It's not uncommon to see several debates on Twitter and crypto communities on "Forks," particularly since the Terra event. Forks aren't peculiar to Bitcoin; a new version of all cryptocurrencies can be created, wherein the new one operates independently from the original cryptocurrency. Being the mother of all cryptocurrencies, Bitcoin has a wealthy history of forking; hence, in this article, we'll take a closer look at how it happens and why forks happen in the first place.
What Are Bitcoin Forks?
A Bitcoin fork is a new version of bitcoin's open-source software, with an upgrade to its underlying technology. Just like in any other cryptocurrency, a Bitcoin fork happens when two sets of miners cannot reach a consensus on the blockchain update to follow; hence, the blockchain splits into two versions. This doesn't happen too often, but every time it does, it creates another version of the Bitcoin. These new versions can become valuable in their own right if they offer an improvement over bitcoin or if people begin using them for transactions. Typically, forks are desirable because they permit innovations without drastic changes to a cryptocurrency's economics.
A Bitcoin fork can be defined as the splitting of the cryptocurrency into two separate cryptocurrencies in the same blockchain network. This happens when developers or miners who feel that they’re not getting what they desire from Bitcoin decide to fork the existing blockchain and create their version. The Bitcoin blockchain has gone through various forks throughout its history, each resulting in two separate blockchains and two separate coins.
When there's an upgrade to a cryptocurrency's underlying code, there are two ways to upgrade it – hard fork and soft fork. A hard fork is a permanent, irreversible protocol upgrade that requires all nodes on the network to run the new version of the software; otherwise, they will not be able to participate in the network. Conversely, a soft fork is a backward-compatible protocol upgrade that allows old nodes to recognize new blocks as valid without actively participating in the network.
Typically, hard forks lead to new currencies, while soft forks lead to protocol upgrades (that everybody may not necessarily follow).
Why do we have Bitcoin Forks?
As popular as bitcoin is, one thing that has plagued it for years is its scalability. When bitcoin was created, it had no government or central authority backing it up. Thus, there was no authority to change or update rules to adapt to emerging technology or market demands. A majority of developers have power over its rules and changing them promptly proved to be an issue. Users voiced their unhappiness with these changes by creating new versions of Bitcoins (i.e., bitcoin forks).
The digital currency world has been buzzing about forks. One reason for all of these forks is that there is a lot of innovation in cryptocurrencies, especially Bitcoin. A fork can be implemented to correct substantial security risks found in older versions of software or to add new functionality. There are lots of different proposals for changes and improvements, but all of them require consensus to be implemented. This can lead to disagreements, which sometimes results in a cryptocurrency splitting into two separate currencies.
Common Bitcoin Hard Forks
Bitcoin (BTC) is no stranger to hard forks. Some forks have been critical upgrades, and some have been divisive changes that eventually led to competing chains.
The first significant fork took place when a change was made to increase block size limits and add proof-of-stake (PoS) mining methods. This allowed more transactions per second while maintaining ASIC resistance—this allowed anyone with an average computer to mine coins. Several notable cryptocurrency exchanges were against these changes at first; however, since it didn't cause any unnecessary problems after its implementation, support for it has grown within the industry over time. Here are a few common examples of Bitcoin Hard Forks
1. Bitcoin Cash (BCH) – was created as a result of an ongoing debate about scaling up transaction capacity on the bitcoin network. The fork occurred after two competing groups couldn’t agree on how to increase capacity and make transactions faster.
BCH supporters wanted to double bitcoin's block size from 1MB to 2MB. In contrast, BTC supporters wanted to implement Segregated Witness (SegWit), which would remove some information from each transaction and store it outside its blockchain. As such, BCH forked off from BTC and became an entirely new cryptocurrency. The purpose of that fork was to increase the block size limit to 8MB.
The BCH fork occurred at block 478558 (1st August 2017)
2. Bitcoin Gold (BTG) – was created as a result of another ongoing debate about how to restore mining capabilities using basic graphics processing units (GPU), with the founders believing that mining had grown too specialized in terms of equipment and technology required.
BTG proponents planned to switch bitcoin's proof-of-work algorithm from SHA-256 to Equihash, which Zcash and other cryptocurrencies use. As a result, BTG split from BTC and became a completely new cryptocurrency.
The BTG fork occurred at block 491407 (24th October 2017)
Other experimentations in hard forking the Bitcoin blockchain include Bitcoin Diamond, Bitcoin Atom, Bitcore, Bitcoin Zeo, Bitcoin Post-Quantum, etc.
Common Bitcoin Soft forks
Many different soft forks exist, and these include BIP9, CSV, and SegWit. These all have to do with block size increase, but they don't change any other aspect of bitcoin.
A significant example of the bitcoin soft fork is Segregated Witness (SegWit). It was first proposed in December 2015 and has since been implemented with positive results. The SegWit upgrade is a soft fork that removes signature data from Bitcoin transactions to make them smaller and, therefore, cheaper to send. It also allows for more transactions to be added to each block, which means more capacity for everyone using Bitcoin. As a result, SegWit advocated expanding the adequate block size from 1MB to 4MB. In addition, the soft fork enabled the old nodes to validate the new blocks by using a sophisticated engineering approach that structured new rules without violating the old ones.
What are Bitcoin Code Forks?
Away from the ones listed above, there are many cryptocurrencies that are called Bitcoin forks or "code forks." They may sound alike; however, you shouldn't get it twisted. A code fork isn't technically a "fork," it only involves copying Bitcoin's source code to create a new cryptocurrency; hence, the cryptocurrency created will have several similarities with Bitcoin. However, it is important to note that code forks aren't actual forks because they don't split the blockchain's history in two. Examples are Litecoin, Zcash, Decred, etc.