Bitcoin Forks Decoded for Better Understanding

What is fork in Blockchain?

A fork is a modification in the network's rules that allows a block in the blockchain to be accepted as legitimate, a type of division. Since cryptocurrencies run on decentralized networks, all participants must follow the same rules and collaborate to maintain the blockchain's history. Or else, two blockchains will run in parallel in separate areas of the network, a phenomenon known as "chain branching."

  • The process of dividing a blockchain or other development project into two or more separate copies is known as "forking." As a result of the blockchain fork, two cryptocurrencies with a shared history but independent of each other since the fork have emerged.
  • The success or failure of the new fork is heavily dependent on the miners. They determine whether or not to support the new coin. For example, Bitcoin Cash began extremely effectively, and many miners focused their efforts on keeping it operating.

Bitcoin Forks Decoded for Better Understanding

 

Types of Bitcoin Forks

There are two kinds of forks:

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  • Soft Fork: Soft forking is a minor kind of separation in which nodes from the previous version can communicate with nodes from the new version. As a result, the soft fork does not result in the creation of a new currency.
  • Hard Fork: A hard fork is a significant innovation that divides the chain into two halves that cannot communicate with one other. As a result, other cryptocurrencies such as Bitcoin Cash, Bitcoin Gold, and Ethereum Classic have emerged.

 

As an analogy for soft and hard forks, imagine a popular vegetarian restaurant where lots of vegetarians go to eat. This restaurant has only one dish on its menu. Think of the restaurant as a miner, the guests as full nodes, and the meals served as blocks. The restaurant produces meals that guests eat—the miner produces blocks that full nodes accept.

Bitcoin Forks Decoded for Better Understanding

Below table illustrates whether the restaurant can make a hard fork by adding meat to its dish or a soft fork by restricting the food to vegan.

Vegetarian restaurant servesWill guests accept it?Fork typeWhy
Vegetarian foodYesNoneVegetarians eat vegetarian food.
Non vegetarian foodNohard forkThe rules are relaxed. Vegetarians can’t eat here any more.
Vegan foodYesSoft forkThe rules are tightened. Vegetarian rules still apply.

 

How does cloning differ from fork?

Cloning is frequently mistaken for forks. A clone is an exact copy of the bitcoin program code that is released on a new distributed ledger with minor modifications.

Cloning is promoted on open source sites like Github, where you may copy existing code and modify it to suit your needs. Then you may execute it to generate a brand new blockchain on a clean ledger.

Cloning frequently results in novel innovations. For example, you could take the fundamental bitcoin code, alter certain settings, and then construct a new coin based on them.

Litecoin is a wonderful example of cloning. In 2011, Charles Lee developed Litecoin and has a coin limit of 84 million. He took the original bitcoin code and altered numerous settings, such as proof-of-work and block generation rate. Scrypt is the name of the Litecoin algorithm. Despite the fact that it operates in the same manner as Bitcoin, the algorithm generates coins four times faster. The Litecoin algorithm has a transaction processing pace of one coin every 2.5 minutes.

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What are the reasons for a hard fork?

A hard fork may be implemented for a variety of reasons, including the removal of critical security flaws discovered in previous versions of software, the addition of new functionality, or the reversal of transactions.

Let's take an example of a hard fork on Ethereum (ETH). It was formed following the hacking of the Decentralized Autonomous Organization (DAO) and the theft of $50 million in ETH. Following the breach, the Ethereum community agreed nearly overwhelmingly to a hard fork on block 1,920,000. The hard fork also assisted DAO token holders in reclaiming their Ethereum funds by dividing the Ethereum network into two chains: Ethereum (the new chain) and Ethereum Classic (the old chain).

 

Is a hard fork good?

Any hard fork has the potential to have a significant influence on cryptocurrency. Sometimes, community members of a particular cryptocurrency have different views on the fork. It may create division in the community about the necessity and significance of the changes driven by the fork. It also makes the price of the coin volatile.

 

Major Bitcoin forks in history

Bitcoin Cash

In 2017, a group of key Bitcoin engineers agreed to a hard fork, resulting in the development of Bitcoin Cash, an entirely new cryptocurrency and independent network (BCH).

The development team sought to extend the maximum block size from 1 MB to 8 MB. This would enable miners to include more transactions in a block, lowering the fees Bitcoin users pay to move payments.

Unfortunately, because most users were unwilling to make adjustments, the developers were forced to establish a whole new blockchain.

 

Bitcoin Gold

In October 2017, the Bitcoin Gold blockchain was officially released. While Bitcoin Cash attempted to reduce transaction costs, the creators of Bitcoin Gold aimed to make Bitcoin more "decentralized."

This is due to the fact that the great majority of Bitcoin miners are controlled by a few Chinese pools. A mining pool is a group of people that combine their computing resources in order to maximize their chances of receiving mining rewards.

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As a result, Bitcoin Gold has devised a new mining method that prohibits the use of ASIC devices, ensuring that everyone has an equal opportunity to become a participant in the cryptocurrency market.

 

Bitcoin Diamond

Bitcoin Diamond originally appeared in November of 2017. The development team's major goal was to allow users to stay even more anonymous. Some members of the bitcoin community believe Bitcoin Diamond is a scam, and many are dissatisfied.

 

What is SegWit (Segregated Witness)?

Pieter Wuille, a Bitcoin Core engineer, proposed the idea of Segregated Witness in late 2015. SegWit is the process of extending the block size limit on a blockchain by removing signing data from bitcoin transactions. SegWit addresses are considered to provide a new mechanism to change blocks. The signatures added in each block are split and erased in this new technique, increasing the capacity of the blockchain. Technically, SegWit is a soft fork. As a result, more transactions will be able to be conducted on the blockchain. SegWit is made up of two modifications: Segregate, which means separation, and Witnesses, which is the transaction signature that demonstrates the functionality of this wallet.

Only a few bitcoin wallets will be able to transmit bitcoins from the SegWit address to the Legacy address since not all wallets support the SegWit address.

 

Summary

In the Bitcoin context, the term fork means a change in the consensus rules. The consensus rules define what a valid blockchain is. When some set of nodes uses the same consensus rules, consensus emerges among them about what the current unspent transaction output (UTXO) set—“who owns what”—is. In short, a fork changes the definition of a valid blockchain.

Forks are classified into two types: soft forks and hard forks. Cloning is the publication of an identical duplicate of the bitcoin program code on a new distributed ledger with minor changes. A hard fork may be used for a variety of reasons, including the elimination of serious security problems revealed in prior software versions.

 

Further Reading

What is blockchain?
Brief history of Bitcoin

 

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