What is a Bitcoin Fork and Why does it Happen?
If you’re following the latest trends on cryptocurrencies especially Bitcoin, you might have heard of the term “forks”. I’m not talking about the fork you use for dining. I’m talking about the technical event which happens due to the need for a number of participants to reach an agreement on a few common rules.
One of the main question that should be raised is: “Does this fork event support or help Bitcoin in order to get more acceptance by the public?”. I personally fear no, as people like potential investors have no clue about this process and why it is used in a “currency like” system.
Basically, a fork is an event when a blockchain gets separated into two different paths. This could either be a new rule deciding a transaction’s validity or the transaction history of a network. Due to this, blockchain users are forced to choose which of the two choices they should stick with.
There are actually several types of forks. However, there’s still not much information or science behind them. So far, there are types of forks capable of resolving on their own. However, some are fueled by deep community disputes, which lead to the creation of two blockchain histories. Along with this, comes the creation of two separate currencies.
A lot of individuals are also confused about the types of forks, the risks they bring, and how they occur. To make it easier to understand, we’ve created an overview of the different fork types and how they work.
Learning – The Basics
Before anything else, keep in mind that Bitcoin forks have already occurred on a regular basis.
Forks are a byproduct of distributed consensus and occur when two miners happen to locate a block at almost the same time. This can be resolved with the addition of subsequent blocks to one, thereby causing it to become the longest chain. On the other hand, the other block becomes an abandoned or “orphaned” block.
However, it is also possible to introduce forks into the network. This can be done by developers when they want to modify the rules used by the software for assessing a transaction’s validity.
When there are invalid transactions in a block, it gets rejected. As a result, the respective miner will gain no block reward at all. This has prompted miners to only mine valid blocks.
Here are some of the most common types of forks:
What’s a hard fork?
A hard fork happens when a software upgrade has a new rule, which isn’t compatible with its previous version. It’s basically an expansion of the current rules. A new rule which indicates that a block size should be 2MB rather than 1MB will require a hard fork.
What happens during a hard fork?
In the event of a hard fork, nodes that run the old software version will invalidate new transactions. Hence, in order to continue mining valid blocks, a new version upgrade for all nodes within the network is necessary.
What issues might arise?
However, issues arise when a huge part of the Bitcoin community chooses to stick with the old rules regardless of what happens, particularly during a political impasse. A network’s computing power, likewise known as the hash rate, that supports the old chain becomes irrelevant. The only thing that matters is that data still has value; therefore, miners will still continue mining a chain while developers continue supporting it.
One of the best examples of how a community gets separated by different rules was the ethereum DAO hard fork case. This resulted in two blockchains that use the software’s variant: ethereum and ethereum classic. Each of them has a different currency and ethos.
What’s a soft fork?
While hard fork refers to the expansion, the soft fork is the opposite. For example, instead of a 1MB block size, this might result in only 500K blocks.
What happens during a soft fork?
As a result, nodes which have not yet upgraded will validate those new transactions. The problem is, if they continue mining blocks, their output will be ignored by the newer version nodes. It is for this reason why soft forks should have a major portion of a network’s computing power.
What issues might arise?
A soft fork can end up becoming the shortest chain if there’s not enough hash power to back it up. As a result, it gets abandoned by the network. In some cases, it can also act as a hard fork.
It’s believed that soft forks pose a lower chance of splitting the network. Due to this, they are the most preferred option for upgrading the Bitcoin blockchain. A few examples of a successful soft fork include software upgrades such as the BIP 66 for signature validation and P2SH for Bitcoin’s address formatting.
User-Activated Soft Fork
What’s a UAS fork?
There’s a popular idea which states that there’s a possibility of a blockchain adding an upgrade, which is outside the jurisdiction of those who provide hashing power to the network. The concept behind a user-activated soft fork is that wallets, exchanges, and businesses that operate full nodes will have the power required for activating a soft fork. This means that it’s no longer necessary to wait for support from the mining pools.
What will happen?
If this happens, most major exchanges will need to support the change publicly before a new code is written and implemented. Afterward, the new software with an activation point is then installed on nodes aiming to play a role in the soft fork.
What issues might arise?
The major issue with a user-activated soft fork is that it requires a lot of work as compared to a hash power triggered fork. Moreover, it’s believed that the process of writing and implementing the code will take a year or even longer.
This also opens up the issue of most miners not activating the newly introduced rules. As a result, they can use their hash power as a means of splitting the network.
For now, this is still a concept and not yet implemented. But who knows? Sooner or later it might come to fruition.