Forks, forks everywhere
If you thought Bitcoin forks were over, well… they are not.
Everyone remembers Segwit and Bitcoin Cash, the fork that happened earlier this year in August after a heated debate that lasted years. But these forks aren’t all that’s in store for Bitcoin in 2017. For the rest of this year alone, we will see two events that may cause Bitcoin to fork again:
In October 2017
Bitcoin Gold’s fork is expected to take place this month on October 25. Bitcoin Gold promises to make Bitcoin “decentralized again” by proposing a major change in the way Bitcoin works, Gold’s main proposition is to change the mining algorithm that Bitcoin uses for one that allows anyone to mine Bitcoin using a graphics card (a GPU).
But… wasn’t this possible already?
Yes it is, but you won’t mine Bitcoin using a GPU if you expect to see any significant portion of a Bitcoin in a reasonable time-frame. Let’s rewind for a second, and remember the history of Bitcoin mining up until Bitcoin Gold.
Bitcoin uses a consensus mechanism called Proof of Work where miners race to mine a new block that creates new Bitcoins every 10 minutes. The current mining process uses a standard hashing algorithm called SHA256. The process of mining a new block takes A LOT of computing power, but it wasn’t always that way. Satoshi Nakamoto, the creator of Bitcoin, initially thought that anyone with a CPU would be able to mine or “mint” new Bitcoins using their CPUs. Part of the reasoning behind Proof of Work, was to allow anyone with a personal computer, or even a smartphone, to mine Bitcoin and participate in the network.
“If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs. Proof-of-work is essentially one-CPU-one-vote” Satoshi Nakamoto
This held true for the first few years after 2009, but since then, mining has become so difficult for CPUs, that miners had to use different chips such as GPUs and FPGAs instead. Miners even had to work together by forming associations called “mining pools”, where anyone that contributed mining power to the pool would get a share of the Bitcoins collectively mined. The share of the new Bitcoins that each miner gets is equivalent to their contribution of hashing power.
The dawn of ASICs
After mining pools, GPUs and FPGAs, the most disruptive event in Bitcoin’s mining history is the introduction of ASICs in 2013. An ASIC is an “application specific integrated circuit”, or a computer chip that is designed to only perform one task. Unlike CPUs and GPUs, which can perform any computational task, ASICs can only run one program. ASICs aren’t reprogrammable like traditional computing chips, the program that an ASIC runs is physically written on the chip. You may ask yourself… Why would anyone want an ASIC, it doesn’t sound very useful compared to a CPU or a GPU? The only reason to have an ASIC is performance. ASICs are faster because the electricity “carrying” the input has to travel less circuits and less logic cells before it comes out the other way with the desired result. In fact, an ASIC’s performance is so superior at running a custom program like SHA256, that ASICs have basically made all CPUs and GPUs in the market obsolete for the purpose of mining Bitcoin. This is something very well known by Jack Liao, the founder of Lightning ASIC, a mining firm based out of Hong Kong, and the person behind Bitcoin Gold.
Bitcoin Gold’s proposal is to allow anyone with a GPU to mine Bitcoin by changing SHA256 to Equihash, a memory demanding hashing algorithm that is harder and more expensive to implement as an ASIC. The logic behind Bitcoin Gold is that by ruling out ASICs, Bitcoin mining would once again be doable by people with non-specialized and less costly hardware like a GPU. Equihash is the algorithm being used by Zcash, the famous privacy-focused cryptocurrency. This chart shows how Bitcoin Gold compares to other Bitcoin forks according to one of Bitcoin Gold’s developers:
On October 25, the exact block at which Bitcoin Gold will launch is going to be picked and announced. From October 25 until network launch, the Bitcoin Gold’s blockchain will be frozen, meaning that no new transactions or blocks will be added until the launch some time in November.
In November 2017 (the month of forks)
We see Bitcoin Gold once again, but this time launching its coin. Even though Bitcoin Gold’s user-activated hard fork will take place on October 25, the full network launch is scheduled to happen sometime in November, possibly November 1st. This is when the first Bitcoin Golds will be mined with GPUs.
After Bitcoin Gold launches, it is still unknown wether it will be successful, since most of the community is still unfamiliar with Bitcoin Gold. We also have not yet seen major players like exchanges or wallets planning to support this fork. Popularity aside, Bitcoin Gold is, at the very least, an interesting proposal that opens up the debate for more decentralized mining.
Time will tell wether Bitcoin Gold is successful, but one thing is for certain, the existing mining community won’t suddenly give a strong support to Bitcoin Gold, because their mining farms consisting of thousands of ASICs would become worthless if something like Bitcoin Gold were to succeed as the most supported form of Bitcoin.
Moving onto the next event that could cause Bitcoin to fork again in November 2017, let’s look at Segwit2x.
Segwit2x is a hard fork that is expected to replace Segwit, if Segwit2x gets implemented, blocks will have their maximum size expanded from 1MB to 2MBs, effectively making Bitcoin capable of processing as much as 4 times the amount of transactions that it could process at the beginning of the year, and exactly twice as many transactions as Segwit. Unlike Segwit (which is a soft fork), Segwit2x will “hard fork” Bitcoin, meaning that it won’t be compatible with older Bitcoin clients. This is what could cause yet another fork between the nodes that updated to Segwit2x and the nodes that did not update and decided to stay with Segwit. The possibility of a hard fork exists here mainly due to political reasons, a portion of the community doesn’t like that forks are “forced” onto users by miners and other important players, and think that node operators and individual users should decide to upgrade or not.
My personal opinion is that the new coin caused by the Segwit2x fork is unlikely to be popular among Bitcoin users. This is because most wallets and miners that are running Segwit, are already in favor of Segwit2x, which has been under testing since June. To back my claim, you can check the list of companies supporting Segwit2x here, and, the amount of miners signaling in favor of Segwit2x here (94% of miners at the time of writing). However, I encourage you to make up your mind and decide on your own, as the list of companies against Segwit2x is also significant.
Officially, Segwit2x’s hard fork is planned to happen on block #494,784. If after that block there were Bitcoin nodes and miners still running Segwit without 2x, there would be a new working coin that people may refer to as “Segwit coin”, or some other name that their backers come up with. However, if Segwit alone remains the most accepted version of Bitcoin, it would still be called Bitcoin, while the supporters of Segwit2x would probably adopt a new name such as “B2X”.
As for what to do with your Bitcoin if the forks happen, you basically have 2 options:
- Do nothing. if you control your private keys, you can simply hold your Bitcoin. After the forks are over, if there were new coins that resulted from the fork, you could use your private keys that held Bitcoin before October 25 to access all coins including: Bitcoin, “Segwit coin” or “B2X”, and Bitcoin Gold. Then, you could send them to an exchange, and trade them like any other altcoin.
- Move them to a wallet you control. If you are holding Bitcoins through a wallet that doesn’t let you access your private keys, or if you hold your Bitcoins in an exchange that doesn’t plan on supporting the new forks, it is very likely that you won’t be able to access Bitcoin Gold, “Segwit coins” or “B2X” any time soon, possibly never. So, if this is your case, it may be convenient to move your Bitcoins to a wallet that let’s you access your private keys (Note: This is not financial advice).
Big edit: Bitcoin Gold’s fork happened sooner, in October 23 at block 491,407. Those miners really put the pedal to the metal as Rick says.