Saturday, 4th December 2021
<To guardian.ng
Search
Breaking News:

Understanding Bitcoin forks

By Guardian Nigeria
25 November 2021   |   5:39 am
Perhaps, you’ve heard that Bitcoin forks can cause mayhem in the crypto market. What’s more, some hard forks support crypto adoption globally. But what is a Bitcoin fork, and how does it work? Satoshi Nakamoto published a Bitcoin whitepaper in 2008 and then introduced this virtual currency in 2009, responding to the 2008 global financial…

PHOTO: AFP

Perhaps, you’ve heard that Bitcoin forks can cause mayhem in the crypto market. What’s more, some hard forks support crypto adoption globally. But what is a Bitcoin fork, and how does it work?

Satoshi Nakamoto published a Bitcoin whitepaper in 2008 and then introduced this virtual currency in 2009, responding to the 2008 global financial crisis. Nakamoto aimed to end the control that central banks have over the financial markets.

Bitcoin forks refer to splits that occur in this cryptocurrency’s transaction chain depending on the opinions of different users about the transaction history. Consequently, the breaks generate new Bitcoin versions due to the blockchain system’s structure, operating without a central authority.

Bitcoin forks create buying opportunities in the crypto market. That’s why people can purchase Bitcoin on platforms like the Bitcoin Era website. Essentially, these platforms allow people to buy Bitcoin using fiat money.

What is a Bitcoin Fork? 
A Bitcoin fork can describe two events. One is a change in the underlying software, creating a software fork, and the second type is a cryptocurrency’s blockchain divergence, which establishes a blockchain fork. People call these events forks because they present several potential routes that Bitcoin can follow. Thus, they are like road forks.

Bitcoin Software Fork
A software fork happens when a developer proposes changes to Bitcoin’s source code protocol. Software fork exists in two categories.

  • Bitcoin Soft Fork: A soft fork refers to a backward-compatible update to the software. That means the user runs the old software that recognizes the blocks computers create after choosing to update theirs. People call it a soft fork because the users’ groups continue mining new blocks on a similar blockchain. Thus, they don’t have a hard dividing line between them. Both users’ groups remain an aspect of the same network. A soft fork does not form a new cryptocurrency. A soft fork is complete after most machines in the network update the software. If this fails, the minority group can abandon the suggested update or implement the hard fork.
  • Bitcoin hard fork: A hard fork refers to an update that is not backward compatible. Thus, if users run the old software, they won’t recognize the blocks created by those with new software. Consequently, hard forks lead to a blockchain split with users’ groups, effectively leaving an old network that can create a new cryptocurrency. The new network can have an exact blockchain copy the way it was during the split, with the version being separate afterward. Bitcoin users that had tokens during the division can claim new coins on a forked network. Nevertheless, claiming Bitcoins can be risky if there are no replay protection measures in the new network. Thus, the old network can’t erroneously recognize the transactions because spending one coins’ set can lead to the loss of the others in the separate network.

Bitcoin Blockchain Fork
Nodes or computers in the Bitcoin blockchain create new blocks through the mining process. A blockchain fork occurs when several computers simultaneously mine or generate separate blocks, creating two versions of a blockchain file at distinct points.

The system resolves this Bitcoin fork quickly because the proposed updates rapidly propagate via the network, soon creating a consensus blockchain. Any data in the “orphaned” block on a rejected chain goes to the pool of the waiting data for new mining. Consequently, a Bitcoin transaction is generally not final until miners generate six blocks on top of a block containing it.

Final Thoughts
Bitcoin forks are new Bitcoin forks resulting from various transaction history perspectives. Soft forks don’t create a new currency. However, hard forks arise from more extensive changes in the blockchain, leading to new blockchain currency. Different Bitcoin hard forks have varied pricing and goals. And not all hard forks hold the same value as the original Bitcoin.