A bitcoin road often diverges in the blockchain woods, and yet people don’t quite know which is the less traveled by (with apologies to the great poet Robert Frost) leading to times of confusion, times of bountiful rewards, and times of just pure heartbreak.
To those who have been following developments in the Bitcoin world, the newly emerging trend du jour—legitimately or otherwise—is to do a technical maneuver called ‘forking’ in order to improve the Bitcoin blockchain system with some new security features and, at the same time, make money by creating offshoot coin versions of the Bitcoin as a consequence of this maneuver. It has been clear to date that the motivation of developers and Bitcoin miners is more on the latter rather than the former (more about money making as opposed to making the system work better).
What Is a Bitcoin Hard Fork?
A bitcoin hard fork happens when the participants in the Bitcoin blockchain system typically try to achieve some kind of consensus to change the rules of the game. This could be in the form of changing the code to fix a bug, or introducing new features which will essentially alter the system and lead to the ‘forking’ and diverging of that system, leaving thereby spawning a new system while keeping the old one.
From a technical point of view, hard fork means that some transactions that were previously declined must be accepted and included in the next blocks. It means that previous history does not match with a new state and to ensure that merkle tree branch with transactions won’t fail, the new blockchain starts to exist.
The forking or separation typically happens at a targeted or specified blockchain height (say a height of 480500 blocks) and it becomes the point of no return. People who hold the old Bitcoin get rewarded by being able to claim the same number of bitcoins that the new fork created.
This is typically where holders of the old bitcoin can make a ton of money by essentially getting a windfall which is double the number that they now have. They can sell both the old and new Bitcoins in the marketplace and earn oodles of cold hard cash. Some new offshoot versions tend to become hot commodities while some peter out into oblivion. Bitcoin Cash (BTC Cash) earned so much value after getting forked from the original mother of all Bitcoins (BTC).
Busy Year for Bitcoin Hard Forks
After performing a hard fork, what happens is that a participant of the old system either has to pick continuing to work with status quo or join the new system—doing transactions and mining—but one cannot play or mix activities in both.
For the past year alone, Bitcoin has experienced more than a couple of dozen hard forks with some receiving a wild and positive reception from investors plus a high valuation to boot. Some of the successful Bitcoin creation or offspring (essentially referred to as the new alt-coins these days) include, but are not limited, to Bitcoin Cash, Bitcoin Gold, Bitcoin Lite, Bitcoin Diamond; and the list is rising.
For some technical info, the process of doing a hard fork typically uses a new working mechanism or system — moving from Segwit to Segwit2X, for example, thereby making the clone interchangeable and distinct from the previous version.
What Happens to the Old Bitcoin Holders?
Holders of the old Bitcoin get rewarded by being able to claim the same number of coins with the new version. One has to be careful though when trying to claim the new coins because, if not done right, it could lead to heartbreak in the form of accidentally wiping out and losing all the old bitcoins.
Which means that old bitcoin holders need to make sure that they transfer all their coins safely to a new wallet with only the holder having access to the private keys. After doing so, then and only then, they can start following the steps to claim the new coins generated from the hard fork.
What Is a Bitcoin Soft Fork?
This is the type of process whereby fixes and upgrades to the system get introduced and yet no new coins are created. The point of separation does not happen and not intended to happen because users of the new system are still able to backward replay — use the old system — albeit minus the new features. It means that after a soft fork, some information previously eligible for blocks became invalid. This process is smooth as nodes just amend the mining software until the entire network is upgraded. New declining procedure will result, which means that the nodes with upgraded soft drop such as transactions to mempool and their merkle tree branch will be faster, with that branch supported only by an old software.
This is akin to using the new version of MS Word. One is still able to open a file from the old version and vice versa. In the case of the Bitcoin system, one is able to use the old version but the new system features will not work if done or performed in the old system. The pure motivation in the bitcoin soft fork process, one would surmise, is simply to introduce some technical fixes and improvements, say increasing the storage capacity of one block from 1 MB to 6 MB.
Bitcoin Fork – the Cash Frenzy
Some countries like China ban ICOs (initial coin offerings) and so developers and people heavily involved in cryptocurrencies are resorting to forks as a new and quick way to generate cash or raise capital. The past year alone saw nearly 60 Bitcoin forks action, many of the new coins petered out and did not generate interest from investors while some, like Bitcoin Cash and others, caught their imagination and along with its high valuation and a relatively sustainable success in the marketplace.
Previous Hard Forks – 2018
The year saw a frenetic activity with regards to hard forks. Developers, bitcoin holder,s and investors are trying to ride the wave of this frenzy in the hopes of raising money in a relatively quick fashion. In some instances, the market responded positively, yet a good number of other forks turned out to be a dud. The following were some of the major Bitcoin hard forks which occurred this year (many of them happened early in the new year):
January 2018
- Bitcoin Pizza (BPA) is known as the dagilized Bitcoin, combining the directed acrylic graph (DAG) technology with Bitcoin. It is expected to be a widely used one with a very high market capitalization.
- Bitcoin All. No translation documents provided but the web address is provided here for reference.
- Bitcoin Private. Much like Bitcoin, Bitcoin Private supports peer-to-peer transactions without the middle person or intermediary. The transactions are recorded in the public ledger, using cryptography, and are verified by network nodes. Though payments are published on the public blockchain, the participants — sender, receiver, and other information — remain hidden or unidentifiable. Transaction speeds remain the same, although Bitcoin Private tends to support a larger block size while remaining anonymous and comparatively secure.
- Bitcoin Rhodium shows a higher security protection disabling unwanted surveillance over transactions.
- Bitcoin Smart anticipated superior on-chain performance, featuring new features like token issuance and the integration of a smart-contract system. The hard fork of Bitcoin occurred at block height 505050.
- BitVote features smart contract, community vote, lightning network and others have been added to this Bitcoin spinoff.
- Bitcoin Interest is a peer-to-peer online electronic cash, which does not require trusted third parties to operate. It is fully decentralized and will pay you interest for simply letting your coins sit for a specific period of time.
- Bitcoin Atom showcases a highly decentralized digital asset exchange (with on chain atomic swaps).
- Bitcoin Lite is now an independent cryptocurrency which became popular and has achieved mass adoption.
March 2018
- PacCoin implemented improvements such as a to-tier incentivized network called the Masternode network. The main goal of the fork was to create an efficient, user-friendly cryptocurrency that is accessible and available to people worldwide.
April 2018
- BitClassic forked from Bitcoin at block 516095 which has a block size of 4 MB, and it can only be mined using GPU (fees are relatively low).
May 2015
- Bitcoin Cash. This was received with relative success and the new cryptocurrency feature use cases such as representative tokens, time stamping, and other more complex transaction scripting. Each block size is huge at 32 MB which means faster processing and lower-fee type of peer-to-peer system.
May 2018
- Mooncoin hard fork occurred at block 1,250,000. The new system is designed for low transaction fees using a highly secure algorithm and a plan to continually optimize and improve its performance.
July 2018
- Bitcoin Gold is a new cryptocurrency that avoids ASIC mining and the hard fork happened at block 536200. The new algorithm is much faster with a more stable flow of blocks. The algorithm includes a high degree of personalization which ensures greater security.
Upcoming Hard Forks – 2018
The remaining quarter of 2018 is expected to see a continued flow of Bitcoin hard-fork activities. These are the ones reported to date:
Late 2018 –
- Bitcoin ZeroX is a unique coin created after the fork between HEXXCOIN and Bitcoin. It has superior privacy and anonymity because it is based on zerocoin protocol. HEXXCOIN is a kind of currency that is privacy focused – stable and continually being tinkered for further development. Transactions cannot be traced by third party and HEXXCOIN users will be able to convert non-anonymous coins into anonymous coins. HEXXCOIN is a privacy-focused digital currency with stable client and ongoing development. Hexxcoin implements Zerocoin protocol to ensure anonymity for coin users. Hexxcoin users may convert non-anonymous coins into anonymous ones, which can be sent to other users of the Hexxcoin network, and these transactions cannot be traced by any third party. Every Hexxcoin and Bitcoin holder gets to benefit from 1:1 ratio of receiving the new BitcoinZeroX.
Conclusion
So all in all, it is still quite the Wild West when it comes to creating new coins under the process called hard forks. The original intent of the fork process was to create upgrades and new features, and yet it has also become a mechanism to create new coins and reward the holders of the previous Bitcoin version an equal number of new coins — essentially free money — which they can sell in the marketplace. It is expected that more hard forks will happen in the foreseeable future, unless government regulators start moving in to put some scaffolding and constraints on hard forks.