This article is part 3 of the Bitcoin Cash: Built for the Future series, exploring BCH's technical advantages and long-term positioning.
The world of tokenization has been dominated by Ethereum's ERC-20 standard since 2015, enabling everything from stablecoins to DeFi protocols to NFT projects. Bitcoin Cash's CashTokens protocol, introduced in May 2023, offers a fundamentally different approach to tokens at the protocol layer. Let's explore how these two standards compare, where each is stronger, and which tradeoffs matter for different use cases.
Understanding the Two Approaches
Before diving into comparisons, let's understand what makes each token standard unique.
ERC-20: Smart Contract Tokens
Ethereum's ERC-20 tokens are implemented as smart contracts:
- Each token is a separate contract deployed on Ethereum
- The contract maintains an internal ledger of balances
- Token transfers execute contract code
- Developers must implement standard functions (transfer, approve, etc.)
Example: When Alice sends Bob 100 USDT (an ERC-20 token):
- A transaction calls the USDT contract
- Contract executes code to verify the transfer
- Contract updates its internal balance ledger
- Alice pays Ethereum gas fees for the execution
CashTokens: Protocol-Level Tokens
Bitcoin Cash's CashTokens are built into the protocol:
- Tokens are UTXOs with additional metadata
- Token handling is native to the blockchain
- No separate contract execution required
- Wallets and nodes handle tokens at the protocol level
Example: When Alice sends Bob 100 TetherCash (a CashToken):
- A transaction spends a UTXO containing tokens
- Protocol validates the token transfer
- New UTXO created with tokens for Bob
- Alice pays a tiny BCH fee (typically <$0.01)
This fundamental difference shapes everything else about how the two systems work.
Comparison 1: Transaction Fees
Perhaps the most immediately visible difference is cost on Layer 1.
CashTokens Transaction Costs (BCH L1)
- Typical fee: Often fractions of a cent to a few cents per transaction
- Predictable: Fees don't vary based on network congestion
- Consistent: Same cost whether transferring 1 token or 1 million
- Minimal overhead: Token transfers cost the same as BCH transfers
ERC-20 Transaction Costs (Ethereum L1)
- Variable: Gas prices change with demand, and contract execution costs vary by complexity
- Often higher on L1: Fees can rise significantly during congestion
- Lower on L2s: Rollups can reduce cost dramatically, but add bridging complexity
Real-World Impact
Even with Ethereum's lower L2 fees, the cost differences remain significant depending on where activity takes place:
For Users:
- CashTokens target low-fee L1 transfers, which supports micropayments and daily usage
- ERC-20 activity often shifts to L2s for lower fees, adding extra steps and some fee variability
For Businesses:
- CashTokens support small-value rewards and frequent settlements on L1
- ERC-20 distributions are commonly batched or routed through L2s to reduce cost
For DeFi:
- CashTokens are designed for low-fee transfers and simple token logic on L1
- ERC-20 enables rich composability, often relying on L2s to keep active trading costs low
Comparison 2: Throughput and Scaling
Transaction throughput is another area where the architectures diverge.
CashTokens Throughput (BCH L1)
- Base capacity: Higher throughput potential on L1, with UTXO parallelism
- Parallel processing: UTXO model enables parallel validation
- Efficient validation: Native protocol support is fast
- Scalability path: Inherits BCH's scaling roadmap
ERC-20 Throughput (Ethereum L1 + L2)
- Base capacity: L1 is limited by global state execution
- Sequential execution: Shared state requires careful ordering
- L2 solutions: Rollups and app-chains provide much higher throughput, but add bridging and UX complexity
Why This Matters
Higher L1 throughput favors frequent transfers (payments, in-game items), while Ethereum typically relies on L2s for comparable performance.
Comparison 3: Security Model
The protocol-level integration of CashTokens changes the security model in useful ways.
Built-In Security Guarantees (CashTokens)
CashTokens benefit from:
- Reduced reentrancy risk: UTXO-style token transfers avoid many shared-state pitfalls
- Reduced contract risk: No custom token contract code for basic transfers
- Protocol-level validation: Security audited once, applies to all tokens
- Immutable standards: Can't deploy buggy token contracts
ERC-20 Security Considerations
Ethereum tokens face risks like:
- Contract vulnerabilities: Each token contract can have bugs
- Reentrancy attacks: Historical major hacks (e.g., The DAO)
- Approval exploits: Unlimited approval attack vectors
- Upgrade risks: Proxy patterns can introduce vulnerabilities
Historical Context
Many ERC-20 tokens have suffered from:
- Integer overflow/underflow bugs
- Faulty access control
- Front-running vulnerabilities
- Complex inter-contract interactions causing unexpected behavior
CashTokens avoid many token-transfer bugs by design, while ERC-20 benefits from a mature security tooling ecosystem and widely audited contract templates.
Comparison 4: User Experience
From a user perspective, CashTokens provide a cleaner experience for basic transfers, while ERC-20 benefits from broad wallet and exchange support.
CashTokens UX
- Unified wallet experience: Tokens and BCH in the same wallet naturally
- Single transaction type: Sending tokens works exactly like sending BCH
- No extra steps: No need to "add token contract" manually
- Clear ownership: Tokens are UTXOs you control directly
ERC-20 UX Friction (and Maturity)
- Manual token addition: Users often must add contract addresses (though many wallets now auto-detect)
- Approval transactions: Separate transaction to approve before transferring
- Gas complexity: Users must hold ETH for gas
- Multiple transaction types: Transfer vs. transferFrom vs. approve
Real-World Scenario
Receiving a CashToken:
- Someone sends you tokens
- They appear in your wallet automatically
- You can spend them immediately
Receiving an ERC-20 token:
- Someone sends you tokens
- You might need to manually add the token contract to your wallet
- Your wallet queries the contract to display balance
- To send later, you need ETH for gas
- Some actions require approval transactions first
Comparison 5: NFT Support
CashTokens include non-fungible token (NFT) capabilities built-in.
CashTokens NFTs
- Native support: Non-fungible tokens are part of the protocol
- Efficient: Same low fees as fungible tokens
- Flexible metadata: On-chain or off-chain data supported
- Composable: NFTs can carry commitments for smart contract logic
ERC-721/ERC-1155
Ethereum's NFT standards:
- Separate standard: Different from ERC-20
- Higher overhead: NFT operations often cost more
- Multiple standards: ERC-721, ERC-1155, and others create fragmentation
- Contract complexity: Each NFT collection is a custom contract
Use Cases
CashTokens NFTs excel at:
- Gaming assets: Low-fee transfers enable true in-game economies
- Digital collectibles: Affordable to mint and trade
- Credentials: NFTs as access tokens, certificates, etc.
- Hybrid tokens: Combining fungible and non-fungible properties
Comparison 6: Flexibility and Capability
Despite being simpler, CashTokens offer surprising flexibility.
Commitment Field
CashTokens can carry a "commitment", arbitrary data attached to the token:
- Smart contract data: Tokens can carry state information
- Metadata: Link to off-chain resources or store data on-chain
- Proof systems: Tokens can prove certain properties
- Covenant integration: Tokens work with BCH's covenant capabilities
Examples
Stablecoins: Commitment field can carry compliance data or redemption info
DEX Liquidity: Liquidity provider tokens carry pool state information
Gaming: Items carry attributes, stats, or upgrade history
Identity: Tokens carry encrypted credentials or proof of claims
ERC-20 Comparisons
While ERC-20 tokens can be very flexible due to custom contract code:
- Each implementation must be audited separately
- Gas costs for complex logic can be prohibitive
- Security risks increase with complexity
- Standards are less consistent across implementations
CashTokens provide common capabilities at the protocol level, enabling flexibility without custom code risks.
Comparison 7: Developer Experience
Building on CashTokens offers advantages for developers.
Simpler Mental Model
CashTokens developers work with:
- UTXO transactions: Familiar if you know Bitcoin/BCH
- No contract deployment: Just create tokens via transaction
- Predictable costs: Easy to estimate and explain to users
- Clear ownership model: Tokens are UTXOs
No Gas Mechanics
Developers don't need to:
- Optimize for gas consumption
- Worry about gas price volatility
- Implement gas refund strategies
- Handle out-of-gas scenarios
Testing and Deployment
CashTokens benefit from:
- No deployment costs: No expensive contract deployment
- Immediate testing: Test on mainnet affordably
- Consistent behavior: Protocol-level validation is deterministic
- No upgrade risks: Can't deploy buggy token contracts
Use Case Comparisons
- Payments & rewards: CashTokens can be a good fit on L1 due to low fees and simple UX.
- DeFi & liquidity: ERC-20 retains an ecosystem advantage with deep liquidity and tooling.
- Gaming & NFTs: CashTokens are efficient for frequent transfers; Ethereum has larger marketplaces.
Ecosystem and Adoption
Both standards have their ecosystems, but they're at different stages.
Ecosystem Snapshot
- ERC-20: Massive integrations, tooling, and liquidity; higher L1 costs and L2 fragmentation.
- CashTokens: Simpler L1 transfers and consistent validation; smaller ecosystem and fewer integrations.
The Bridge Between Worlds
Cross-chain bridges are emerging to connect CashTokens and ERC-20 ecosystems:
- Wrap ERC-20 tokens as CashTokens
- Use BCH for cheap operations
- Bridge back when Ethereum integration needed
- Best of both worlds for users
The Future: Where Each Standard Is Headed
Both token standards continue evolving.
Where Each Is Headed
- CashTokens: Expanding contract tooling and token capabilities in the 2026 upgrade cycle.
- ERC-20: Continued L2 scaling, improved standards, and ongoing security hardening.
Convergence and Competition
We're likely to see:
- Cross-chain standards emerging
- Bridges enabling asset movement
- Use-case specialization (BCH for payments, ETH for complex DeFi)
- Both ecosystems learning from each other
Making the Choice: When to Use Each
Choosing between CashTokens and ERC-20 depends on your needs.
Choose Based on Your Needs
- CashTokens: Low-cost transfers, simple UX, and L1-first use cases.
- ERC-20: Deep liquidity, composability, and mature tooling.
- Both: Multi-chain strategies can combine low-cost operations with liquidity access.
Conclusion: The Next Generation of Tokens
CashTokens represent a protocol-level approach to tokens that prioritizes simplicity and low fees on L1. By integrating tokens at the protocol level, Bitcoin Cash aims to deliver:
✅ Low-fee transfers on L1
✅ Simple token handling without contract deployment
✅ Protocol-level validation for basic transfers
✅ Native NFT support alongside fungible tokens
✅ Flexible commitment field for smart contract integration
While Ethereum's ERC-20 standard remains dominant due to network effects and ecosystem maturity, CashTokens offer a technically different foundation for many use cases, particularly those focused on low-fee transfers and simpler on-chain logic.
As the Bitcoin Cash ecosystem matures and more developers explore CashTokens, adoption could grow for payments, gaming, loyalty programs, and other applications where L1 costs and complexity are a concern.
The future of tokenization doesn't have to be a zero-sum game. Both standards can coexist, serving different needs and use cases. For developers and users seeking efficient, affordable token transfers on L1, CashTokens are a practical option.
