What Is A Bitcoin Fork?

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What Is A Bitcoin Fork?

Bitcoin forks are an important aspect of open sourced and decentralized technology. Bitcoin forks allow users to create new blockchain platforms based off of Bitcoin’s open sourced code, but what is the point? In this guide we explain everything about Bitcoin forks, what they are used for, and why they are important for the cryptocurrency space.

Let’s Start At The Beginning

Following the 2008 worldwide financial crisis and the perceived mismanagement by many governments all over the globe; a pseudonymous entity known as Satoshi Nakomoto decided they had enough with the traditional fiat currency system that is continuously being manipulated in favor of the elite and controlling bodies. After extreme amounts of research and computer engineering, on October 31, 2008, Satoshi Nakomoto published the white paper for Bitcoin, an outline explaining distributed decentralized ledger technology and how it is being implemented to create a safe, secure, and unmanipulatable online digital currency.

 There have been previous attempts at creating sound digitial currency, such as Bit Gold, but they were not able to implement the same technologies that Satoshi Nakomoto was able to eventually introduce. The creation of an open sourced, distributed, decentralized store and transfer of value revolutionized the world in 2008 when it was introduced, but many did not understand the magnitude of the experiment taking place. Just over a decade later, the total market capitalization of Bitcoin is over $200 billion, and the price of a single Bitcoin has increased exponentially from costing a mere few cents to now being worth well over $10,000 each. At it’s peak in 2017, the price of Bitcoin reached over $20,000, an all time high that has eventually fallen back down.

The concept of Bitcoin is extremely revolutionary; as a distributed and decentralized ledger, multiple parties are able to safely and securely transfer value without having to go through a middleman. The economic and financial policies of Bitcoin are pre-determined, so they cannot be unfairly changed by the de facto governing body like is possible with fiat currencies. The validation process of Bitcoin is done through a process known as mining, or using computing hardware energy, known as hashing power, to verify the truthfulness of the transactions taking place. Each miner, or validator, dedicates computing power to the network in order to try and solve a complex equation that verifies the legitimacy of the block of transactions. Once the equation has been solved, the block of transactions is checked to be legitimate by every other miner taking part in this action. After every miner has verified the validity of all the transactions, the block is “sealed off” where it cannot be edited or changed again. This process creates a chain of blocks that allows everyone to trace every single transaction on the network since its inception.

Mining is one of the most important components of this technology, as it allows the truth to be rewarded and has malicious intent punished. The purpose of mining and verification is so no entity can take advantage of the network and “double spend” coins that they do not actually done. This can be accomplished through an attack known as a 51% attack, as you need to control over 50% of the networks mining power to be able to manipulate and cheat the system. With this level of control (which currently would cost millions to implement on the Bitcoin network, if not more), the malicious miners would be able to transact with coins they don’t legitimately own, but would crash the networks value and usability, disincentivizing the possibility.

Since the framework of Bitcoin was pre-determined by Satoshi Nakomoto, the users of the Bitcoin network have to adhere to the rules that were implemented. But what if a user or entity thinks there is a more efficient way to process transactions? This is where a fork, or branching off of the network, begins. Many users many not agree on how the platform runs, such as the Bitcoin block size, or how many transactions can be verified per block. For example, Bitcoin blocks are limited to 1MB in size, which for some, is not enough room to process the transaction quickly enough. As the network continues to grow and more transactions are taking place on the network, some think this limiting block size will decrease long-term use and scalability. This is one of the main factors that led to the initial fork of the Bitcoin network.

How Bitcoin Forks Came To Be

As with any community, not everyone is going to agree the same way on how networks should be run. Some want the network to be faster, others want it to be safer and more secure, so there are major tradeoffs in the space that need to be examined. This lack of cohesion and agreement of the Bitcoin community led to the first Bitcoin fork, where a new network was created using Bitcoin’s original source code. This cryptocurrency is known as Bitcoin Cash, or BCH, as it wanted to become a faster and more usable network based on Bitcoin’s core principles. Besides the monetary and financial aspects of a Bitcoin fork, there is also the potentially lucrative aspect of creating a new coin. Roger Ver, the founder of Bitcoin Cash, is ridiculed by many in the space who question his motives of forking Bitcoin. He claims the main reasoning is to make Bitcoin more accessible and usable to the average person, but we need to really monitor the network and his motivations to see if this is actually true.

Bitcoin Forks Explained

The essence of a Bitcoin fork, or any cryptocurrency fork, is that the network branches off into a new network based on the original source code. This means that with the fork, you can trace back all the transactions to the inception of the network, as well as verify the differences and rule changes that have been implemented in the new fork. The fork represents the moment that the two networks branch off, meaning they will no longer be able to interact with each other, as they have established differing rules and guidelines. This is a reason why a fork can result in the creation of a new cryptocurrency, as the old cryptocurrency that was once shared is now only compatible with the original network, not with the updated fork. The owners of the original currency will also get an equal proportion of the new currency as it branches off from the original network. This is known as an airdrop, as the new currency is automatically credited to your wallet address.

Although we have seen the majority of forks take place within Bitcoin’s network, you can fork any open sourced cryptocurrency, as the code is accessible to anyone who wants to view and modify it. There have also been popular forks on the Ethereum network, as well as forks of even smaller chains to customize and change the rules to fit with a new community. The forking of the Ethereum network led to the creation of Ethereum Classic (ETC) as a distinctively different chain than Ethereum (ETH).

Soft Fork vs. Hard Fork

There are two types of possible forks that can take place on a blockchain network, a soft fork and a hard fork. A soft fork is a change in the rules or makeup of the blockchain network that the entire community agrees on; therefore a new network does not need to be created because there is no promoting differing ideas. A soft fork is an implementation that is agreed upon by the entire community, meaning that there will be a shift in an aspect of the network, but a new chain does not have to be created. Since everyone agrees on the results, the branching off the fork with the new rules implemented can take place on the same network. If not everyone agreed on the future implementation, a hard fork would be initiated because there are two schools of thought that want the network to operate in fundamentally different ways. An example of a soft fork is the integration of segregated witness (SegWit) into the Bitcoin network after its separation from BCH, while a hard fork is the representation and separation of the BTC and BCH networks from Bitcoin’s original source code.

A Comprehensive List of Bitcoin Forks

Since the first fork of Bitcoin happened with the creation of Bitcoin Cash (BCH), there have been many forks to follow. Many of these forks claim to be “the real Bitcoin” and have implemented a variety of changes to the original Bitcoin code. In total, Bitcoin has been hard forked over 30 times, with the creation of many useless cryptocurrencies, such as Bitcoin Pizza (BPA) Below is a list of the most relevant Bitcoin hard forks that have taken place since the creation of the network:

  • Bitcoin Cash
  • Bitcoin Gold
  • Super Bitcoin
  • Bitcoin Diamond
  • Bitcoin X
  • Bitcoin Classic
  • Bitcoin God
  • Bitcoin Private
  • Bitcoin SV
  • Bitcoin Unlimited

All of these cryptocurrencies and networks vary from one another, some in more drastic ways the others. They also all have their own individual trading markets and market capitalizations, with some Bitcoin forks being worth billions in market value while others are essentially worthless.

Are There Forks of Forks?

Now we are getting more complicated, but there are definitely forks of forks. One of the main tenants of blockchain technology is the decentralized aspects of the space, so any blockchain project that is not open sourced receives huge scrutiny. This means that all of the code for the forked projects are also available to be modified and forked again. This really interesting aspect of blockchain technology means that projects are constantly growing and evolving, and sometimes without even changing the brand of the original network. Many blockchain networks go through multiple soft forks to fix problems and enhance usability.

You can also hard fork a project that has already been hard forked, creating an entirely new network. This has been done many times with Bitcoin, as well as with many other projects such as Ethereum. One example of hard forking a hard fork was the creation of Bitcoin SV, or Bitcoin Satoshi’s Vision. Bitcoin SV was created by Craig Wright, a computer and coding expert who claims to be the real Satoshi Nakomoto but (allegedly) has absolutely no proof to show it in any way. Bitcoin SV (BSV) is a hard fork of Bitcoin Cash (BCH), which was a hard fork of Bitcoin (BTC), making Bitcoin SV a hard fork of a hard fork.

Forks You Should Keep An Eye On, and Why

When it comes to looking forward to upcoming forks, I would tend to stay away from upcoming Bitcoin hard forks. As can be seen by the plethora of previous and valueless Bitcoin hard forks, many of these attempts are money grabs from greedy computer engineers that take advantage of novices. These project forks will offer higher returns or call themselves the real Bitcoin or the future of cryptocurrency to try to lure in unsuspecting investors. There may be an upcoming hard fork of Bitcoin ABC, a hard fork of Bitcoin Cash, because of disagreements on an upgrading in funding development. This has caused such a large rift in the community that it may lead to a hard fork with one cryptocurrency that adopts the upgraded development plan and one cryptocurrency that stays on course with the original development plan.

Although Bitcoin hard forks may not have a lot of growth in the future, especially since miners can vote to soft fork Bitcoin if a superior method is created, there are forks of many other projects that interested blockchain users should keep an eye on. One of these examples can be seen in the decentralized finance (DeFi) space that is being built on the Ethereum network. Recently, a decentralized trading platform called UniSwap was hard forked, creating a new exchange that gives higher rewards to liquidity providers. This fork with additional benefits has lead to SushiSwap taking in over $700 million in locked value within just three days of announcing the project. The native token for the SushiSwap platform, SUSHI, has over $500 million in daily trading volume as I am writing this article. Projects like SushiSwap, and other decentralized projects that are able to provide more value than their predecessors are the type of hard forks that you should keep an eye on down the road.

Next Bitcoin Fork

Bitcoin plans to implement a soft fork this year, so you do not always have to look for hard forks to see updates to the Bitcoin protocol. If you are looking for the next Bitcoin hard fork, there is nothing immediately planned as the community is relatively cohesive on how it plans to move forward. If a problem arises or there is a disagreement that splits the Bitcoin community or any other cryptocurrency apart, then we can start to expect a move towards a hard fork.

Key Takeways

Both hard forks and soft forks are a natural way for a cryptocurrency to progress, grow, and experiment. Not every single hard fork will be superior to its predecessor, but that is the nature of the cryptocurrency space. Many projects will fail or try to recreate something without adding additional value, but there will also be the unicorns and hidden gems that truly innovate and provide large amounts of value to the space.

Any person or entity can hard fork any open sourced cryptocurrency project, so we should continue to see more innovation and growth as we continue to develop, become more technically advanced, and discover new use cases for blockchain technology. You should always be skeptical of hard forks, and understand what the community wanted to accomplish with their change before committing to a new blockchain network. Although, if you are a holder of the original cryptocurrency, you will also get your proportional share of the new hard forked cryptocurrency, so you will have the opportunity to use and experiment with the new cryptocurrency without risking additional capital.

Continue to look out for new forks in the future, especially soft forks, as that will be community implemented and can greatly impact the miners that are validating and securing the network. If you are a Bitcoin or cryptocurrency miner, then it is even more important for you to stay up to date on all the latest soft and hard forks that may take place on the network you’re financially involved in.

What is the easiest way to get a newly forked Bitcoin cryptocurrency?

If you already own Bitcoin or the new currency being forked, you will receive a proportional amount of the new currency as you have of the original cryptocurrency. You can also purchase or trade for the next cryptocurrency.

How do forks work?

Since cryptocurrency networks are open sourced, anyone can take the original code of a cryptocurrency network and modify it to have new and/or improved rules.

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