Crypto Forks Guide
There are times when miners would experience wild fluctuations on a cryptocurrency’s price which is associated with a phenomena known as a fork. This is a common occurrence in any computing software. Furthermore, many miners lack a better understanding of this technical term. Bitcoin lead the way to the ecosystem of cryptocurrencies, and in order to fully grasp forks, it’s essential to explore Bitcoin and its technology as well.
What is a fork?
To create digital money, cryptocurrencies use computer-generated codes. The first of its kind to become popular around the world is Bitcoin. This cryptocurrency is a decentralized peer-to-peer currency and payment network, which means a lot of overhead associated with banking and credit are eliminated. Bitcoin uses an open sourced network where the fundamental computing codes are free and can be viewed by anyone as well as use and inspect.
Bitcoin uses a technology called blockchain. A blockchain is some sort of circulated ledger consisting of constantly growing blocks of data to create a single chain of blocks. Since it’s a decentralized network, to realize consensus, users must come up with a mutual set of rules in order to authorize transactions. This will result in the formation of a single chain of verified or authorized data that every user agrees is a single truth or correct.
Bitcoin forks occur when a valid hash was found by two miners within a short period of time. The solution will then be spread by both miners to be verified by their neighbors. Because of this, the network will be split in two during the process. One block will be considered by half of the network to be the next that should be counted in the blockchain, while a different block will be considered by the network’s other half.
Most of the time, this problem can be quickly resolved. The possibility of finding two blocks within a couple of seconds of each other for succeeding two block rewards is rare. In comparison to one block fork which can occur about once a week. The fork will be resolved by the network that found the next block since it is said that this blockchain has higher complexity or more difficult. The other network’s half will create redundant blocks in order to adopt the two blocks from the blockchain’s longer half. This will result in a blockchain re-convergence, which is when a block thought to be the solution is stored as an orphan block in a pool.
Other cryptocurrencies will encounter a problem because of this occurrence. For example, Litecoin set their target block time to just 2.5 minutes compared to Bitcoin’s 10 minutes. Since Litecoin has fewer block times, it’ll have higher chances of solving blocks within a few seconds of each other, hence producing Litecoin fork.
Forks are categorized into the following:
- Hard fork. This basically means that older software versions are not compatible with a software upgrade. In order to validate new transactions and continuously participate, every miner should be able to upgrade to new software. Miners who did not upgrade will not be able to validate the latest transactions and will be separated from its network. A blockchain will suffer from permanent divergence because of this. Two chains will exist alongside each other support is maintained by the minority chain or the mining participants.
- Soft fork. Soft forks mean older software versions are backward compatible with a software upgrade. Miners that wasn’t able to upgrade can still participate in the verification and validation of transactions. Software upgrades are done by the majority of miners so this is easier to implement. Whether miners have updated their software or not, all of them will still be able to continuously identify new blocks as well as maintain network compatibility. However, there will be an effect on the functionality of a miner who is non-upgraded. For example, when a new rule changed a blocksize, the network will reject the blocks of non-upgraded miners but they will still be able to see new transactions coming in are valid. Thus, a soft fork characterizes a continuing upgrading mechanism, so those miners who haven’t upgraded yet need to do so or their functionalities will be limited.
- Accidental fork. This fork happened when an update is not really compatible. Miners who are using a different software version creates different ledgers, from an older version and another one from the latest version. When this happens, the developer of the cryptocurrency must quickly find and eliminate any bugs that are causing these incompatibilities and think of a way on how they can combine those different blockchains.
Why are forks bad?
In the cryptocurrency community, a fork is most often met with a great deal of panic and anxiety. When there’s an existence of two blockchains that are different, only one of these can eventually be correct. Hence, any transactions found on the incorrect blockchain could be lost eventually. So, in an event of a fork, a warning will be sent out to miners not to make transactions until the problem has been resolved.
Companies can also suffer from a fork depending on the cryptocurrency type. As previously mentioned, there’s a big possibility for transactions to be lost during a fork event, so a business using a coin affected by this have their hands tied. Furthermore, a cryptocurrency’s community will experience a massive amount of work since every software linked to the coin needs to be upgraded to its latest versions. In order to avoid losing coins, miners, users, exchanges and all other community using that particular coin is required to update.
A certain coin experiencing a fork can potentially scare users as well from using it. If a cryptocurrency is deemed to be unstable by the community, they are more likely to switch to a more stable coin. In concept, if the fork will not be resolved, it will result in two different coin versions and cause a total incompatibility. The market for digital currency is highly competitive and the community is less likely to bear an inconvenience like this.
On the other hand, Bitcoin forks are seen by many industries to replace ICO’s. Regulators and legislators’ sites have ICO and companies will be looking for an imaginative new way to monetize applications which are decentralized, so forking existing blockchains that are open source like Bitcoin’s will be a company’s way of tokenizing their businesses.
Can a fork be good?
Contrariwise, it can be a brilliant buying opportunity if a fork can eventually improve the structure and stability of a cryptocurrency by code developments and improvements. How Bitcoin’s blockchain splits may in fact even help in the advancement of the ecosystem of the cryptocurrency.
Bitcoin Cash (BCH)
The debate on the scalability of Bitcoin led to a hard fork which resulted in a new blockchain creation. You don’t need to take any action to get Bitcoin Cash, once there’s a split on the chain according to the protocol of BCH, then you would be able to acquire as much BCH as the number of Bitcoins you have on this second chain. However, you have to be careful when managing it.
- Fork date: August 1, 2017
- Fork on block: 478559
- Changes from original BTC: Miners can move their hash power easily and a fluctuation in the mining difficulty.
- Distribution scale: 1 BTC = 1 BCH
Bitcoin Gold (BTG)
Bitcoin Gold is a project created by a number of miners and developers headed by Jack Liao, CEO of the Hong Kong-based manufacturer of mining equipment, LightningAsic. This friendly BTC fork aims to decentralize mining again. It is also well thought-out to be complementary to BTC. The main consideration here is to block predicted Bitcoin upgrades via hard forks. Its main purpose is to ultimately compete with Ethereum, GPU coins, and Bitcoin cash to protect the Bitcoin world by killing BTC mining monopolies today as well as increasing centralization.
- Fork date: October 25, 2017
- Fork on block: 491407
- Changes from original BTC: Based on Equihash making it GPU minable and its variable difficulty will change on each block.
- Distribution scale: 1 BTC = 1 BTG
Smaller BTC Forks
Super Bitcoin (SBTC)
This live hard fork can be tracked on CoinMarketCap and ever since its discovery, exchanges like Cex.io, OKEx, and Coinut have begun issuing this cryptocurrency.
F2Pool and BTCC pool have helped out mining for SBTC. Its total supply is a bit higher than Bitcoin at 21,210,000 SBTC.
- Fork date: December 12, 2017
- Fork on block: 498888
- Changes from original BTC: Zero-knowledge proofs, support smart contracts and the Lightning network and a bigger blocksize that can be expanded to 8MB.
- Distribution scale: 1 BTC = 1 SBTC
This hard fork is created to unleash Bitcoin’s full potential in a scalable manner for the near future. In order to build a digital currency suitable for modern society, its team of developers combined privacy, smart contracts, and speed.
- Fork date: December 12, 2017
- Fork on block: 498888
- Changes from original BTC: It combines smart contract, SegWit, cross-chain technology data, zero-knowledge proof, DPOS consensus and Lightning Network.
- Distribution scale: 1 BTC = 10,000 BTG
Lightning Bitcoin (LBCT)
Instead of creating larger block sizes in minutes, it pushed the blockchain’s speed boundaries by creating them in seconds. An autonomous network that’s truly high-speed should be allowed thanks to the addition of DPoS consensus and smart contracts.
- Fork date: December 18, 2017
- Fork on block: 499999
- Changes from original BTC: It has a 2MB blocksize, supports smart contracts, DPosS Consensus and has no difficulty adjustment.
- Distribution scale: 1 BTC = 1 LBTC
Bitcoin God (GOD)
Details about the Bitcoin God are yet to be confirmed. With a rather unusual and catchy branding combined with support for smart contracts and Lightning Network as well as proof of stake, this Bitcoin fork will surely create some exciting Bitcoin protocols changes.
- Fork date: December 25, 2017
- Fork on block: 501225
- Changes from original BTC: Supports smart contracts and Lightning Network, there’s no pre-mine, has a large blocksize and proof-of-stake.
- Distribution scale: 1 BTC = 1 GOD
Bitcoin Diamond (BCD)
The design of BDC is one that’s also built on BCH with a blocksize of 8MB. Diamond created additional supply and privacy into this. Its main purpose is for Bitcoin to be made more reasonable while transaction amounts are still kept encrypted.
- Fork date: November 24, 2017
- Fork on block: 495866
- Changes from original BTC: It has a 20 million supply, an 8MB block size, no pre-mine, encrypted amounts and replay protection.
- Distribution scale: 1BTC = 10BCD
How to get forks?
When a fork is on-going, its developers should snapshot the blockchain ledger at the block where it is forked. You will get a definite number of the new BTC fork coin for each BTC you own during the fork, which is normally a ratio of 1:1. Forked coins do not have the same value as Bitcoins but they do have a specific value and if you want to confirm them, they are basically free money. Claiming free coins takes a bit of work depending on the platform where you store your BTC.
Here’s a simple guide to how you can get free coins from a Bitcoin fork:
It is important to do your homework first before claiming a BTC fork. Make sure to research about it. Developers seem to be forking Bitcoin frequently resulting in some coins being worthless after the occurrence.
One of the most vital fact that you should look up during research is if the forked coin is with the feature replay protection or not. This is a guarantee that its network will be able to distinguish the new coin from the old. Keep in mind that forked coins that do not have replay protection should be avoided at all costs.
Look for a platform that supports the fork
Every BTC fork differs from one another as well as the platforms supporting it. Your Bitcoin should be stored in a wallet with a platform supporting the fork when the snapshot occurs to be qualified to claim the free forked coins. It is highly recommended to place your BTC in a BTC wallet during forks as this gives you control on your private keys and process is put fully on you.
Most platforms or exchanges usually announce if they will be supporting an upcoming or not. Keeping your coins in an exchange is not suggested, but in case this is where you keep them, make sure to keep an eye on their announcements and learn their protocols on Bitcoin forks. Contact their support team if the information you need is not available or you can temporarily move your BTC to a wallet for the events.
Claiming forked coins
This process is easy if you’ve stored your BTC in an exchange or wallet supporting forked coins. All you have to do is to wait. After the new chain is live, your account will then be credited by the platform with the latest coin. There are some wallets that will give you with additional instructions upon claiming your free coins.
If the new cryptocurrency is not supported by the wallet that holds your Bitcoins, claiming it is a bit more complex. What you need to do is to look for a wallet that supports the forked chain once it is live and established. You will have to setup your new wallet and then import the copy of your BTC public and private keys form the other wallet. Once you have imported them, you’ll receive your free coins. There might be some additional instructions also so better lookout for that.
To HODL or sell
You now have a choice to either sell your coins or HODL- “hold on for dear life”. If you think that new coins have value and its price will continuously go up then hold on to it. But in case of Bitcoin fork was another one of those cash-grabbing schemes by the developers and will be non-existent in a few months, then you can sell it. You are in full control.
Bitcoin forks can be a really stressful occurrence to the whole cryptocurrency community as there frequent risks associated with the forked coin. Most investors will weigh in these risks while some will opt to sell. Either way, these forks offer an opportunity for miners to make some extra income while still supporting Bitcoin.
We hope you find this article helpful. If you want to learn more about Bitcoin and the world of cryptocurrency, make sure to check out our other useful articles.