BITCOIN FORKS

Cryptocurrencies like Bitcoin and Ethereum run on decentralized, open software called the blockchain, where anyone can contribute. They are called blockchains because they literally consist of blocks of data. You can imagine it as a very long train that allows you to see even the first transaction made on the network.

Because most digital currencies are open source, they have independent development teams responsible for changes and improvements to the network. These improvements are similar to changes in internet protocols that make web browsing better over time. In other words, forks are carried out for purposes such as making cryptocurrency transactions more secure or adding other features. Fork when a community makes changes to the blockchain’s protocol or set of ground rules. In this case, the chain splits and a second blockchain emerges, which has a history in common with the original chain but is moving in a new direction.

As Bitcoin has become more popular, the blockchain technology it is built on has slowed down as well. This has made the cryptocurrency system unreliable and transaction fees higher. Because this slowdown was a big problem, Bitcoin needed to come up with a solution. This is where forks come into play.

There are two main types of forks: Hard Forks and Soft Forks.

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Hard Fork: A hard fork happens when the new version is not backwards compatible with old blocks because the code has changed drastically. In this scenario, the blockchain is split into two: the original blockchain and the new version following the new rules. This creates an entirely new cryptocurrency, and that’s how most of today’s recognized coins were born. Cryptocurrencies like Bitcoin Cash and Bitcoin Gold evolve from the original Bitcoin blockchain with a hard fork.

After the hard fork, no transaction or communication takes place between Bitcoin and the new type of bitcoin. Both are different from each other and their changes are permanent. This means that if you are running legacy Bitcoin software, you will no longer be able to interact with users upgraded to newer software.

We can compare forks to different departments in a company. Just as there are many departments in a company such as the human resources department, the IT department, the new cryptocurrencies that are hard forked are like the departments of the company.

Soft Fork: You can think of a soft fork as a software upgrade for the blockchain. This becomes the new standard of currency when adopted by all users. Soft forks have been used to bring new features or functionality to both Bitcoin and Ethereum, often at the programming level. Because it’s a single blockchain after all, changes are backwards compatible with the pre-fork block.

The biggest difference between a soft fork and a hard fork is that the soft fork is backward compatible. In other words, small changes are made on the blockchain in a soft fork. This means that the new protocols and transactions implemented can be recognized by both old and new nodes in the system. But in hard fork this is not the case.

So How Can Investors Benefit From Forks?

Investors can certainly benefit from forks, and there are several ways to do so. The first is called an “airdrop”. Airdrops occur when a new cryptocurrency is created from a hard fork of an existing cryptocurrency. Thus, investors can get “free” money when they have hard forked cryptocurrencies. For example, when Bitcoin Cash came out, everyone who owned Bitcoin also received an equal number of Bitcoin Cash coins.

You can also invest in new cryptocurrencies created by hard fork. Hypothetically, you are likely to profit from this investment. For example, those who invested in Litecoin and kept their earnings after being hard forked made a lot of money.

Investors can also benefit from soft forks because they often make their cryptocurrencies stronger by soft forking. Stronger cryptocurrencies tend to be better responsive and resilient to problems that may be encountered. This affects the price positively.

Dangers of Bitcoin Forks

The reason for these forks is not to benefit the blockchain system, but to make easy money. The rules are changed in such a way that the developers reserve a large part of the new coin for themselves and sell the coins they bought on the market as soon as the coin is on sale.

Some forks are blatant scams. One of the ‘forks’ that can be shown as an example is: Bitcoin Platinum. @bitcoinplatinum, the official twitter account of the Bitcoin Platinum project, allegedly created by a South Korean teenager, claimed that it will hard fork the Bitcoin protocol in block 498,577. This account also stated that Bitcoin should be shorting by creating fud for Bitcoin. Based on tweets posted by Bitcoin Platinum, the motivation behind the Bitcoin Platinum project was obviously to try to lower the price of Bitcoin by bringing a hard fork and profit from it by shorting bitcoin.

Also, sometimes forks can create a lot of drama and cause fights or arguments between miners and developers about certain cryptocurrencies. The best example of this is the Bitcoin Segwit2X hard fork. When Segwit2X came out in 2017, it completely divided the Bitcoin community and caused fierce debate between the two opposing parties within the community. The planned hard fork was canceled because there was no consensus. Although such discussions are seen in the Bitcoin community, sometimes it seems necessary to have such discussions in order to make the right decisions.

2 Important Soft Forks in Bitcoin:

1. SegWit:

The SegWit protocol update was designed in 2017 to enable Bitcoin to scale and increase its reliability.

Bitcoin can only process only 7–10 transactions per second in its base layer. Bitcoin’s underlying technology, although revolutionary, had become a hindrance to Bitcoin’s development. SegWit is the process of increasing the block size limit on a blockchain by removing signature data from Bitcoin transactions. When certain parts of a transaction are removed, it creates the capacity and space to add more transactions to the chain.

SegWit also fixed the issue where transactions could be decrypted, which caused BTC transaction data to be exchanged without performing network transactions. This issue could have made your accounting records a nightmare. SegWit; allowed the signature information to be stored outside the block where the related transactions are located, and at the same time managed to verify them.

SegWit was not completely adopted by Bitcoin participants, as it is not mandatory and causes different opinions among users in the ecosystem. Despite the benefits of SegWit, not all participants in the Bitcoin network chose to use it. With reduced profit rates as transaction fees dropped, miners opted to use AsicBoost firmware, which is incompatible with SegWit.

There are currently over 50.5% SegWit wallets and tools usage.

2. Taproot:

It is one of the biggest updates on the Bitcoin network and took place on November 14, 2021. The update was one of the most anticipated and most important technological upgrades to the Bitcoin protocol since the SegWit (Segregated Witness) update in 2017, and is designed to improve the efficiency and privacy of the Bitcoin network.

The update also promotes the implementation of smart contracts on Bitcoin, removing middlemen from transactions and paving the way for DeFi (Decentralized Finance) for Bitcoin.

In simplest terms, the Taproot update combines multiple actions and signatures. Prior to the implementation of Taproot, transactions on the Bitcoin network were slow because every signature was validated against a public key. This method has significantly increased the time taken for complex transactions that require multiple inputs and signatures. Taproot allows for batch operations, allowing multiple signatures to be verified at once. In this way, extreme efficiency is achieved in transactions involving multiple parties and concentrating multiple inputs on a single input. The update also had significant effects on privacy, making it difficult for observers to distinguish between single and multi-signature transactions, as well as removing the distinction between participants in the Blockchain.

5 Important Bitcoin Forks:

1. Bitcoin Cash (BCH):

Bitcoin Cash (BCH) was launched in August 2017 by a group within the Bitcoin community that disagreed with Bitcoin’s scaling roadmap and SegWit upgrade. The new chain, called Bitcoin Cash, was started by miners and developers who wanted to solve Bitcoin scaling limitations that result in long transaction times and high transaction fees, by enabling larger blocks.

The Bitcoin community’s argument against larger blocks is that it will eventually lead to centralization as the size of the blockchain will eventually swell, making it harder for individuals to run nodes themselves.

2. Bitcoin SV (BSV):

Bitcoin SV (BSV), a fork of a fork, was released in November 2018 as a hard fork of Bitcoin Cash. BSV has been forked by a group of BCH community members led by Craig S. Wright and Calvin Ayre, who claimed that the features of BCH were not important enough to meet the requirements for successfully scaling the Bitcoin Cash blockchain. Also, BSV supporters strongly supported reverting to the original Bitcoin design represented in Bitcoin version 0.1. Bitcoin SV uses the name ‘Satoshi Vision’ to refer to the Bitcoin whitepaper that does not support layer two, off-chain scaling solutions.

On a technical level, BSV is designed with a default block size of 128MB, which will be increased to 2GB in the next update. The new structure was intended to provide more transaction fees as well as process more transactions as a way to encourage miners to issue new blocks even when the block rewards finally expire.

BSV’s leader, Craig S. Wright, continues to claim that he is Satoshi Nakamoto, the creator of Bitcoin, although he has no proof. Since Wright’s claim is important to BSV’s reason for existence, his inability to prove his claim also affected the price of the altcoin.

3. Bitcoin Gold (BTG):

Bitcoin Gold (BTG) was created in October 2017 with the slogan “Make Bitcoin decentralized again”.

Jack Liao and other co-founders aimed to achieve this goal by creating a version of Bitcoin that can be mined using GPUs that anyone can run at home. They argued that mining has become too complex and costly for people to mine BTC using their personal computers, so they chose a GPU miner-friendly proof-of-work algorithm called Equihash BTG.

BTG has managed to become a popular coin among home miners, but apart from that it has failed to establish a significant use case.

4. Bitcoin Diamond (BCD):

The Bitcoin Diamond (BCD) fork took place in November 2017, when Bitcoin forks were popular. BCD founders launched their own chain with the aim of improving the Bitcoin protocol by increasing transaction times, lowering transaction fees and increasing privacy.
They implemented a new proof-of-work consensus algorithm aimed at blocking network attacks and separating transaction signatures from on-chain transactions to increase capacity to achieve a higher on-chain transaction throughput per second.

5. Bitcoin Private (BTCP):

Bitcoin Private (BTCP) was created in March 2018 from a hard fork of Bitcoin and Zclassic (ZCL). The purpose of creating Bitcoin Private was to combine the privacy features of Zclassic with the security of Bitcoin.

Bitcoin Private was not a standard fork, but a “fork combination” forking from the Bitcoin protocol and combining it with Zclassic.

Let’s talk a little bit about the market values ​​of Bitcoin forks.

Love it or not; Some of Bitcoin’s biggest forks have a market capitalization of hundreds of millions or even billions: Although the proponents of these projects claim that altcoins deserve this market value, top investors in the space expect these values ​​to flow off their chains and into these two markets. : Bitcoin and decentralized finance (DeFi)

According to Jason Choi, an investor at crypto startup and hedge fund Spartan Group, there is currently no reason to invest in long-term Bitcoin forks.

The value on this chain, which Choi calls “glorified digital assets,” will eventually flow into DeFi and Bitcoin, according to the investor.

As a result, both soft and hard forks can generate a lot of controversy in the cryptocurrency world. This is because forks create change. Many people do not accept the change when it comes to cryptocurrencies because they want to prefer the original coin and they want it to remain authentic.

However, the cryptocurrency industry is inherently innovative. There are constant improvements and changes in the crypto world, and there are many people who want to do it. Bitcoin has dominated the market for much longer than any other cryptocurrencies since 2009. This has created a high level of trust in the crypto market and despite numerous hard forks, it has continued to remain the number one cryptocurrency by market capitalization.