Charles H. Miller
You may have heard a thing or two about a Bitcoin fork, or a cryptocurrency fork. This article aims to provide answers to a few popular questions on that matter…
Now that Bitcoin Cash is alive, the topic is steaming hot. So without further ado, here’s what we’ve got…
1. What is a “fork”?
The term itself stems from software engineering where it [fork] happens when developers take a copy of source code from one software package and start independent development on it, creating a distinct and separate piece of software. A “fork” often implies not merely a development branch, but also a split in the developer community, a form of schism.
In the cryptocurrency space, a “fork” is a change to the software of the digital currency that creates two separate versions of the blockchain with a shared history. These forks can be temporary or can be permanent, splitting in the network into two separate versions of the blockchain. When this happens, two different digital currencies are also created.
2. Why do forks happen?
Cryptocurrency software platform are developed and maintained by independent development teams all across the world. These teams are responsible for changes and improvements to the network, and sometime these disparate teams can’t agree on certain things.
And so some group of developers pursue to update the underlying protocol whereas the other group sticks to the core technology. Alternatively, even if all parties agree, the change in technology can produce a new kind of token (cryptocurrency). This is the way some altcoins were born, such as Ethereum Classic and, most recently, Bitcoin Cash (BCH).
Other known forks of Bitcoin Core include Bitcoin XT, Bitcoin Classic, Bitcoin Unlimited and Parity Bitcoin.
3. Do major exchanges support different versions of the same cryptocurrency?
When a fork happens, we effectively get two different cryptocurrencies with shared history — they share the same blockchain up until the moment the fork has happened. It is up to individual exchanges to accept or deny the newly created cryptocurrency. And not all of them are happy to deal with the growing number of tokens. For example, one of the most popular exchanges, Coinbase, supports only one version of a digital currency.
In order to determine which fork to support, they look at factors such as size of the network, market value and customer demand. CoinBase says that supporting a new digital currency requires significant work for many teams, and they have to pick and choose between fractions.
4. What about Ethereum Classic?
Ethereum Classic appeared as a result of disagreement with the Ethereum Foundation regarding The DAO Hard Fork. It united members of the Ethereum community who rejected the hard fork on philosophical grounds. Users that owned ETH before the DAO hard fork received the same amount of ETC after the fork.
Ethereum Classic is less popular than “regular” Ethereum, and is also set to be updated with a different monetary policy which would, like Bitcoin, limit the number of tokens that could be mined to around 210 million (Bitcoin is set to top at 21 million). In comparison, the “regular” Ethereum doesn’t have such a limit.
5. And what about Bitcoin Cash?
Arguably the point of this article, since it was written days after the emergence of Bitcoin Cash…
This, so called hard fork, occurred on August 1, 2017, after the bitcoin community voted, 97% in favor, on the Bitcoin Improvement Proposal (BIP) 91.
The non-tech explanation is that the Bitcoin network needed an update to increase its scalability, with the proposal aiming to increase the block size from 1MB to 8MB. And so the fork was needed, creating a new cryptocurrency as a result — the Bitcoin Cash. Its value has been volatile ever since its inception, though many of the biggest exchanges agreed to offer it.
Bitcoin Cash has inherited the transaction history of the bitcoin currency on August 1, but further transactions are to be separate.
