What is a Bitcoin Fork? Why They Happen?

These days, the masses continue catching wind of the pending fork planned on or around November 16. Since these jargons such as Bitcoin fork, splits, etc can cause a bit confusion, we thought of explaining about it and what it means for the participants involved in it.

So, what is a Bitcoin Fork?

Fork refers to a change in the Bitcoin protocol which can alter the validity of previous rules. They simply represent protocol upgrades. There are mainly two types of forks: a soft fork and a hard fork.

Even though both forks can create changes to previous rules, there are mainly two differences. A soft fork is backward compatible where new rules can still be interoperable with the legacy protocol. Whereas once a hard fork has occurred, it gets permanent split from the legacy protocol and hence does not have backward compatibility.

So, a soft fork is backward compatible. But a hard fork is not.

Bitcoin fork

Once Bitcoin has come to existence, the blockchain forks occurred several times. The first Bitcoin fork occurred in March 2013 followed by another in August 2013.

The March 2013 fork event was described by the Ethereum creator Vitalik Buterin as,

“Starting from block 225430, the blockchain literally split into two, with one half of the network adding blocks to one version of the chain, and the other half adding to the other.”

Two Bitcoin networks operated simultaneously with each having its own version of the transaction history in the next six hours. The Segregated Witness soft fork (Segwit) was implemented by miners this past summer. On August 1st, another fork occurred when Bitcoin cash split.

The Debate on Scaling

Scaling
credit: coinjournal

The very controversial scaling debate began due to the recent Bitcoin forks after 2013. The debate has prevailed from 2010 due to the 1 MB block size limit. The idea put forward by the Bitcoin founder, Satoshi limits the number of transactions a block can hold. As the network has been experiencing intense congestion currently, people believe Bitcoin needs to scale to more people.

The network fee rate paid to miners is increasing exponentially as the blocks are getting filled upto the limit after transactions occur. Before 2015, it costed around $0.01 per transaction whereas now it costs $5-10 per transaction. In other words; increased transactions caused participants to outbid each other, get their transaction confirmed faster by raising fees causing a drastic increase in fees. Massive failure took place to fix scaling issues through meetings and agreements between miners, developers, and businesses within the Bitcoin community.

Consensus

consensus

Consensus is required to execute a fork that is agreement to the changes by a vast majority of the network’s participants. In 2013 majority consensus was obtained easily in executing forks. To change the software quickly, miners, wallet providers, and exchanges worked together that changed the rules with consensus. The network will split into two parts if the consensus is not attained, then two tokens will exist if both networks prove to be viable. Bitcoin cash and Ethereum classic are examples to this kind of split after a hard fork occurred. Two distinct blockchains with same history exist as the agreement was not met.

Some agreements were made over the past three years but none gained consensus.

The Bitcoin Forks of 2017

bitcoin fork

The blockchain diverged into two networks with different rule sets as Bitcoin cash fork that occurred in August did not achieve consensus. An 8 MB block size increase was implemented by Bitcoin cash and it stripped the Segwit code from the protocol. According to the Bitcoin cash developers, the soft fork was an unnecessary step which caused split before the Segwit2x (BTC1) miners planned to integrate the change. Segwit2x developers have chosen to keep Segwit within the code for the hard fork to occur on November 16, but the miners running the BTC1 software plan might increase the block size from 1 MB to 2MB.

Jeff Garzik, the Segwit2x working group head along with a large team of miners and businesses plan to hard fork the network at block height 494784. It is planned as a part of the New York Agreement (NYA) with a compromise outlined with two forks. The soft fork Segwit has been implemented as the first part of the commitment and a 2 MB block size increase utilizing the hard fork method as the latter part.

Some people believe the change does not have full consensus. Controversy has arisen in social media, forums, and developers’ mailing lists by Segwit2x fork. Some miners and businesses have withdrawn their support to the fork. Whereas the statistics shows over 80% support that provides enough hashrate for the fork to occur at block 494784.

The Fate of Bitcoin Fork

To support the protocol changes or not depends on understanding the questions regarding occurrence of fork such as who, what, where and why. It is up to the investor to decide which Bitcoin fork is to be preferred based on its technical merits. Anyone can fork the Bitcoin network since it follows an open-source protocol but it isn’t necessary that the market will embrace the new blockchain.

The fate of Bitcoin, its forks, and altcoins will be decided by a vast network affect and free market coupled with technical merit. The better Bitcoin blockchain to invest on will be decided by the investor and the free market based on the current status and economic freedom provided to the world.

LEAVE A REPLY

Please enter your comment!
Please enter your name here