What are Bitcoin Forks?

A ‘fork’ is a change to the software of a digital currency that creates two separate versions of the blockchain with a shared history. When this happens, a new digital currency – the forked version – is created. What’s important – private keys, that held balances of coins before the fork, provides ownership of forked coins as well. 

A fork can occur in any crypto-technology platform, e.g. Ethereum, Litecoin or Monero, but currently the most popular cryptocurrency here is of course Bitcoin. Basic principles governing Bitcoin had their pros and cons, but essentially Bitcoin became a victim of its success and along with its popularity new issues arose – relatively high fees, high energy consumption, slow transaction times, etc. 

A solution, that would scale as more users bought and sold the product, was needed. That’s where the forks stepped in.

So in August 2017 a Bitcoin fork brought a new – and the most relevant for now – fork coin into existence: Bitcoin Cash (BCH). Bitcoin Cash initially changed from 1 MB to 8 MB (then to 32MB in 2018) so more transactions could be processed with each block and whole verification process could be sped up. 

Despite these improvements the community split – some supported this change and switched to Bitcoin Cash, and there were those who decided to stay with the original rules and keep using the original Bitcoin.

Depending on scope of modifications we distinguish “backward-compatible” soft forks, where transactions are recognized by both old nodes and new nodes and don’t create new coins,  and hard forks, which don’t allow this and result in the creation of a totally different coin. 

So both forks create a split, however a hard fork creates two blockchains and a soft fork is meant to result in one.

This will be covered in more detail in the next chapter.

What is a Hard Fork?

The main difference between a soft fork and a hard fork is an extent to which an update is respected by miners. If all miners agree with the new rule and then proceed to only validate blocks that respect it, then there is no need for a new chain to split off.

However, if there is no agreement around the rule change, then some miners will continue to validate blocks according to the old rules, while others will validate according to the new rules. As a result blocks mined by each group will be incompatible with the other. This results in a hard fork, e.g. Bitcoin Cash which was mentioned above. 

So digging deeper – a hard fork occurs when nodes of the newest version of a blockchain no longer accept the older version of the blockchain. This creates a permanent discrepancy from the previous version of the blockchain. Adding a new rule to the code basically creates a fork in the blockchain. As a result one path follows the new, upgraded blockchain, and the other one continues along the old path. After some time part of users of old chain will realize that their version of the blockchain is outdated and quickly upgrade to the latest version. However nodes that are not upgraded reject the new rules and thus create a hard fork.

This “spin-off” nature of forks also results in confusing names, usually very similar to it’s originator, e.g. Bitcoin: bitcoin cash, bitcoin gold, bitcoin satoshi vision etc. Reasons behind implementation of hard forks vary: to address security issues with the older version, add new functionalities or sometimes to reverse transactions, which occurred as a result of far-reaching scams (and to help victims of such scams reclaim their stolen funds).

What is a Soft Fork?

On contrary to a hard fork, a soft fork is a change to the software protocol where only previously valid transactions are made invalid. Since old nodes will recognize the new blocks as valid, a soft fork is backward-compatible. As opposed to a hard fork that requires all nodes to upgrade and agree on the new version, a soft fork requires only a majority of the miners upgrading to carry out the new rules. So if at least 51% of the mining power switches to the new version, the system corrects itself. However, if less than 51% of miners shifts, the blockchain-fork will not change automatically as the chain created under the old rules has more hashing power and is incompatible with the new rules. 

Despite these possible complications, soft forks’ “backward-compatibility” feature has been used many times on the Bitcoin and Ethereum blockchains to implement new components that are backward compatible. 

SegWit (which stands for Segregated Witness) is a good example of Bitcoin’s soft fork. The SegWit protocol upgrade intends to reduce transaction size by not including transaction signatures in the block. As signatures constitute a large percentage of the size of a transaction, their removal means that more transactions can be processed per block. The result is lower transaction fees and shorter confirmation times. 

Would you like to know more about SegWit soft fork? Read this article. 

The new rules allow a subset of the previous valid blocks, therefore all blocks considered valid by the newer version are also valid in the old version.

Blocks created by old versions, that are invalid under the new paradigm, might commence a short-term “old-only blockchain-fork”, but eventually, they would be overtaken by the chain fork created under the new paradigm, as the hashing power working on the old paradigm would be smaller (“only old versions”) than on the new paradigm (“accepted by all versions”).

Soft forks allow only a certain number of blocks to be a sub-category of what was valid before the fork happened, therefore it can’t be reverted without a hard fork. If after an upgrade for some reason the majority of miners will start using the old version again, post-soft fork client users would negate any future blocks from the past. So the general rule is – the more miners that accept the new rules, the more secure the network is post-fork.

Full list of Bitcoin Forks

We present you the most up-to-date list of active forks (inactive forks and airdrops have been excluded):

How to claim Bitcoin Forks?

Currently more than $300 Million in crypto forks remain unclaimed. There are multiple ways to claim your Bitcoin forks, however the majority of them are time-consuming and – what’s more important – not entirely safe, e.g. downloading each fork’s wallet and using your private key is a very risky method as it may contain malware. That’s why Coinfirm launched a dedicated service to support everyone, who looks for a safe and easy way of reclaiming their forks. More details can be found here.

Summary

Thousands of new forks emerged since Bitcoin started to gain popularity, some of them imitating its originator to gain legitimacy, others to improve the Bitcoin protocol. It became a well known and widely accepted element of crypto space. Thanks to forks when any disagreements occur, the whole community – including developers, miners and investors – have their fair share of voice.

As history shows, not all forks will last, but definitely we’ll see more launches in upcoming months and years, some of them resulting in brand new cryptocurrencies.

About Coinfirm

Coinfirm is a global leader in AML and regulatory technology for blockchain and cryptocurrencies. It offers the industry’s largest blockchain coverage, supporting over 1,500 cryptocurrencies and protocols including Bitcoin, Ethereum, Hyperledger, and many more. Coinfirm’s solutions are used by market leaders globally, ranging from crypto exchanges such as Binance, and protocols like XRP, to major financial institutions like PKO BP. The company’s services also include Reclaim Crypto, as well as Trudatum, a standalone regtech platform that allows any file to be registered, signed, and verified with 100% accuracy.