What is Bitcoin Cash (BCH)?
As the original cryptocurrency, Bitcoin, grew in popularity, some of its community members raised concerns with its scalability and transaction speed. Its “blocks” are only 1 MB in size and process only seven transactions per second (versus 1500+ transactions per second with traditional payment processors like VISA.) This causes the network to clog up and become expensive to run (result: high gas fees.)
A group of Bitcoin coders and community members proposed a solution: increase block size to 8 MB, making the chain 8x as capable of processing transactions, and re-aligning its capabilities to its mission of being an efficient payments option. But other Bitcoin members didn’t agree with this proposal and felt that the smaller block sizes enabled more decentralization since requiring less processing power means it’s easier for anyone to run a blockchain node from their computer.
Discussions within the Bitcoin community ensued, consensus was not reached, and in 2017 a group of Bitcoin coders “forked” the Bitcoin blockchain—that is, they split from the Bitcoin blockchain to forge a new path. The new chain, called Bitcoin Cash (BCH), seeks to optimize the technology that underpins the Bitcoin blockchain for payments (its original purpose) by increasing individual block sizes.
In 2018, there was a disagreement within the Bitcoin Cash community with respect to block sizes and other development choices, so another fork occurred. The new chain created from the fork is called Bitcoin SV for “Satoshi’s Vision,” on the belief that it better preserves the vision of Bitcoin’s creator, Satoshi Nakamoto. This new chain has not garnered as much support or market size and is not currently supported by Wealthsimple Crypto.
Bitcoin Cash isn’t as large as Bitcoin, but it’s still a major cryptocurrency, ranked #10 on CoinMarketCap as of May 2021.
Bitcoin vs Bitcoin Cash
Functionally, Bitcoin Cash is very similar to Bitcoin. Both are cryptocurrencies; under the hood, they are more alike than they are different. Both have similar current circulating supplies: about 18.5 million coins.
As described above, the main difference is the block size, which also means that transactions on the Bitcoin Cash blockchain are far cheaper than they are on the Bitcoin blockchain. Bitcoin Cash transactions usually cost less than a cent each, while Bitcoin transactions are frequently several dollars, in some cases more than $20 each when the network is busy. Given the lower cost and higher speed of BCH, it is possible that merchants that wish to accept cryptocurrencies as a form of payment may prefer Bitcoin Cash to Bitcoin.
Bitcoin is still the cryptocurrency with the largest market cap, sitting at approximately 35x the market cap of Bitcoin Cash (as of May 2021). Bitcoin’s popularity also brings another advantage: more decentralization. Bitcoin has a larger community with more miners so is more decentralized. Creating new blocks of the Bitcoin Cash blockchain requires less computational power than is required for the Bitcoin blockchain, which in theory makes the Bitcoin Cash blockchain less resilient.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about Bitcoin Cash, including an opinion that Bitcoin Cash is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of Bitcoin Cash prior to making it available on Wealthsimple Crypto and has concluded that Bitcoin Cash is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated Bitcoin Cash based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of Bitcoin Cash, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Bitcoin Cash;
- The supply, demand, maturity, utility and liquidity of Bitcoin Cash;
- Material technical risks associated with Bitcoin Cash, including any code defects, security breaches and other threats concerning Bitcoin Cash and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with Bitcoin Cash, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of Bitcoin Cash.
Like all other crypto assets, there are some general risks to investing in Bitcoin Cash. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure. In addition to these general risks, we note that Bitcoin Cash’s development history presents an increased risk of a blockchain fork event occurring again in the future. Further, the Bitcoin Cash community is not under any legal or regulatory obligation to disclose material information to the public regarding community activities. Holders of Bitcoin Cash have no recourse to the Bitcoin Cash community or Wealthsimple if the cryptocurrency declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading Bitcoin Cash. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.
Last updated: July 26, 2021