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Bitcoin Forks: what they are and how to use them

Democracies are rarely perfect. We all try to agree on some sort of “ideal” way forward, but these agreements are rarely unanimous. So, we end up with the main faith parties, the Democratic Party and the Republican Party, and numerous minor, or marginal, parties representing various other beliefs such as the Libertarian or Green Party. Through the search for democracy and collective agreement to move forward, bitcoin has become very similar to this system, where we have major chains like Bitcoin Core (original) and Bitcoin Cash, and then smaller or marginal chains like Bitcoin Satoshi Vision, Bitcoin Classic and even Bitcoin Gold.

This article will help you navigate all these various chains listed and how they came into being.

What is a Fork?

Bitcoin works through consensus. Consent can only happen if my code exactly matches yours, his, theirs and the thousands of other nodes running the bitcoin code (or other cryptocurrency). So, what happens when someone changes their code? What happens if they rearrange balances, alter protocol, or any other number of things?

The moment they do, you can imagine a “fork” in the blockchain, where Bitcoin Core will continue to work and BitcoinCore.myfork will become your own chain in the block where the update was created. The success of bitcoincore.myfork will largely be determined by the amount of miners I can get to switch to my new code and support my network, and how many users I can get to use and trade on it. This “gathering” or recruitment process of forked chains trying to gain the support of users and miners is an important social aspect of forks that is demonstrated later.

Anyone can create a fork, and for the most part they will be extremely small, or no one will mine them at all and then they will cease to exist shortly after they are created.

Why do forks exist in the first place?

I opened with the example of democracy and different beliefs because these are the same forces at play in open source blockchains like bitcoin.

When a large party differs in how it thinks the chain should progress in the future, it will propose an upgrade that fundamentally differs from the current blockchain code and will try to recruit people to support it. Most often, this view will be implemented as an upgrade of the blockchain, which most miners will attempt to pass through (which would technically make it the dominant bitcoin chain) and which has yet to happen successfully.

At the bottom of this article there is a link to failedforks.com showing the amount of nodes that perform various forks, which start quite strong during the “rally” period, and then usually fade from existence when miners return to Bitcoin Core. However, sometimes there is an “intentional” fork that will become well supported due to the desirable changes it makes to the protocol (or history, as we will see in the case of the Ethereum fork in 2016), thus continuing to exist, and they are examined below.

Hard fork and Soft fork

Hard fork and soft fork are the two types of updates, or protocol changes, that can occur on a blockchain. Pretty simple, a hard fork leads to the creation of an entirely new chain, and a soft fork is more than an optional upgrade that is backwards compatible.

Backward compatibility is actually what creates the hard fork because miners who create blocks based on the new update will not have these blocks accepted by those miners who run the old chain, so they fork into a new independent chain. Hard forks are usually protocol changes (rule changes) and soft forks are more optimizations (see SegWit). A soft fork does not lead to any new chain.

What happens to my cryptocurrency in case of fork?

In a soft fork, since no new chain is created, there is no difference. But, depending on the upgrade, you may not be able to transact with those wallets that have the new update without upgrading your wallet first. In the case of many bitcoin wallet providers, this is not a problem.

In a Hard Fork, because the chain is
forked in two, you have the same balances on the old chain and it is business as usual, but now you also have the equivalent amount of a new coin (like the ones listed below) on the new chain. In the case of Bitcoin and Bitcoin Cash, if you were holding Bitcoin on August 1, 2017, then you were also holding an equivalent amount of Bitcoin Cash after the fork took place.

Famous forks

To properly understand famous forks, we need to understand their environment. None of these forks happened without strong different opinions in the community, so the fork is usually larger than just the protocol layer.

Bitcoin forks are largely motivated by the “Bitcoin scalability problem”. This debate largely boils down to the fact that the bitcoin core block size is currently limited to 1 MB, thus limiting transactional throughput to 7 tx/s. This is compared to 2000 tx/s for Visa – the usual benchmark. The forks below will guide you through a brief history and some of the main players in this debate, and the forks that resulted from it.

Bitcoin XT

Bitcoin XT was founded in 2014 by Mike Hearn as a fork of bitcoin core that created protocol optimizations completely unrelated to block sizes.

The great adoption and public support of Bitcoin XT came in mid-2015 when Gavin Andreesen, one of the first developers working on bitcoin core with Satoshi, proposed BIP 101 amid the growing attention and transaction volume of bitcoin core in 2015. BIP 101 proposed increasing the block size from 1 MB to 8 MB, and then steadily increasing to 24 tx/s. This change required 75% of network support for ~1000 blocks in early 2016. Understandably, it did not achieve this goal and the change was not implemented. Instead, they implemented the 2MB increase of bitcoin classic.

Bitcoin Gold

Due to the large monopoly of Bitcoin mining, particularly in China, Bitcoin Gold was forked in October 2017 to create a new Bitcoin that used a different protocol that prevented large miners from changing.

It uses equihash (created by Zcash) which does not allow large hardware miners (ASICs) to perform it profitably. It has suffered repeated DDOS attacks and even the infamous 51% attack where a malicious miner took over 51% of the network in 2018 and began rearranging the blockchain at their discretion (largely minting coins).

Bitcoin Cash

Bitcoin Cash is easily the most recognized, promoted, and widely supported division by bitcoin core on August 1, 2017. He continued Mike Hearn’s work in 2014, proposing to support BIP 91 in order to increase the block limit to 8 MB, and then constantly to a new limit of 32 MB. Other than that, it’s largely the same.

It has achieved such great coverage because it has been advocated and politicized by some of bitcoin’s biggest players, such as Jihan Wu, CEO of Bitmain, the largest mining company, Roger Ver, one of the first investors and supporters of bitcoin (now bitcoin cash), and Craig Wright, who claims to be the creator of bitcoin without substantial evidence. . . Their policy platform was to create larger blocks to better reflect Satoshi’s original vision of a peer-to-peer electronic cash system, which was becoming less of a reality with longer transaction wait times on the bitcoin core in 2017 (~20 minutes with fee).

Bitcoin SV

As can be deduced, there was a further conflict over what “Satoshi’s Vision” actually entailed, and so in 2018 Craight Wright, with the support of Calvin Ayre, again forked Bitcoin Cash (“we need to go deeper…” – a fork within a fork).

The revised block size limit is 128 MB. Although Bitcoin SV has created the potential for much larger block sizes, due to the lack of transaction volume, the block sizes for the most part are the same as for the bitcoin core.

Is it possible for a coin to fork twice?

Yes, because this new chain is its unique blockchain, it retains all the same properties and abilities as an unforked chain, including soft forks and hard forks.

Other famous forks

Litecoin

The first ever bitcoin fork was in October 2011 to create Litecoin. Created by Charlie Lee, the biggest differences are a lighter algorithm (scrypt instead of SHA-256), faster block times (2.5 minutes) and a larger number of total coins (84 million). Litecoin was also the first to implement protocol changes designed to help scale bitcoin, Segregated Witness, and the Lightning Network.

Segwit has allowed bitcoin to optimize/rearrange transactions so that the block sizes are now effectively ~1.3MB, even though the limit is 1MB. Lightning Network uses payment channels and allowed Litecoin to send a microtransaction from Zurich to San Francisco in <1 second. Litecoin is a fork of the bitcoin code base, not the running network, meaning you didn’t inherit any coins from the fork if you were holding bitcoin at the time Litecoin was created. The creator of Litecoin modified the codebase and started a new network from block 0.

Ethereum

The most infamous of all… the great DAO crash. Before the boom, before the ICO bubble, there was the pioneer of ICOs, the DAO, held on Ethereum. In 2016 the DAO raised $150 million in Ethereum from investors (users) and then, due to supervision and hasty development, suffered a fatal hack that stole $50 million.

The community was divided on how to continue, some saying it was Ethereum’s responsibility to make entire investors by restoring the blockchain, and others arguing that this violated some fundamental principles of open source blockchains and would jeopardize the network. Despite the risks, the network forked on July 20, 2016 and restored transactions (effectively reorganizing balances, if we think of my previous examples), and then had to fork twice again that year to prevent DDOS attacks and spam. The new chain was supported by the Ethereum foundation and titled Ethereum, while the old chain where the DAO hack is still present, is called Ethereum Classic, and is still supported as the “original” Ethereum.

Monero

Monero has had multiple forks to better “protect” the network, such as making it ASIC-resistant, improving privacy and anonymity, removing block caps, and removing total supply limits. Monero has a total of 4 forked chains that are still in operation to this day.

Are they inherently bad?

no. Although they are more politicized and discussed in controversial issues, hard forks are a key aspect of updating a blockchain. Most chains like Ethereum regularly undergo protocol updates that require a fork, however the difference is that they are mostly unanimous and the old chain goes extinct quickly and will not be supported.

Some miners may be left behind, but they have an incentive to mine the new chain that contains the currency that holds the value. When forks lead to the support of two different chains and community division, there is often high price volatility and conflict within the community. However, done professionally, this debate and conflict resolution is what helps push blockchain forward.

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