What Are Bitcoin Hard Forks?
In early 2009, a mysterious software developer, working under the alias Satoshi Nakamoto, released a software program that created bitcoin, the first cryptocurrency. Since then, bitcoin has gone on to gain massive appeal across the globe and inspire hundreds of other digital currencies.
Many of these cryptocurrencies employ technologies that were already inherent in Satoshi’s initial program and concept. Others take the bitcoin model and adapt or attempt to improve upon it.
In some cases, bitcoin has spawned variations that are based on the same underlying concept and program but that are distinct from the original. In these situations, the bitcoin blockchain has undergone a process known as forking. With forking, the blockchain itself is divided into two distinct entities. There have been dozens of forks since bitcoin’s inception, but only some are viable projects.
- A bitcoin hard fork refers to a radical change to the protocol of bitcoin’s blockchain that effectively results in two branches, one that follows the previous protocol and one that follows the new version.
- During a hard fork, software implementing bitcoin and its mining procedures is upgraded; once a user upgrades their software, that version rejects all transactions from older software, effectively creating a new branch of the blockchain.
- It is through this forking process that various digital currencies with names similar to bitcoin have been created, including bitcoin cash and bitcoin gold.
- Bitcoin XT was one of the first notable hard forks of bitcoin.
- Bitcoin cash remains the most successful hard fork of the primary cryptocurrency; as of June 2021, it is the eleventh-largest digital currency by market cap.
It is through this forking process that various digital currencies with names similar to bitcoin have been created. These include Bitcoin Cash and Bitcoin Gold, among others. For the casual cryptocurrency investor, it can be difficult to tell the difference between these cryptocurrencies and to map the various forks onto a timeline. Below, we’ll walk through many of the most important forks to the bitcoin blockchain over the past several years.
Understanding Bitcoin Hard Forks
In 2009, shortly after releasing bitcoin, Satoshi mined the first block on the bitcoin blockchain. This has come to be referred to as the Genesis Block, as it represented the founding of the cryptocurrency as we know it. Satoshi was able to make numerous changes to the bitcoin network early on in this process; this has become increasingly difficult and bitcoin’s user base has grown by a tremendous margin.
The fact that no one person or group can determine when and how bitcoin should be upgraded has similarly made the process of updating the system more complex. In the years following the Genesis Block, there have been several hard forks.
In addition to hard forks, cryptocurrencies, including bitcoin, also undergo soft forks. The difference between a hard fork and a soft fork is that soft forks do not result in a new currency. Soft forks are a change to the bitcoin protocol, but the end product remains unchanged. Soft forks are backward compatible.
During a hard fork, software implementing bitcoin and its mining procedures is upgraded; once a user upgrades their software, that version rejects all transactions from older software, effectively creating a new branch of the blockchain. However, those users who retain the old software continue to process transactions, meaning that there is a parallel set of transactions taking place across two different chains.
A Timeline of Bitcoin Hard Forks
Bitcoin XT was one of the first notable hard forks of bitcoin. The software was launched by Mike Hearn in late 2014 in order to include several new features he had proposed. While the previous version of bitcoin allowed up to seven transactions per second, Bitcoin XT aimed for 24 transactions per second. In order to accomplish this, it proposed increasing the block size from one megabyte to eight megabytes.
Bitcoin XT initially saw success, with more than 1,000 nodes running its software in the late summer of 2015. However, just a few months later, the project lost user interest and was essentially abandoned by its users. Bitcoin XT is no longer available, with its original website now defunct.
When Bitcoin XT declined, some community members still wanted block sizes to increase. In response, a group of developers launched Bitcoin Classic in early 2016. Unlike XT, which proposed increasing the block size to eight megabytes, classic intended to increase it to only two megabytes.
Like Bitcoin XT, Bitcoin Classic saw initial interest, with about 2,000 nodes for several months during 2016. The project also still exists today, with some developers strongly supporting Bitcoin Classic. Nonetheless, the larger cryptocurrency community seems to have generally moved on to other options.
Bitcoin Unlimited has remained something of an enigma since its release in early 2016. The project’s developers released code but did not specify which type of fork it would require. Bitcoin Unlimited set itself apart by allowing miners to decide on the size of their blocks, with nodes and miners limiting the size of blocks they accept, up to 16 megabytes.
Despite some lingering interest, bitcoin unlimited has largely failed to gain acceptance.
Bitcoin Core developer Pieter Wuille presented the idea of Segregated Witness (SegWit) in late 2015. Put simply, SegWit aims to reduce the size of each bitcoin transaction, thereby allowing more transactions to take place at once. SegWit was technically a soft fork. However, it may have helped to prompt hard forks after it was originally proposed.
In response to SegWit, some bitcoin developers and users decided to initiate a hard fork in order to avoid the protocol updates it brought about. Bitcoin Cash was the result of this hard fork. It split off from the main blockchain in August 2017, when Bitcoin Cash wallets rejected bitcoin transactions and blocks.
Bitcoin Cash remains the most successful hard fork of the primary cryptocurrency. As of June 2021, it is the eleventh-largest digital currency by market cap, owing in part to the backing of many prominent figures in the cryptocurrency community and many popular exchanges.
Bitcoin Cash allows blocks of eight megabytes and did not adopt the SegWit protocol.
Bitcoin Gold was a hard fork that followed shortly after bitcoin cash, in October 2017. The creators of this hard fork aimed to restore the mining functionality with basic graphics processing units (GPU), as they felt that mining had become too specialized in terms of equipment and hardware required.
Although it was initially possible to mine bitcoin using personal laptops and desktop computers, the growing mining difficulty, as well as the advent of Application Specific Integrated Circuit (ASICs) hardware created specifically for bitcoin mining, has made it all but impossible to profitably mine bitcoin at home using the processing speed of an individual computer. Some bitcoin forks, including Bitcoin Gold, have attempted to make bitcoin more accessible by changing the hardware necessary to establish a network connection.
One unique feature of the Bitcoin Gold hard fork was a “pre-mine,” a process by which the development team mined 100,000 coins after the fork had taken place. Many of these coins were placed into a special “endowment,” and developers have indicated that this endowment will be used to grow and finance the bitcoin gold ecosystem, with a portion of those coins being set aside as payment for developers as well.
Generally, Bitcoin Gold adheres to many of the basic principles of bitcoin. However, it differs in terms of the proof-of-work (PoW) algorithm it requires of miners.
When SegWit was implemented in August 2017, developers planned on a second component to the protocol upgrade. This addition, known as SegWit2x, would trigger a hard fork stipulating a block size of two megabytes.
SegWit2x was slated to take place as a hard fork in November 2017. However, a number of companies and individuals in the bitcoin community that had originally backed the SegWit protocol decided to back out of the hard fork in the second component. To some extent, the backlash was a result of SegWit2x including opt-in (rather than mandatory) replay protection; this would have had a major impact on the types of transactions that the new fork would have accepted.
On November 8, 2017, the team behind SegWit2x announced that their planned hard fork had been canceled as a result of discrepancies among previous backers of the project.
Bitcoin Hard Forks FAQs
What Is a Bitcoin Fork for Dummies?
The simplest way to conceptualize a fork in a cryptocurrency’s blockchain is to imagine that the fork introduces a new set of rules for bitcoin to follow.
After a fork, bitcoin’s blockchain diverges into two potential paths forward. After a new rule is introduced, the users mining that particular bitcoin blockchain can elect to follow one set of rules or another. This choice is similar to a fork in the road.
What Was the First Bitcoin Fork?
The two biggest bitcoin hard forks are Bitcoin Cash and Bitcoin Gold, although there have been other, smaller forks. The first notable bitcoin fork was Bitcoin XT, which was launched in 2014 by Mike Hearn. While the previous version of bitcoin allowed up to seven transactions per second, Bitcoin XT aimed for 24 transactions per second. In order to accomplish this, it proposed increasing the block size from one megabyte to eight megabytes.
When Did Bitcoin Fork?
Forks are typically conducted in order to add new features to a blockchain. Bitcoin has undergone many different forks since it was first introduced in 2009. Each of these splits has created new versions of the bitcoin currency. Bitcoin was released as an open-source code, and it was intended to be improved upon over time. Bitcoin forks are a natural result of the structure of the blockchain system, which operates without a central authority.
The first major bitcoin fork was in late 2014.
Is a Hard Fork Good or Bad?
Any hard fork can have a profound impact on the cryptocurrency; it is often an unstable time for the cryptocurrency. In some cases, the community will be divided about the necessity and the impact of the changes that are being instigated by the fork. In addition, the price of the cryptocurrency is generally very volatile around the time of a hard fork.
The Bottom Line
In a matter of years, bitcoin has already spawned a large number of forks. While no one can say for sure, it’s likely that the cryptocurrency will continue to experience both soft and hard forks into the future as well, continually growing the cryptocurrency community while also making it increasingly complicated.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.