Anyone interested in Bitcoin must know the lightning-fast pace of developments that take place in the crypto world. Forks are one such interesting phenomena that happen now and then, giving rise to new coins and chains in the Bitcoin sphere.
To understand the concept of Bitcoin hard fork, let us first understand how Bitcoin operates. The blockchain functions on a system of connected hashes or time stamps – one leading to the other and creating a blockchain.
For Bitcoin, all the transactions that have ever happened since its launch are recorded in chronological order on one such blockchain. A block consists of several blocks comprising several transactions. The oldest transactions are recorded in blocks known as the genesis blocks are at the bottom while the most recent transactions are recorded in the newest block.
There is no central authority for making decisions. Hence, any proposed update becomes valid only after a consensus is achieved by the majority in the network. If not, we witness forks!
Forking, similar to a road diverging in two roads, is quite a common phenomenon when it comes to bitcoins.
- A fork may occur as the byproduct of an event of distributed consensus between two miners who find a block simultaneously. When subsequent blocks are added to one fork, and the longest chain is made, the ambiguity gets cleared. The other fork gets abandoned or ‘orphaned.’
- Another way to create a fork is to introduce it to the network willingly. When developers want to change the software protocol( for instance, increasing the block size from 1MB to 2MB) regarding the validation of a transaction over the blockchain, a fork occurs.
- Forks can be hard, soft, or blockchain forks.
In the past, Bitcoin has forked several times to give way to coins like BitcoinXT and Bitcoin Classic, though they weren’t as notable as Bitcoin Cash and Bitcoin Gold that surfaced in 2017.
What is Hard Fork?
To explain in layman’s term, when a copy of a coin leads to the creation of a new coin a hard fork occurs. Hard forks split the blockchain into two, where a group of miners or users does not consent to the new update. This results in their leaving the old network and forming a cryptocurrency of their own.
A Hard fork is a change in a cryptocurrency protocol that is not backwards compatible.
The implication is that all the previous nodes have to update themselves to the new version. If they do not, it results in a split or a fork and the creation of a new currency. Both the versions become separate, distinct, and operate independently thereafter.
The miners who owned bitcoins at the time of the split can claim their new bitcoins on the forked network, given the fact that the new network includes ‘replay protection’ measures. Replay protection means that the old network is prevented from erroneously recognizing its transactions and vice versa. This measure is necessary as spending one set of coins on one network might result in the loss of those on the other network.
A Case Study of the Working of Hard Fork: Bitcoin Cash
Bitcoin Cash can be an ideal analogy to study a hard fork. To solve the scalability issue, the size of the Bitcoin blocks was increased from 1 MB to 8MB by Bitcoin Cash. This was done to improve upon the transaction handling ability of bitcoin when it came to large transactions. The original Bitcoin or Bitcoin Core community preferred smaller blocks for better decentralization and found the change incompatible. This caused the split of the Bitcoin Core into Bitcoin core and Bitcoin Cash.
The History of Hard Forks in Bitcoin
There have been several Bitcoin forks since Satoshi Nakamoto launched the Bitcoin in 2009. Bitcoin Cash is one of the many Bitcoin forks from the original Bitcoin. Let’s look at some of the most prominent bitcoin forks in the decade-long history of Bitcoin:
- Mike Hearn, one of Bitcoin’s earliest developers, proposed increasing the block size from 1 MB to 8 MB in 2014. This resulted in a hard fork, and Bitcoin XT was born. However, Bitcoin XT could not get sufficient traction. Perhaps this was too early a change for that time. The same change in protocol gave birth to Bitcoin Cash in 2017.
- Bitcoin XT lost its sheen by the end of 2015. The scalability issue was again brought to the fore, but this time with a different solution. The community suggested scaling the blocks from 1MB to 2MB only. Those in favor split to form Bitcoin Classic. This hard fork, too, couldn’t survive for long and eventually lost its appeal.
- The next hard fork constituted the protocol where the miners would choose a block size, and one that achieved the majority votes would become the new block size. This resulted in Bitcoin Unlimited, which soon fell prey to several bugs.
- The next in line was Bitcoin Cash that was brought forth by a milieu of prominent personalities such as Roger Ver, an early Bitcoin investor, and evangelist and Jihan Wu, Co-founder of Bitmain. Bitcoin Cash survived the test of time and has placed itself amongst the top cryptocurrencies today.
- The next in line was Bitcoin Gold Hard Fork. The change in protocol involved making Bitcoin mining more egalitarian by restricting mining to graphic cards and disallowing ASICs(specialized mining devices) that were expensive. This fork suffered due to major security problems. It was a victim of a 51% attack many times.
A fork of fork or Bitcoin Cash fork, Bitcoin SV outgrew the popularity of Bitcoin Cash at one point and overtook Bitcoin Cash in market cap. The SV in the name stands for Satoshi Vision. Currently. Bitcoin SV is one of the top cryptocurrencies in terms of market capitalization. However, it has been removed from many of the centralized exchanges due to some reeling controversies regarding the identity of the founder Satoshi Nakamoto.
There are several upcoming Bitcoin forks. As of 2020, 9 Bitcoin forks survive, including Bitcoin Cash, Bitcoin SV, Bitcoin Gold, Bitcoin Diamond. Crypto enthusiasts and Bitcoin miners have to stay on top of developments on the forking front if they want to seize the profitable forks for their wallets.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.