Everything you need to know about hard forks
In the summer of 2017, Bitcoin got split into two coins: bitcoin (BTC) and bitcoin cash (BCH). A split like that is called a hard fork, and later that year, more forks followed.
What is a Bitcoin hard fork exactly, and what do you need to take into account?
Everything you need to know about Bitcoin hard forks:
- What is a Bitcoin hard fork?
- Why are there Bitcoin hard forks?
- When have hard forks occurred?
- How do I claim the new coin after a fork?
- Will there be more hard forks in the future?
What is a Bitcoin hard fork?
A Bitcoin hard fork is a split in the blockchain. The blockchain is the transaction network of Bitcoin. During a hard fork, the blockchain gets split into two chains: the bitcoin blockchain, and the blockchain of a new coin.
In the case of Bitcoin Cash, there were two coins after the split: BTC and BCH. These cryptocurrencies share the same history and blockchain up until the split. Visually, that looks something like this:
During a hard fork, all history is copied to the new blockchain. The history consists of transaction data and wallet addresses. This means that everyone that had coins on the Bitcoin blockchain before the split, will automatically own the equivalent of the newly originated cryptocurrency.
However, this doesn’t mean that both coins will have the same value. Each coin will have its own price after the split, based on supply and demand.
Why are there Bitcoin hard forks?
The code behind the Bitcoin blockchain is open source. This means that everyone is able to apply improvements or changes to it, as long as the majority of the Bitcoin community agrees with it.
In some cases, the community doesn’t agree on a solution for a certain problem. If there is enough support for both solutions, a hard fork could be implemented. That way, each side can continue with their own solution. This is also what happened with Bitcoin Cash.
When have hard forks occurred?
The most well-known example of a hard fork is the one where Bitcoin Cash forked from Bitcoin. This happened on August 1st, 2017.
Reason behind the split was that the community couldn’t agree on a solution for the scalability problem.
The Bitcoin network can only handle a certain amount of transactions per second. This number of transactions is currently many times smaller than, for example, VISA transactions. That is why Bitcoin needs to find a solution for this problem.
The Bitcoin community could be divided into two different teams before August 2017. One team wants to divide the space in a transaction block more efficiently, and let transactions take place outside the blockchain. This can be accomplished using SegWit and the Lightning Network. This is the solution that Bitcoin (BTC) envisions.
The other team wants to increase the size of the transaction blocks. That way, more transactions will fit in one block. This solution is supported by Bitcoin Cash (BCH).
After this hard fork, there have been several other splits, each with their own motives. Bitcoin Private focuses mainly on (you already guessed it) privacy. Bitcoin Gold wants to increase decentralised mining, and Bitcoin Adult is targeting a whole other industry.
It’s important to note that many of these new projects have little to do with Bitcoin as we know it today. The cryptocurrencies may have the name bitcoin in them, but that’s merely because of their shared history. This doesn’t mean that the coins are better or worse than the original.
How do I claim the new coin after a fork?
After a Bitcoin hard fork you will own both bitcoin and the newly originated currency. But how do you claim the new coin and what do you need to take into account? We will provide you with some tips:
Store your bitcoin in a hardware wallet
It’s always a good idea to store your coins in a hardware wallet, but in times of a hard fork it could be even more convenient. When a new coin gains enough support from the community, hardware wallet manufacturers like TREZOR and Ledger for example are usually the first providers to develop a splitting tool. Such a tool can be used to split your coin in the old and new one.
Be careful in the first days after a fork
If you make a transaction in one of the first days after the fork you could become a victim of a so-called replay attack. The best way to explain a replay attack is by using an example:
During a split, data from the old blockchain is copied to the blockchain of the new coin. If you make a transaction with coins from the new network, hackers can take the transaction data from this transaction, and copy it to the old network.
Hackers can then use this transaction data to remove coins from your wallet. Receiving addresses are generally anonymous, so miners can’t see that it is a hacked transaction.
This problem is usually solved within a few days, by replay protection. This is an adjustment in the algorithm of the new coin, which makes a replay attack impossible.
Be careful with services provided by third parties
This could be a scam. We recommend to wait until your wallet provider supports the new coin, or until you can claim your coins at a reliable exchange. When in doubt, you can always contact us.
Will there be more hard forks in the future?
It’s hard to tell whether there will be a new Bitcoin hard fork in the nearby future. The code will remain open source, and Bitcoin has some development to do before it’s ready as a worldwide payment solution. It’s possible that there are going to be more disagreements in the future, that could lead to new hard forks. But of course we cannot be sure about this.
There are already quite some coins that split from Bitcoin, like Super Bitcoin, Bitcoin Uranium, Bitcoin Lightning, Bitcoin God, Bitcoin Cash Plus, and Bitcoin Silver... Can you still keep track?