What is a Bitcoin Fork?
A bitcoin fork happens when a large enough number of miners decide to adopt new rules for the network. The result is a split, or a fork, from the original blockchain, and a new blockchain forks off from the original one. This has happened several times over the years as developers have disagreed on how best to handle bitcoin’s growth going forward.
So far, all of the forks have failed to attract a new majority of miners or users, and the original bitcoin blockchain (also known as Bitcoin Core) has maintained superiority.
A distinction should be made between the different types of forks. Generally, when people ask the question, “what happens when bitcoin forks?”, they are asking about hard forks from Bitcoin that cloned the entire network and its history and simultaneously created a new coin with some modifications.
There are, however, several kinds of forks. The two main categories are hard forks and soft forks. But there are also instances when a coin forks its code from bitcoin’s code while creating a new blockchain entirely from scratch.
Hard Forks vs. Soft Forks
Hard forks are radical changes to the bitcoin protocol whereas soft forks are subtle software modifications to the protocol.
The creation of coins like Litecoin or Vertcoin, for example, created new blockchains with completely different rulesets. They even use different mining algorithms, meaning the computers that mine them run a different kind of software.
In these cases, the altcoins spawned their own networks from day 1, without cloning the existing Bitcoin blockchain and picking up where it left off, as Bitcoin Cash did. “Forks” like these are better described as clones or copycats since they are new projects that just took the core code of bitcoin as a starting point.
The other common kind of fork is known as a user-activated soft fork (UASF). This process is much different than a hard fork because it gets initiated by users of the cryptocurrency rather than the computers maintaining the network (miners).
A UASF works by users adopting a certain action with regard to how they interact with the network of a given cryptocurrency. Then, miners can choose to follow suit afterward if enough users hop on board.
List of Bitcoin Forks
What are bitcoin forks?
Here we will cover a brief history of some prominent Bitcoin forks that have occurred over the years since 2011 (the year of Litecoin, the first known bitcoin clone).
Different types of cryptocurrency sometimes clone their source code from bitcoin to get started. We’ll look at two of these before getting into bitcoin hard forks.
Initiated by Charlie Lee in 2011, Litecoin (LTC) was intended to be “the silver to bitcoin’s gold.”
To enable faster transactions, LTC uses the Scrypt algorithm instead of Bitcoin’s SHA-256 algorithm. LTC transactions are thought to confirm faster and have lower fees than BTC in general (although it’s worth noting that in October 2020, someone transferred $1 billion worth of bitcoin for about $4 in fees).
Years later, Litecoin also underwent a hard fork of its own, with Litecoin Cash.
Vertcoin is like Litecoin, although VTC uses yet another consensus algorithm for mining. The goal of VTC was to be ASIC-resistant, meaning that the market for mining couldn’t be taken over by people with access to resources for purchasing large and expensive ASIC (application-specific integrated circuit) computer hardware.
While Litecoin and Vertcoin aren’t technically hard forks, they’re sometimes referred to as forks because they cloned bitcoin’s source code and then started anew.
The first hard fork from bitcoin didn’t happen until 2017, though.
The first time Bitcoin went through a hard fork was in August 2017. The new coin was called Bitcoin Cash (BCH). BCH, also referred to as “B cash,” is exactly like Bitcoin but with a few key differences.
The biggest difference, and the one that spawned the split, is that B cash has a larger block size. This means that one block in the blockchain can hold a larger number of transactions, resulting in greater throughput. Basically, more money can be processed in less time.
The creation of B cash was a historical moment for the cryptocurrency community.
When people talk about bitcoin forks, they are typically referring to B cash and the many hard forks that followed—the altcoins that still have “bitcoin” in their name.
Bitcoin Satoshi’s Vision (BSV)
BSV is a hard fork from the Bitcoin Cash network. This fork was initiated by Craig Wright, who has repeatedly claimed (without any evidence) that he is in fact Satoshi Nakamoto, the creator of Bitcoin. (It’s possible that Satoshi Nakamoto is a pseudonym not for one individual, but for a group.)
Wright insists that BSV is the Bitcoin that the creator of the protocol really wanted.
Bitcoin Gold is a bitcoin fork that utilizes an ASIC-resistant proof-of-work mining algorithm. That means it’s meant to be a coin that anyone can mine at home without the need for expensive specialized computer hardware.
Bitcoin Diamond is yet another bitcoin fork that aims to make transactions faster and cheaper.
Bitcoin Private was created with the goal of keeping user transactions completely private.
This bitcoin forks list is not comprehensive. Not all bitcoin forks have garnered much publicity or user attraction.
There will likely be more in the future as well.
As of one year after the Bitcoin Cash fork, there had already been at least 44 bitcoin hard forks.
How to Claim Bitcoin Forks
Most cryptocurrency exchanges and hardware wallets make it easy for users to access their new funds not too long after a hard fork happens. There will typically be a new wallet created with the name of the new coin. The balance in the new wallet should be identical to that of the old one.
For more technical users who had their coins on a paper wallet or desktop wallet, however, the process gets tricky.
Basically, a user would have to move their entire balance to a new wallet and then use the private keys from the old one to claim their new coins. This process can be risky and is typically only considered by tech-savvy users.
When done incorrectly, it could result in total loss of all funds for both coins.
In cases like these, less tech-savvy users might end up not claiming the forks at all, as the risk of total loss could be high.
How Has Forking Affected Crypto Prices?
Typically, bitcoin hard forks are seen as a money grab by the programmers who create them, because prices tend to rise initially then continue on a steady slide downwards.
Depending on the type of fork, circumstances involved, reason for the fork, user anticipation, and a host of other factors, the resulting impact on price can be unpredictable.
One significant historical example to look at would be the BTC/BCH hard fork of August 2017.
In the period leading up to this fork, speculation ran rampant. In general, people fell into three camps, believing that one of the following would occur:
1. The new coin would overtake the old, and most users would migrate to the new network.
2. The original Bitcoin would reign supreme while the new Bitcoin Cash faded into obscurity.
3. The fork would break the entire cryptocurrency and result in the value of both coins going to zero.
Three and a half years later, it appears that those who fell into camp number two were the closest to being correct. Although BCH is still among the largest cryptocurrencies by market cap, it’s valued at several hundred US dollars, while BTC is valued at well over $10,000.
But at the time, it wasn’t clear at all what would happen. The price of both BTC and BCH surged after the fork, as users appeared euphoric that the worst-case scenario never played out.
One BCH rose to as high as $3,000 in late 2017 and early 2018, but has since fallen by over 90%.
As far as the price of BTC goes, there have now been so many hard forks that most people pay no attention, and the impact on price appears to be negligible.
When bitcoin forks, a new token is created along with a new network. Some people call these forked coins imposters, because they claim to be better than the original Bitcoin Core but have much lower hash rates, making them less secure.
All hard forks from Bitcoin Core have seen their values plummet over time.
Some people investing in bitcoin who held a lot of coins likely decided to cash in on their found money, selling the new coins for either BTC or US dollars, leading to the decline in prices. This trend could repeat with any future forks, too.
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