Security and Scalability: Senior Consultant of Kairos Future Compares Bitcoin and Bitcoin Cash
Originally published on: BTCMANAGER
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January 06, 2018
Bitcoin cash (BCH) is known by many as one of the most promising currencies to resolve some of the transaction problems associated with bitcoin (BTC). There are many. However, that disagree, and not all of them are from the core team.
Beginning with Bitcoin’s Scalability
The Swedish Financial Advisor Magnus Kempe is one among the non-believers. While the consultant is of the view that BCH is unlikely to live up to a lot of things expected of it, he does agree that the legacy’s inefficiencies are a fundamental problem.
”The limit on the capacity means that the law of supply and demand will dictate the transaction costs,” Kempe told Business Insider on January 4, 2018.
Here he is explicitly referring to the 1MB memory block size limit that Satoshi Nakamoto, the founder of bitcoin, imposed on the network to bring forth a global system and prevent fraudulent behavior. Unfortunately, these objectives have been made more difficult due to mainstream interest in the currency.
“Extremely high transaction fees creates a catch 22 for bitcoin,” Kempe added.
Not only does this system pose problems from a financial point of view, but also from a security perspective. Transaction fees have jumped nearly 25 percent this year because this is also the cost of protecting the network from the influx of new users.
Bitcoin transaction fees relative to the block subsidy increased from 5.7% to 31.7% this year. If fee rates remain the same in terms of satoshis per virtual byte, Bitcoin’s computational security will be self-sustaining in 6.5 years after 2 more halvings. https://t.co/OA3oIhHeIj pic.twitter.com/xUCMs5BB6q
— Jameson Lopp (@lopp) December 31, 2017
These costs help to fortify the barriers that protect the network from 51 percent attacks and brute force attacks.
Security for Speed
The 8MB limit that bitcoin cash set out to make was the founding reason behind the hard fork in August 2017. The larger block limit allows transactions to occur much cheaper and in a fraction of the time.
According to Kempe, while it’s theoretically possible to allow more transactions on the 8MB block size, in reality, it may make no significant impact. Kempe elaborated that bitcoin cash is less time-efficient when it comes to mining and therefore, less profitable in the long run.
“If [bitcoin cash] becomes popular, it will still be too expensive. With bigger blocks, it takes too long for bitcoin miners to ‘mine’ the currency,” he underlined.
In other words, the data required for transactions won’t be able to “move” fast enough in the larger network. The breadth of the infrastructure would soon lead to many miners from all over the world experiencing difficulties in mining BCH.
Thus much of the speed and security argument hinges on the respective coins mining community.
If Bitcoin Cash achieves greater mining power, that eliminates the argument that “high fees mean better security”. Experiment is in play. Already happened briefly.
— Ryan X. Charles (@ryanxcharles) November 13, 2017
As readers already know, bitcoin’s extreme volatility, coupled with its ongoing wild run has cast a shadow on its credibility as a currency. With its soaring popularity and fiat-equivalence, using bitcoin for small transactions has become way too expensive. Steam is one merchant that has already stopped accepting the digital currency for these exact reasons.
Some financial institutions such as Morgan Stanley even went to the extent of saying that bitcoin’s real value may be zero. Now the credibility of the fourth most popular crypto coin in the world is being questioned by Kempe too.