users who may not be that well to do.

Ethereum Gas

Ethereum, on the other hand, doesn’t use transaction fees, but a gas system. Gas is a unit that measures the amount of computational effort that it will take to execute certain operations.

All the smart contracts that run in the EVM are coded using solidity (Ethereum is planning to move on to Viper from Solidity in the future.) Each line of code in solidity requires a certain amount of gas to get computed.

The image below has been taken from the Ethereum Yellowpage and can be used to gain a rough idea of how much specific instructions cost gas-wise.



Image Courtesy: Ethereum Yellow Paper

To better understand how gas works in Ethereum, let’s use an analogy. Suppose you are going on a roadtrip. Before you do so you go through these steps:

You go to the gas station and specify how much gas you want to fill up in your car.

You get that gas filled up in your car.

You pay the gas station the amount of money you owe them for the gas.

Now, let’s draw parallels with Ethereum.

The car is the operation that you want to execute, like a gas or a smart contract.

The gas is well….gas.

The gas station is your miner.

The money that you paid them is the miner fees.

All the operations that users want to execute in ethereum must provide gas for the following:

To cover its data aka intrinsic gas.

To cover its entire computation.

#4 Bitcoin Cash VS Ethereum Block Size

Bitcoin Cash block size

As we have mentioned before, a big reason behind the creation of Bitcoin Cash was the block size limit. However, turns out that they haven’t really been using their block size to the fullest. Let’s look at some of the stats from bitinfocharts.

The chart above shows the daily block size limit over the last six months. Only on 13 days did Bitcoin Cash cross 150 KB. Now, if we check the avg. block size limit over the last one year.

As you can see, Bitcoin Cash crossed 3 MB on September 2018. Bitcoin Cash crossed 1 MB on just nine occasions over the last one year. Now, if you expand the chart by two years, we can see something even more fascinating.

Over the last two years, Bitcoin Cash reached an average block size of 3.97 MB and 4.71 MB only twice. Interestingly, Bitcoin has actually produced larger blocks than Bitcoin Cash. Here is a chart of Bitcoin blocks over the last three months.



As you can see, Bitcoin blocks have crossed 900 KB on several occasions.

Ethereum block size

Instead of size, Ethereum blocks are capped by the amount of gas each of them can store up. Ethereum is limited by 6.7 million gas limit on each block.

The miners can only add transactions whose gas requirements add up to something which is equal to or less than the gas limit of the block. A typical one-on-one transaction eats up 21,000 units of gas.

Should I buy Bitcoin Cash or Ethereum?

Bitcoin Cash and Ethereum are both interesting projects and your crypto portfolio will definitely benefit from both of them. You can buy both Bitcoin Cash and Ethereum with just your credit by clicking here.