Digital currency forks are simply different variations or byproduct of an existing coin. A fork is a currency upgrade, in a manner. Bitcoin forks are therefore different coins that stem from Bitcoin with a life of their own. A cryptocurrency fork happens when a new branch of blockchain is created. It comes with a set of new software, which is an upgrade of the existing coin. When a Bitcoin fork occurs, a new copy of Bitcoin is effectively issued. Coin holders in the old blockchain are transferred to the new blockchain as well.
This was the case with Bitcoin Cash in summer 2017. When the coin forked from the original blockchain, the Bitcoin users automatically became holders of Bitcoin Cash with its BCH to USD price of around $500 at that time. Not bad?
How new cryptos branch off
There are two kinds of forks: hard and soft forks.
A “Soft fork” alludes to a product overhaul that can work with more seasoned variants, or in other words, can be compatible with older versions of the protocol. Basically, in a soft fork, Bitcoin nodes can, in any case, be engaged with the transaction procedure regardless of whether they updated to the new software or not. A soft fork is less demanding for users as it does not require all nodes to accept changes in the protocol. New transaction blocks will still be recognized by non-upgraded nodes.
A “Hard fork” is again a cryptocurrency protocol upgrade, which is not compatible with the older version, though. Such an upgrade makes it compulsory for nodes to move to the new protocol version; otherwise, they won’t be accepted by the network. Hard forking forms an absolutely new viable branch of blockchain, where the transactions verified by non-upgraded nodes are recognized as invalid and abandoned by the network. To continue mining operations on the blockchain, the old nodes will be bound to comply with the new rules. Sometimes hard forks can result in the split and introduction of a new coin.
Benefits of Forking
Introducing new protocols. After a hard fork occurs and a new coin is introduced to the market, the users can benefit from profitable investment opportunities and a more functional blockchain. Usually, an upgraded protocol provides for added functionality and advanced solutions.
Improving on the original cryptocurrency. In the case of Bitcoin, forking has yielded positive results in the form of a block size increase. Once the SegWit update was approved by the Bitcoin community and implemented on the blockchain, the overall capacity of the network increased and thus added to the coin utility.
Reaching a larger community. Obviously, as soon as the burning issues of a specific cryptocurrency are solved by means of forking, the popularity for the coin grows. As a result, more investors and traders are lured into the market.
Bringing more profit. Once a fork occurs, the split tokens are distributed among the holders in the equal amount to the original tokens. Investors can profit from the fork by trading the new coins or holding them for further returns.
Contributing to the increase in value. This can work in both directions. If either a soft fork or a hard fork is implemented successfully, the upgrade will inevitably result in the price increase for the original coin. After the August fork took place, Bitcoin has skyrocketed in value exponentially.
Major Forks on the Bitcoin Blockchain
Below is a sample of the major Bitcoin forks:
Bitcoin XT – Bitcoin XT is a failed fork of Bitcoin. It follows Bitcoin’s core principles and mirrors the original version with reliable and low-cost transactions. The concept was proposed to increase block size to 8MB in 2015 increasing the capacity and improving transactional performance.
Bitcoin Classic – Bitcoin Classic was released on 10 February 2016 with the aim of offering better stability and security for Bitcoin users. It proposed to increase the block size to 2MB. Bitcoin Classic worked great for intermediate and more experienced users. On November 10, 2017, the hard fork failed and Bitcoin Classic was officially terminated.
Bitcoin Unlimited – Bitcoin Unlimited was initially released in December 2015 and proposed to increase block size to 8MB. Bitcoin Unlimited aims at lower charges and faster transactions. It is a great variation to Bitcoin and offers better privacy and stability.
Bitcoin United – It was launched in mid-December 2017 and proposed to increase block size to 8MB. It aims at processing smart contracts and having a stable coin with complete transparency. It was forked at block 498777.
ABitcoin (ABTC) – Initially launched on 12 December 2017, ABitcoin aims at improving the blockchain network in terms of speeding it up and improving operating rate. It was forked at the block number 498888, and Bitcoin holders had a token distribution of 1:100 with a total projected supply of 3.2 billion.
Bitcoin Cash – It caused the cryptocurrency to split into two in the ratio of 1:1. While Bitcoin had a 1MB block size limit, Bitcoin Cash proposed 8MB blocks. BCH is arguably one of the most important hard forks in the Bitcoin history so far.
Bitcoin Cash Plus (BCP) – Bitcoin Cash Plus was initially released in late 2017 with the aim of fulfilling Satoshi Nakamoto’s promise of Bitcoin as “Peer-to-Peer Electronic Cash.” It follows the mantra of low fees and reliable transaction confirmations. It proposes to increase block size to 8MB. The Bitcoin fork was created at block 509695.
Bitcoin Diamond (BCD) – The main purpose of BCD is reducing the actual cost of participation as well as transaction fees. BCD also considerably increases the speed of transactions by adding Lightning Network. It was initially released on 24 November 2017 and is envisaged with a 1:10 ratio.
Bitcoin Gold (BTG) – The main purpose of Bitcoin Gold was the decentralization of the mining process, giving miners a better experience with ubiquitous graphics processing units (GPU). The initial release was on November 12, 2017. Bitcoin Gold addresses the scalability concern and is envisaged with a 1:1 ratio.
Bitcoin Silver – Bitcoin Silver was essentially built around the Ethereum blockchain and aimed at getting more people in the mining process. Bitcoin Silver allows more people without reliable Internet access to get into cryptocurrency.