Bitcoin is frequently used as collateral in crypto loans: people want to make some instant profit from BTC lying in their wallets. Hodling Bitcoin has been quite profitable to date, and selling it today to turn a quick profit doesn’t look like a wise idea in the long term. That’s why people bring their Bitcoin to the loan services to get some stablecoins in return for the temporary storage of their funds, plus an interest fee.
Bitcoin is a lucrative investment trusted by millions. So why are we writing this? Is there a problem with Bitcoin?
No, but there is an alternative.
It is a Bitcoin-like coin that doesn’t have a mindblowing ROI but is much faster, offers cheaper transactions, has a comparable level of security, and, importantly, its price isn’t used to drastic fluctuations as Bitcoin’s. The former is especially important for taking a loan in crypto: the chance that your loan will be liquidated is much lower.
As you may have guessed, we’re talking about Bitcoin Cash. In 2017, its team proposed a scaling solution for Bitcoin: the cryptocurrency was facing a severe bottleneck and couldn’t cope with increased activity in the network. Transaction time and fees were consistently growing, and Bitcoin needed a solution.
Bitcoin Cash took the basic features of Bitcoin and increased the block size limit to 8 MB from Bitcoin’s 1 MB. This allowed for faster transactions and lower network fees. How exactly does that work? What’s the story behind Bitcoin Cash, and why is Bitcoin Cash better for taking a loan, if at all?
What is Bitcoin Cash? A steadfast scaling solution of BCH
Bitcoin Cash is a peer-to-peer system of decentralized and rare as gold electronic money, the task of which is to be a global money with confidentiality, micro-commissions, fast payments and high transaction capacity (large blocks). Just like fiat is transferred directly to the person being paid, Bitcoin Cash payments and sent directly from one person to another.
In 2017, there were two major approaches to improve Bitcoin. They had one goal: to change the protocol so that it could process more transactions in a given time.
Segregated Witness (SegWit), a Bitcoin Improvement Proposal number BIP141, was the one ultimately adopted in the Bitcoin protocol. Its authors proposed to remove (segregate) the digital signatures (witnesses) from transaction data. The signature takes 65% of the transaction space, and freeing it would allow for more transactions in a block.
A proposal to increase Bitcoin’s block size from 1 MB to 8MB was rolled out by another group of activists, investors, developers, and miners. If adopted, the block time would stay the same (10 minutes), but it could fit 8 times more transactions. Bitcoin’s TPS (transactions per time) rate would increase from 7 to around 24–92. To compare, PayPal has 194 tps, Eth 1.0 — 15 tps, Visa — up to 22,000 tps.
SegWit was adopted in Bitcoin’s protocol, but the opposite side did not agree and decided to proceed to a hard fork. This is how Bitcoin Cash was created. At the time, all Bitcoin holders automatically became owners of Bitcoin Cash.
One year later, BCH’s block size limit was once again increased to 32 MB.
How is Bitcoin Cash similar to Bitcoin?
Speaking about these two coins, it is easy to understand that they work according to similar principles and technologies.
- It’s based on the same protocol and works by the same rules. Bitcoin Cash is a “daughter” of Bitcoin meaning that its basic architecture is a copy of Bitcoin’s. It’s based on the Proof of Work consensus algorithm, there are miners who secure the network and get rewarded; BCH block time is 10 minutes, and so on.
- It’s just as scarce as Bitcoin. Max supply of BCH is the same 21 million as in Bitcoin. This means that there will never be more than 21 million BCH coins — no one will ever be able to “print” more which secures Bitcoin Cash from inflation.
Why is Bitcoin Cash better digital money?
Although Bitcoin was created as a means of everyday payments, its main use cases at the time are trading speculation and hodling as a store of value. Using Bitcoin as digital money is cumbersome: you have to pay high fees, getting a transaction confirmation may take up to 30-50 minutes, and in times of high network load it goes up to hours. You have to pay even higher fees to reduce the waiting time. Micropayments, a major money flow route in the everyday life, are cost-ineffective due to high fees.
Here’s what makes BCH better digital money:
|Increased block size limit allows processing more payments per second. If you make a payment at the finish of mining a given block, your transaction time may even be about 2 minutes. No huge delays are common for the BCH network.|
|Bitcoin Cash charges less for transactions. As of January 2021, the average Bitcoin transaction fee is $10.7, while in Bitcoin Cash, it’s a mere $0.0027. It may be true to say that an average payment size in BTC is much bigger which raises the average fee, but still, BCH is way cheaper.|
|In both BTC and BCH, you can raise your fee to incentivize miners to confirm your transaction faster. But in BCH, you have to pay much less for that to be done.|
|These perks are not simply about waiting 10 minutes instead of 40 when you buy something with Bitcoin Cash. They change entirely the possible range of BCH use cases, enabling tipping content creators, rewarding app users a few cents, and much more.|
This may not be a complete list of Bitcoin Cash pros and cons — however, the main goal of this article is to cover the perks of taking a loan in BCH which is a bit different than using it in daily life. So here they are.
Why should I take a loan in BCH? 4 reasons
Hodling is cool, but sometimes we want to use our money — not only watch it in our wallet. This is what instant crypto loans are for.
- Achieve your goals that need some extra money
Want to buy a car, go traveling, make an investment, or try trading right now? If you have some BCH but don’t want to sell it, here’s your chance. Borrowing from family or friends doesn’t work for everyone, getting a loan at a bank implies credit checks and annoying paperwork. At CoinRabbit, we lend Bitcoin Cash in whatever high amount in less than 10 minutes — without any credit checks. If you have some BCH — you will get the loan.
- Getting a loan in BCH is faster
As we’ve covered above, in Bitcoin Cash, a transaction would take 2-12 minutes, while in Bitcoin, it’s at least half an hour. If you want a loan right now, it’s easier to do it with BCH.
- Getting a loan in BCH is cheaper
It’s not a remarkable difference if you get a Bitcoin Cash loan of a small amount. But in the case of borrowing large amounts in Bitcoin Cash lending, the difference may be tens, if not hundreds of dollars!
- Collateral liquidation is less possible
If the price of your collateral starts to drop significantly, we will warn you several times. But if it drops by 50%, unfortunately, we will have to liquidate it. With BCH, that doesn’t seem like the case: such drops are way less common than in BTC, and if they happen, it’s way slower. The price of Bitcoin Cash isn’t used to changing by 50% and more in 2-3 days.
What does a BCH loan give me?
You can get a loan in Tether USDT or USD Coin USDC. The loan-to-value ratio is 50%: at the time of writing, you would get 221.09 USDT or USDC for 1 BCH.
Both of these are Ethereum-based stablecoins whose value is pegged to the US Dollar: USDT and USDC price is always $1. This means that you can schedule your expenses in just the way you do it with the regular cash: no volatility can affect your plans.
Here are the other perks of these stablecoins: their ERC20 format makes them highly compatible with hundreds of other crypto assets; their transactions only take 15-30 seconds; no banks and governments can affect your funds; you can easily withdraw to cash at the major crypto exchanges.
What can I do with a loan?
Due to the perks listed above, with USDT and USDC, you can do the following:
- Trade them against other cryptocurrencies on crypto exchanges; use them to protect yourself from money loss.
- Pay for whatever goods or services in the crypto-oriented online services.
- Cash out and buy whatever you want in the yet fiat-dominated world.
- Send money to anyone in the world in seconds.
- Reinvest these funds to earn more money in the crypto lending arbitrage schemes.
The advantages of Bitcoin Cash crypto loans
For CoinRabbit, lending BCH means allowing all Bitcoin Cash owners to get an instant loan without swapping to other currencies. For those Bitcoin and Ethereum hodlers worried about these assets’ volatility, a lending Bitcoin Cash service can ensure their collateral’s safety.