What is a Bitcoin Fork? Definition from Techopedia - The first knowledge sharing application in Vietnam

What Does Bitcoin Fork Mean?

A Bitcoin fork is a split in the Bitcoin network whereby two separate ‘branches’ are created, each with its own protocol. One branch will continue to follow the pre-fork protocol, while the other will follow a new protocol with different rules.

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Bitcoin forks can be ‘soft’ or ‘hard’ forks. The former type means that the new branch is still compatible with the original branch. The latter type is incompatible with the original branch, meaning a whole new blockchain has been created.

Most Bitcoin forks are created to upgrade the network, whether through increasing transaction speed or enlarging block size. However, not all Bitcoin forks are immediately adopted, and there’s often debate within the community over whether the original or new branches should be used.

Techopedia Explains Bitcoin Forks

Bitcoin forks are a widely-discussed phenomenon within the cryptocurrency market that can significantly impact all stakeholders. These forks fundamentally change how the network operates, how consensus is achieved, and even which digital currency is used.

Given the fast-moving nature of the cryptocurrency market, new technologies are being developed regularly that can enhance a blockchain’s effectiveness. Given that Bitcoin was initially created in 2009, the network’s protocol is relatively outdated. However, it can be upgraded and amended through this forking mechanism.

The critical point to note is that each ‘branch’ resulting from the fork will still share the same foundational aspects of the original blockchain – in this case, the Bitcoin network. Although the branches will have different approaches, they often parallel Bitcoin’s initial setup but with a few notable changes.

Types of Bitcoin Fork

There are two main types of Bitcoin fork – a ‘soft’ fork and a ‘hard’ fork’.

Soft Fork – A soft fork is a way in which the Bitcoin blockchain is upgraded or amended without creating a whole new blockchain. The key trait of soft forks is that they are backwards compatible. No new digital currency is created, so users don’t need to choose between using the old or new blockchain.
Hard Fork – A hard fork is significantly different to a soft fork since a whole new blockchain and digital currency are created. The new blockchain is not backwards-compatible with the old blockchain, although it will mirror it in many ways. Due to this, network users must decide whether to stick with the old blockchain or transition to the new one.

Discussions of Bitcoin forks are usually focused on hard forks since these fundamentally change how network users must operate. Since a whole new blockchain is created, many characteristics will be altered, such as mining difficulty, block size, and transaction cost.

Given the decentralized nature of the blockchain, not all hard forks are well received or supported. Some community members may feel it is a necessary move to improve the blockchain, whilst others may prefer the original setup.

Popular Examples of Bitcoin Forks

Since launching in 2009, the Bitcoin network has experienced several hard forks – some more successful than others. These include:

Bitcoin Cash – This fork occurred in August 2017 and aimed to tackle the scalability issues that surrounded Bitcoin. Bitcoin Cash’s main difference was its block size, which was increased from 1 MB to 8 MB. The Bitcoin Cash blockchain does not use BTC and instead uses BCH as its native digital currency.
Bitcoin Gold – The Bitcoin Gold fork occurred in October 2017 and aimed to improve the accessibility of the mining process. Due to Bitcoin’s size and growth, mining was becoming more challenging for regular people – so Bitcoin Gold introduced a new mining protocol that could be achieved using basic GPUs. The Bitcoin Gold network uses BCG as its native digital currency.

There have also been several proposed Bitcoin forks that never generated enough momentum to continue. These include Bitcoin Unlimited and Bitcoin Classic, which focused on increasing Bitcoin’s block size. However, these blockchains were viewed negatively by the Bitcoin community due to concerns about security and potential centralization.

Although hard forks attract the most attention, there have also been several soft forks that have significantly changed how the Bitcoin network operates. The biggest was Segregated Witness (SegWit), which took place in 2017. This fork ‘segregated’ the witness data from the transaction data within a block, thereby increasing block capacity.

As a result of the SegWit soft fork, Bitcoin’s efficiency increased dramatically. Transaction times were decreased, whilst transaction security was increased. SegWit also paved the way for the Lightning Network to come to fruition, which is a crucial driver of Bitcoin adoption globally.

Are Bitcoin Forks Necessary?

There’s no clear answer to this question, as some people may think that Bitcoin itself is good enough, whilst others may believe the blockchain needs to be upgraded. The difficulty in answering this question is even more pronounced regarding hard forks since these cannot be reversed.

Since Bitcoin’s launch in 2009, countless cryptocurrencies that utilize disruptive technologies have emerged. This means they can provide faster transactions, lower fees, and more security. As such, Bitcoin’s effectiveness is questioned when compared to some of these cryptocurrencies.

This is the main argument of those that are ‘pro-fork’. However, as highlighted above, not all Bitcoin forks are successful. Moreover, some forks may be unstable and dangerous, which is why there’s so much debate over them.

Ultimately, whether to use a new Bitcoin fork will rest with individual users. Some forks may offer functionality that the original Bitcoin network does not, which may appeal to specific users. However, for many people, the original Bitcoin network continues to meet their needs.