What Are Bitcoin Forks?
Definition & Examples of Bitcoin Forks
Bitcoin forks are splits that happen in the transaction chain based on different user opinions about transaction history. These splits create new versions of Bitcoin currency, and they are a natural result of the structure of the blockchain system, which operates without a central authority.
These forks allow for different buying opportunities for the cryptocurrency. There are many different forks that serve different purposes, and some have maintained value better than others. Learn more about Bitcoin forks and what they mean for investors.
What Are Bitcoin Forks?
The concept of forks and the technology involved is extremely complex, but the easiest way to think about a Bitcoin fork is that it introduces a new set of rules for Bitcoin to follow. Because a new rule is introduced, the users mining that particular Bitcoin blockchain can choose to follow one set of rules or another, similar to a fork in the road.
Fundamentally, these forks arise out of different perspectives on transaction history. This can happen due to delays in the system. As Bitcoin became more and more popular, the blockchain technology it was built on slowed down. This resulted in the entire system becoming unreliable and the transaction fees getting more expensive.
Because of this slowdown, Bitcoin needed to create a solution that would scale as more users bought and sold the product. That’s where the forks came in.
Forks allow for a different development structure and experimentation within the Bitcoin platform, without compromising the original product. The original Bitcoin was developed on 1-megabyte blocks, which was limiting as the cryptocurrency scaled and became more popular. These forks can be developed on larger blocks, and they result in a brand new currency.
Buying and selling either original Bitcoin or any of its forks is highly speculative at this point, and you can lose a lot of money quickly. Only spend what you can afford to lose.
How Bitcoin Forks Work
There are two types of Bitcoin forks—soft forks and hard forks.
A soft fork is a change to the Bitcoin protocol, rather than changing the end product. The big difference between a soft fork and a hard fork is that a soft fork is backward-compatible.
This means that the new protocol will be recognized by old nodes within the system. It also means that there is not a new product being launched,
Hard forks are new versions of Bitcoin that are completely split from the original version. There are no transactions or communications between the two types of Bitcoin after a hard fork. They are separate from each other and the change is permanent.
If you are running the older Bitcoin software, you will no longer be able to interact with users who upgraded to the newer software, and vice versa. This is basically creating two types of currency, but in this case, the currency is not interchangeable.
You can think of forks like organizational splits, with one part of a company moving in one direction and another part of the company moving in another direction. That’s exactly what happened with Bitcoin, Bitcoin Cash, and Bitcoin Gold.
These are all separate cryptocurrencies within the Bitcoin family and all operate independently with different rules. They are all still cryptocurrencies but are not the same as the original Bitcoin.
Major Bitcoin Hard Forks
The two biggest Bitcoin hard forks are Bitcoin Cash and Bitcoin Gold, although there are others as well.
The Bitcoin Cash Hard Fork
Bitcoin Cash is a hard fork of Bitcoin that occurred on August 1, 2017. It was designed to overcome the problems that Bitcoin was experiencing with delayed transactions and lag. To do this, it uses 8-megabyte blocks instead of the 1-megabyte blocks used by the original Bitcoin, making it easier to scale as more people interact with the service.
The larger blocks can hold more data and speed up the process of buying and selling as more people come onto the system.
The Bitcoin Gold Hard Fork
Bitcoin Gold is a different hard fork that occurred in October 2017 with the goal of making Bitcoin mining a more equitable process that only requires basic equipment for mining. It’s mined on standard graphics processing units instead of specific hardware developed exclusively for the mining of Bitcoin (referred to as ASICs—Application Specific Integrated Circuits), which are more expensive and limited to a few big players.
The idea here was to increase the independence and decentralization inherent to the original Bitcoin concept.
Other Bitcoin Hard Forks
In addition to these two main hard forks, there has been a flurry of other hard forks and experimentation within the Bitcoin system. Here are a few of the other hard forks and when they started.
- Bitcoin Diamond: November 2017
- Super Bitcoin: December 2017
- Bitcoin Atom: January 2018
- Bitcore: November 2017
- Bitcoin God: December 2017
- Bitcoin Private: January 2018
- Bitcoin Zeo: September 2018
- Bitcoin Post-Quantum: December 2018
- Bitcoin forks are new forms of Bitcoin that result from different perspectives on transaction history.
- Soft forks do not result in a new currency, while hard forks are deeper changes within the blockchain and lead to new types of Blockchain currency.
- The different hard forks of Bitcoin have wildly varied pricing and different goals. Not all of them have held their value as well as the original Bitcoin, but some have outperformed it.
Federal Reserve Bank of Cleveland. "Bitcoin’s Decentralized Decision Structure." Accessed Sept. 28, 2020.