Here is everything you want to know about Bitcoin forks!

As we all know, Bitcoin was first proposed by Satoshi Nakamoto in 2009. It is a P2P virtual currency generated through a large amount of calculations based on a specific algorithm. The Bitcoin system uses a distributed database composed of many nodes in the entire P2P network to confirm and record all transactions, and uses cryptographic design to ensure the security of each link in the currency circulation.

Any system will have "client upgrades", and the Bitcoin network is no exception. In the process of Bitcoin upgrades, soft and hard forks and expansion issues arise.

1. What is Bitcoin Fork?

1. “Soft Fork”:

The so-called soft fork is: "A temporary fork in the block chain which commonly occurs when minersusing non-upgraded nodes violate a new consensus rule their nodes don't know about."

Translation: When the new consensus rules are released, nodes that have not been upgraded will produce illegal blocks because they are unaware of the new consensus rules, resulting in a temporary fork.

The most well-known soft fork occurred in the first half of last year, when Bitcoin Core was upgraded to Bitcoin Core 0.12.1. Unlike previous updates, Bitcoin Core 0.12.1 focused more on improving the scalability of the Bitcoin network and introduced four different Bitcoin Improvement Proposals, namely BIP 9, BIP68, BIP 112 and BIP 113. The inclusion of these new BIPs made Bitcoin Core more compatible with soft forks and the implementation of the Lightning Network to solve the Bitcoin block size and transaction backlog issues, and was called a CSV soft fork by the community.

In fact, Bitcoin had an important upgrade in 2012, called P2SH, which was called "multi-signature soft fork" by the community. This is a modification of the Bitcoin transaction signature script, which makes it very convenient to send Bitcoin transactions through multi-signature.

Through the above two examples, we can define soft fork as follows: soft fork means that when the data structure of Bitcoin transactions (this is the widely circulated "consensus") changes, non-upgraded nodes can verify the blocks produced by upgraded nodes, and upgraded nodes can also verify the blocks produced by non-upgraded nodes.

2. “Hard Fork”:

The so-called "hard fork" means: "A permanent divergence in the block chain, commonly occurs when non-upgraded nodes can't validate blocks created by upgraded nodes that follow newer consensus rules."

Translation: A permanent divergence occurs in the blockchain. After the new consensus rules are released, some nodes that have not been upgraded cannot verify the blocks produced by the upgraded nodes. Usually a hard fork occurs.

On March 12, 2013, bitcoinqt 0.8.0 was released. Version 0.8 used a new database, level db. Some miners upgraded their nodes to bitcoinqt 0.8, while others continued to use bitcoinqt 0.7. Both parties produced blocks, but the blocks produced by the new database used by bitcoinqt 0.8 were rejected by the qt0.7 nodes. The specific reason was that the old database sometimes did not accept blocks larger than 800Kb. Therefore, at block height 225430, the bitcoin blockchain was split into two chains, resulting in two chains in the bitcoin blockchain, one containing blocks larger than 800kb, and the other refusing to recognize these chains containing larger blocks, which led to a hard fork.

At that time, miners using bitcoinqt 0.8 abandoned the chain they were mining and returned to bitcoinqt 0.7 to continue mining. This hard fork was an accident. There was a bug in the bitcoinqt 0.8 software, which caused the nodes using the old software to refuse to verify the blocks produced by the nodes using the new software. But the cause of the hard fork was that the nodes using the old software version refused to verify the blocks produced by the nodes using the new software version, and then both sides mined separately.

On July 4, 2015, the Bitcoin blockchain had a hard fork at block height 363731. At that time, Bitcoin Core developers added BIP 66 to the new version of Bitcoin Core 0.10.0. This was originally a soft fork modification. When the major mining pools on the Bitcoin network used version 0.10 of the software, one mining pool, BTC Nuggets, did not upgrade, resulting in two blocks mined by BTC Nuggets being rejected by other miners. Then both parties mined to continue what they believed to be the correct blockchain, resulting in a hard fork and splitting into two chains. Subsequently, bitcoin.org issued an announcement calling on miners to upgrade to bitcoin core version 0.10.2 to eliminate the fork. This was also an accident. The cause of the hard fork was that the nodes using the new software version refused to verify the blocks produced by the nodes using the old software version, and then both parties mined separately.

The above two are examples of accidental hard forks of Bitcoin. The former was due to disagreements on the format of the newly generated blocks on different nodes, and the latter was due to disagreements on the transaction format on different nodes. But in the end, both were abandoned and returned to the main chain of Bitcoin.

Based on this, we define hard fork as follows: Hard fork refers to when the Bitcoin block format or transaction format (this is the widely circulated "consensus") changes, non-upgraded nodes refuse to verify blocks produced by upgraded nodes, but upgraded nodes can verify blocks produced by non-upgraded nodes, and then everyone continues the chain they believe to be correct, so it is divided into two chains.

3. Bitcoin "scaling problem"

The original setting of Bitcoin was that each block size was 1M, with one block generated every ten minutes on average. The Bitcoin network can theoretically process up to 7 transactions per second. With the continuous growth of Bitcoin holders and transactions on the blockchain, the original 1M block size is no longer sufficient to support the growing volume of transactions, and problems such as network congestion and transaction delays are becoming increasingly serious. In order to solve these problems, the Bitcoin community has explored various solutions, mainly including "Segregated Witness + Lightning Network" and modifying the code of the Bitcoin blockchain, in order to break through the 1M block limit, that is, Bitcoin expansion.

The most representative of all expansion solutions are as follows:

BIP100: Miners vote to write the new block upper limit in the Coinbase transaction, and the new value has a 20% floating space on the current basis. The new size can be activated when 80% of the computing power of the entire network participates.

BIP101: Starting from 2016, the limit will be immediately raised to 8M, and then doubled every two years until 2036, when the upper limit of a block size will be 8.2G.

BIP102: The volume limit is increased from 1M to 2M at one time.

BIP103: Increase by 4.4% in each specific cycle, equivalent to an annual growth rate of 17.7%, until July 2063, when the volume cap is approximately 1.4G.

BIP109: The volume limit is increased from 1M to 2M at one time, but it requires 75% of the computing power of the entire network to activate.

BIP248: The volume will be increased to 2M in 2016, 4M in 2018, and 8M in 2020.

The above are just representative solutions. There are many other solutions. The solution that has barely reached consensus is the "New York Consensus", which is to first deploy Segregated Witness on the main chain of the Bitcoin blockchain, and then expand the block size from 1M to 2M in November. By then, the problem of Bitcoin transaction congestion is expected to be alleviated. However, this solution has not been recognized by the Bitcoincore development community. There are no Bitcoin core developers involved in the New York Consensus. The core team threatened that if the expansion is implemented, the team will fork again before November and stick to the 1M block size. The expectation of the fork this time is based on this background.

The issue of Bitcoin expansion is still under debate.

2. Changes in Bitcoin Upgrade

1. Bitcoin core

When talking about Bitcoin forks, we have to mention Bitcoin core, the "royalist" party of Bitcoin.

The earliest Bitcoin was developed by Satoshi Nakamoto. After Satoshi Nakamoto retired, the development and maintenance tasks of Bitcoin were passed from Satoshi Nakamoto to Gavin. Gavin felt that his dictatorship was not good, so he decentralized the code authority to other four developers. Later, other developers joined and developed into the current Core development team. But later, there was a disagreement within the Core development team on whether to remove the 1M limit according to Satoshi Nakamoto's plan. Most developers felt that this limit should not be removed, while some felt that this limit should be removed. As a result of the intensified conflict, Gavin, Jeff and other developers who supported the removal of the 1M limit were kicked out of the Core team and their code permissions were deleted. Then these developers, including some new developers who supported the removal of the 1M limit, established development teams such as XT, Classic, and BU.

As die-hard fans of Bitcoin, the Bitcoin core team firmly believes that Satoshi Nakamoto's original purpose in creating Bitcoin was to provide people with a decentralized and secure transaction network, and that security, irreversibility, and independence are its essence. Once a hard fork occurs, the block size will increase from 1M to 2M. Over time, when 2M can no longer meet the demand, the block size will continue to increase until ordinary private computers find it difficult to run the entire blockchain, and all computing power will be concentrated on miners. In this way, miners can rely on their computing power to weaken the blockchain's original security model of minimizing trust between users, which relies on all nodes to jointly maintain, leading to the centralization of the blockchain network.

Compared with the expansionists, the Bitcoin core team believes that the ultimate purpose of Bitcoin is to protect personal property security as the ultimate free currency. They are not very concerned about Bitcoin's transaction congestion or user development. They care about whether Bitcoin meets the standards of "ultimate free currency" in their minds. They believe that "ultimate free currency" is the highest attraction to attract users. The Bitcoin core team cannot accept the damage to decentralization. They believe that everyone should be able to run a full node and hope to further enhance the relevant attributes of Bitcoin, such as developing towards complete anonymity.

2. Bitcoin Cash

At 8:20 pm on August 1, Beijing time, the UAHF fork drama officially took place. When the block heights of BIP148, BIP91, and Segwit2x nodes all reached 478559, the block height of the Bitcoin Cash node remained at 478558. After a long wait of 6 hours, the first Bitcoin Cash block (height 478559) was finally mined. It has a block size of 1.9MB and records 6985 transaction records. This marks the official birth of Bitcoin Cash (BCC) and its official separation from Bitcoin (BTC). From then on, the expansion solutions of large blocks and small blocks + second-layer transaction networks have their own practical carriers.

BCC has made its own modifications to the Bitcoin code, supporting large blocks (increasing the block size to 8M), dynamic block difficulty adjustment, and no segregated witness function. It is essentially a new type of digital asset different from BTC. Its existence is based on the BU community's pursuit of large blocks, and some people pay for it, and there is a certain amount of computing power to support the network.

Currently, Bitcoin Cash has been widely used in applications such as small payments and rewards. If Bitcoin is used in these areas, the high handling fees will scare away many users. This also gives Bitcoin Cash an opportunity to regain the lost territory of Bitcoin. It is precisely because Bitcoin Cash has many advantages over Bitcoin that Bitcoin Cash has been able to gain so much support in a short period of time.

The advantages of low transaction fees, fast confirmation time, no border restrictions, decentralization, etc. make Bitcoin Cash the best choice for many merchants and users. Although the number of Bitcoin Cash users is pitifully small compared to legal currency, the emergence of decentralized Bitcoin Cash has brought a sound payment currency to the world. With the unlimited growth and adoption of BCC around the world, as well as permissionless innovation and decentralized development teams, the future of Bitcoin Cash is bright.

3. Bitcoin Gold

Bitcoin Gold is a Bitcoin fork that is expected to occur on or about October 25, 2017. Like Bitcoin Cash, Bitcoin owners will receive an equal number of Bitcoin Gold coins when the fork occurs. Like Bitcoin Cash, Bitcoin owners who hold Bitcoin Gold may do nothing and continue to hold the new coins, or choose to sell them and exchange them for Bitcoin (assuming the new coins have value).

Just like Bitcoin Cash, Bitcoin Gold will be an altcoin. Bitcoin Gold will also have replay protection added, and since almost no miners will leave the Bitcoin network to mine Bitcoin Gold, this new coin will not threaten the Bitcoin network in any way. Bitcoin Gold has no chance of "replacing" or "killing" the Bitcoin main chain.

Bitcoin Gold is a protest against the growing power and centralization of miners. Bitcoin miners continue to mine Bitcoin using increasingly powerful specialized ASIC computers. These ASICs are extremely expensive and benefit greatly from economies of scale, leading to greater centralization of the Bitcoin network. Currently, a small number of miners (or mining pools) control the majority of Bitcoin's network hashrate.

Bitcoin Gold will use a different mining algorithm that changes the network consensus rules. This algorithm change will make ASICs inoperable and allow miners to use more readily available GPUs. This change is expected to reduce the centralization of miners on the Bitcoin Gold network.

4. SegWit2x

Many people who support relaxing the block size limit believe that one of Bitcoin's main value propositions is its potential as a payment method. They prefer cheaper and faster on-chain transactions than they currently are, and believe that this is what the vast majority of users want. SegWit2x supporters are often more willing to give up other hallmark features of Bitcoin, such as strict censorship resistance. Currently, more than 90% of miners (by hash power) are currently signaling support for SegWit2x. While this signal itself is technically meaningless, SegWit2x supporters believe that miners will follow this clear intention.

Opponents of SegWit2x generally argue that increasing Bitcoin’s block size carries many risks. For example, larger blocks increase the resource requirements for running a full node, such as more bandwidth usage, longer sync times for new nodes, and so on. This increases the cost for individual users to participate in the network in a trustless, most secure way. Conversely, this cost increase could have a centralizing effect on the network, causing a decrease in the number of users running full nodes. Additionally, larger blocks will slow down block propagation on the P2P network, which is likely to benefit larger miners and mining pools: another centralizing effect. Limiting network throughput to a certain extent may actually be good, as it increases fee pressure, which in turn incentivizes miners to maintain network security as the rewards for mining blocks decrease over time.

On October 6, 2017, Bitcoin.org issued a statement condemning the Segwit2x hard fork and the companies involved in the project, stating that "We do not recommend that users store Bitcoin on Coinbase, Bitpay, and Xapo platforms. If your Bitcoin is on these platforms, after the hard fork, your coins may be renamed or completely replaced by a new competing coin. The best way to ensure the safety of your coins is to download the latest version of Bitcoin Core and transfer your Bitcoin out of the signing platform of this agreement."

Currently, the dispute over the SegWit2x fork continues.

3. Opportunities facing Bitcoin

Obviously, Bitcoin is gradually becoming an investment product sought after by some people. Currently, Bitcoin can not only be exchanged and traded through multiple online exchanges and service providers around the world, but can also be used for direct shopping.

Supporters of this virtual currency created by computer software believe that it is an innovation and the future mainstream currency of the world, and that it has "unparalleled advantages" in economic development. However, some economists point out that Bitcoin is far from meeting the basic conditions to become a currency, and that it is nothing more than a huge bubble blown up by everyone. The essence of Bitcoin is a Ponzi scheme.

The author summarizes several basic functions of Bitcoin for reference only:

1. It is an excellent investment product. People's income is getting higher and higher, and there are more and more idle funds, but the types of investment products have not kept up with the growth of people's income. The lack of investment products has become a bottleneck for the current wealth appreciation. The emergence of Bitcoin just fills this gap and becomes one of the assets worth equipping in the investment basket.

2. It is a hedge against financial turmoil. Bitcoin has similar properties to gold and is a reserve medium with increasing recognition. In the past, whenever there was social and financial turmoil, the trading volume of Bitcoin would increase, which eventually led to an increase in its price, which is a true reflection of its safe-haven properties.

3. It is a medium of exchange that only exists in special application scenarios. Currently, there are many companies that support Bitcoin payments, such as HP and Amazon, and their number is increasing day by day. The number of countries that recognize the legalization of Bitcoin payments is also gradually increasing. Countries such as the Philippines and Japan have already legislated to support the legalization of Bitcoin.

However, even though Bitcoin has been around for seven years, it is still not a currency. Currency comes from banks, but Bitcoin is not. Bitcoins have value, but they are not regulated and are not backed by a government or central authority. In addition, some people think it is a collection, while others think it is a commodity, which is understandable, mainly depending on the purpose.

As for the future trend of Bitcoin prices, experts believe that the current total value of Bitcoin = the price of Bitcoin after the fork + the price of the forked coin. Therefore, the price of Bitcoin after the fork may fall. If you are a Bitcoin futures player, it is recommended to try shorting in the week of the fork and the week after. Of course, the predictions of experts may not be completely credible. Facts have proved that the higher the return, the greater the risk. Looking at the international situation, the mainstream trend of Bitcoin is very obvious. While the global economic winter is still lurking and waiting for an opportunity to cause damage, the recognition and usage of Bitcoin in affected countries are increasing year by year. Of course, geopolitical events will also have a huge impact on it.

In this global environment of dormant crisis, Bitcoin is like a newly sprouted grass, without a backer or background, so the recognition of its value is very important to it, which is also an important element in the birth of Bitcoin's development. For Bitcoin, more application scenarios can truly enhance its value, which will become the key to the future.

Some people believe that Bitcoin is just a social experiment. This experiment may succeed or fail, and it may collapse. Of course, it may fail. However, the possibility of a collapse is almost non-existent at present, because even if it falls to a very low level, there will always be people who will buy it. Its basic application population still exists, and Bitcoin still has value as a highly efficient and low-cost means of circulation in the world. In the future, with the vigorous development of blockchain technology, Bitcoin will surely feed back and reach a new level.