As the cryptocurrency craze continues to spread across the world, with the social media and the mainstream media adding gasoline to the crypto fire, you may probably have heard of Bitcoin fork.
As the cryptocurrency craze continues to spread across the world, with the social media and the mainstream media adding gasoline to the crypto fire, you may probably have heard of Bitcoin fork. The word ‘fork’ itself is not new to software computing, but, it escapes the understanding of many as far as digital currency is concerned. In a simple and non-technical explanation, fork is basically making a copy of an original project in order to propose changes without affecting the original.
The same case applies to cryptocurrency, whereby when the protocols of the underlying crypto technology- blockchain- are changed, it is referred to a fork. For instance, say, you are playing a game then someone proposes a change in the rules of the game. For the game to continue, there needs to be a consensus about the changes proposed. In the event there is no a unanimous agreement, two games are created, one follows the new rules the other one keeps the old rules.
Similarly, Bitcoin fork or Bitcoin forking refers to divergence in blockchain protocol, meaning that there will be two blockchains running simultaneously on different parts of the network. Here is how it happens; when two miners successfully solve the algorithm by finding a new block at the same time, there will be two potential blockchain networks created.
Bitcoin forking happens in regards to new rules in deciding a valid transaction or in terms of network’s history of the transaction. In any case, the users must show their support of one blockchain over the other by adding subsequent blockchains whilst the other get abandoned. It is important to note that, Bitcoin forks happen quite regularly since the coin is open source. Thus, every user has access to the Bitcoin data program and can change the codes of the coin.
Bitcoin forks come in two distinct types;
A hard fork is a permanent divergence or splits from the original blockchain protocol meaning that all nodes running the previous versions will no longer be accepted in the newer version. All miners and nodes wishing to be included in the newer versions will have to upgrade to the latest version of the protocol. This means that the previous blocks of the original network are considered invalid in the new blockchain.
Simply, a hard fork behaves like a crypto coin on its own and can even trade with the original. A good example is Bitcoin cash which is a hard fork of the original Bitcoin. It is worth noting that for a hard fork to be developed, it must get support from the majority of the miners. Case in point, sometime in 2017 a new hard fork, segwit 2x, was found. However, it didn’t receive much support from the mining community, and as a result, it was never developed.
Hard fork happens mainly due to the expansion of core rules like a change in block size, where the newer version allows the block size to be 2MB instead of the original 1 MB. Additionally, changes in proof-work function can contribute to new a hard fork.
As mentioned earlier Bitcoin’s protocol is open source meaning anyone can change the code base resulting in the creation of a new coin. Such coins are called spin-off coins and are also considered as a hard fork, for example, Litecoin.
Contrary to a hard fork, a soft fork despite creating a new version of protocols, the old transactions can still be recognized or validated by the new forked chain. Hence It is said to be ‘backward-compatible.’ This type of fork only requires a majority of participants to upgrade to enforce the new rules, unlike hard fork which require almost or all nodes to upgrade, usually about 95%. An example of soft fork is when the new protocols state that the block size will be changed from the current 1MB to 500KB. The non-upgraded nodes will still see the transactions valid since 500KB is less than 1MB.
However, the problem arises when non-upgraded nodes continue to mine blocks, the blocks they mine will not be validated by the upgraded nodes. This explains why soft fork needs a majority of miners to upgrade so as to contribute enough hash power in the network. When the soft fork is supported only by a minority hash power, it becomes the shortest and often gets cut off from the main network.
Yes, you should be. Here is why; the past and even upcoming Bitcoin forks may cause Bitcoin prices to go wild which can mean a win or a loss. For instance, when Bitcoin forked back in August 2017, the original Bitcoin prices dropped leading to losses for the investors. Perhaps one of the major reason why Bitcoin cash received so much acceptance by the crypto community, is because it served as a better version of the classic Bitcoin. This is in terms of handling more transactions per second and the size of the block.
What this means is that there will be more emerging Bitcoin forks designed to address the shortcomings of the original Bitcoin. Currently, there is a new forking version of soft fork called User-activated soft fork that allows exchanges, wallets, and businesses which run full nodes, to create newer versions of the blockchain. These new versions will not require direct support from those who provide the network’s hashing power. Although the idea has not been implemented, it is quite clear that Bitcoin forking is a dynamic thing in the crypto world.
The good news is that not every time forking leads to losses, as a matter of facts you can get free coins in the process. When a fork occurs, you will keep the coins from the original coin and still get the same amount of coins of the new version. Although this doesn’t happen automatically, you need to claim these coins with the laid out mechanism. In conclusion, forks are necessary for Bitcoin and the cryptocurrency world at large so as to allow for an update in protocols which will, in turn, increase the efficiency of cryptos among the users.
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