What is a Bitcoin Fork?
By now you’ve probably heard of what Bitcoin is, the first cryptocurrency that was developed. Since its launch in 2009, Bitcoin has greatly increased in value and has developed several offshoots or “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 Bitcoin can choose to follow one set of rules or another set of rules, similar to a “fork in the road”.
These forks allow for different buying opportunities. There are many different forks that serve different purposes. In this article you’ll learn about Bitcoin forks, specifically what “hard forks” are and what they mean for investors.
What Are Bitcoin Forks Exactly?
As Bitcoin became more and more popular, the blockchain technology they were 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 come in.
Forks allow for a different development structure and experimentation within the Bitcoin platform, without compromising on the original product. The original Bitcoin was developed on 1 MB blocks, which was limiting as the crypto-currency scaled and became more popular.
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.
What this means is that 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 cryptocurrency, but are not the same as the original Bitcoin.
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 MB blocks instead of the 1MB blocks of 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, limiting its availability to a few big players.
The idea here is to increase the independence and decentralization that Bitcoin was founded with and to get Bitcoin back to its roots.
In addition to these two main hard forks, there have been a flurry of other hard forks and experimenting within the Bitcoin system.
Other Bitcoin Hard Forks
Here are the six other hard forks and when they started.
Bitcoin Diamond: November 24, 2017
Super Bitcoin: December 2017
Bitcoin Atom: January 24, 2018
Bitcoin Core: October 20, 2017
Bitcoin God: December 2017
Bitcoin Private: February 28, 2017
The Bottom Line About Bitcoin Forks
The different hard forks of Bitcoin have wildly varied pricing and different goals.
It’s important to note that buying and selling either original Bitcoin or any of its forks is highly speculative at this point and that you can lose a lot of money quickly. So only spend what you can afford to lose.
If you can’t afford to lose it, don’t buy any of the Bitcoin products.