Bitcoin Blockchain News

A Beginners Guide to Bitcoin Forks

0 Comments

If you are new in the crypto space, you have probably been seeing the term “hard fork” being thrown around ever so often. So what is a cryptocurrency fork?

Assuming you already know a bit about blockchain technology, a hard fork is, to put it simply, a change in the rules used to validate transactions.

A bitcoin fork is when a change in the rules used to validate transactions occurs, the blockchain network splits into two, one which uses the old rules and one which uses the new rules. A good example is Bitcoin (BTC) and Bitcoin Cash (BCH).

Blockchain Finance

When a hard fork occurs, a blockchain network splits into two, one which uses the old rules and the new one which uses the new rules. Think of it as a software upgrade. At the point it occurs, there is a permanent divergence and old nodes will no longer be accepted in the upgraded one.

These technical events are decided through consensus. As expected, not everyone agrees to these upgrades and fallouts often occur. The result is a new chain of transactions and of course a new cryptocurrency such as bitcoin cash which is forked from bitcoin.

As Coinbase’s David Farmer put is in his blog “A “fork” is a change to the software of the digital currency that creates two separate versions of the blockchain with a shared history.”

Why hard fork?

Hard forks occur for various reasons. Often, it is done to add new functionalities or to plug some vulnerabilities in the network.

It could also be done to reverse transactions such as when there has been a 51% attack. This is where rogue miners take control of the majority of the network and add fraudulent transactions. A hard fork is usually necessary to roll back such transactions. One such attack occurred on the Verge network.

Bitcoin cash fork

Developers may, for example, want to change the rules to increase block sizes, say from 1MB per block to 8MB per block for faster transactions as in the case of Bitcoin Cash. This will require a hard fork.

 

Once done, the new version will no longer accept transactions confirmed by nodes that have not been upgraded. This can be contrasted to a soft fork where changes are backward compatible. This means there is some kind of interoperability between the old and new protocols. One example of a soft fork is Segwit.

Which fork survives?

Whether the old protocol survives depends on how many people are willing to commit their computing power and how many developers are still willing to support it. It’s all up to the market to decide.

The earlier ethereum protocol for example still exists alongside ethereum classic. The dominance of one over the other solely depends on its adoption. Often, one chain becomes favoured over the other but both often manage to exist.

When a split happens, holders of the original cryptocurrency, say bitcoin also get the new cryptocurrency like bitcoin cash. This really depends on whether you actually hold the keys to your tokens. People often look for the next bitcoin fork dates for an opportunity to earn free coins. You should, however, exercise due diligence before claiming the new coins.

A snapshot of the block number or block height where the fork occurred is taken. The bitcoin hard fork date that created bitcoin cash was August 1.

Hard forks 2018

A lot of btc forks actually occurred in 2017 other than bitcoin cash or bitcoin gold. In terms of bitcoin hard fork 2018, perhaps the more notable one is bitcoin private in January which is a privacy-focused coin. There aren’t many promising btc upcoming forks in 2018.

Bitcoin

Certain exchanges, for example, did not support the new protocol and users, in this case, do not get awarded.

Exchanges like Coinbase, for example, consider factors such as demand and the value of the new cryptocurrency before deciding to support it.

Conclusion

To wrap up, a hard fork is a change of rules in a blockchain protocol that validates or invalidates transactions. It is done for security reasons, to add new functionalities to the network or to roll back transactions.

Honestly speaking, some bitcoin forks are solely done to generate some quick money for the developers and many others are outright scams. Stay alert.

Leave a Reply

Be the First to Comment!

avatar
  Subscribe  
Notify of
Risk Warning: Investing in digital currencies, stocks, shares and other securities, commodities, currencies and other derivative investment products (e.g. contracts for difference (“CFDs”) is speculative and carries a high level of risk. Each investment is unique and involves unique risks.

CFDs and other derivatives are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how an investment works and whether you can afford to take the high risk of losing your money.

Cryptocurrencies can fluctuate widely in prices and are, therefore, not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Past performance does not guarantee future results. Any trading history presented is less than 5 years old unless otherwise stated and may not suffice as a basis for investment decisions. Your capital is at risk.

Past performance is not an indication of future results. Trading history presented is less than 5 years old unless otherwise stated and may not suffice as a basis for investment decisions. Prices may go down as well as up, prices can fluctuate widely, you may be exposed to currency exchange rate fluctuations and you may lose all of or more than the amount you invest. Investing is not suitable for everyone; ensure that you have fully understood the risks and legalities involved. If you are unsure, seek independent financial, legal, tax and/or accounting advice. This website does not provide investment, financial, legal, tax or accounting advice. Some links are affiliate links. For more information please read our full risk warning and disclaimer.
close-link