Don’t Fear Forks, There’s Only One Bitcoin
There’s been some panic lately over the various “forks” of the Bitcoin network, particularly among the less tech-savvy who hear inaccurate or incomplete news on the mainstream media. It’s important to clear up some confusion, because there are more so-called “forks” coming.
First, the most important thing to know is this: there will only ever be 21 mln Bitcoin in existence. Period. End of story.
There have been and will continue to be currencies that fork from the Bitcoin network, taking with them a full snapshot of the network up until that point. Yet there’s still only one Bitcoin. Bitcoin Cash, Bitcoin Gold, Bitcoin-anything-else, none of them have interoperability with the real Bitcoin network.
Bitcoin skeptics have been telling people that with the Bitcoin Cash fork, there will now be 42 mln Bitcoin in existence. It won’t be long before they start claiming that with the upcoming Bitcoin Gold fork, there will ultimately be 63 mln coins in existence. This is complete falsehood.
Bitcoin Cash and Bitcoin Gold cannot be spent on the Bitcoin network. As far as Bitcoin’s network is concerned, they are merely altcoins like Litecoin, Dash, and so on. They are not Bitcoin and cannot make the argument that they are. There is only one Bitcoin, and there will only ever be 21 mln coins on that network.
The difference between a fork and chain split
Many less sophisticated investors get worried every time they hear about an upcoming fork. Calm down: there’s nothing wrong with a fork. Bitcoin and numerous altcoins have successfully forked countless times over the years with no ill effects. In fact, the currency Dash executes a carefully staged hard fork (called the “spork”) every time it does a protocol upgrade. None of these forks have ever caused a chain split.
There are two types of forks: soft forks and hard forks. Soft forks are backwards-compatible, meaning that upgraded nodes can use the new features, while old nodes will still function but won’t have the new capabilities. Bitcoin’s recent SegWit upgrade is a great example of a soft fork.
With SegWit, not all nodes were required to upgrade their software. Anybody who doesn’t want to use SegWit’s features (namely, lower fees) is free to continue using their older version of the Bitcoin client. It will still work just fine.
A hard fork is the exact opposite: all nodes must upgrade. Any node that doesn’t upgrade will simply not work anymore. The real danger is this: soft forks are reversible, because following the new rules is optional. Hard forks are not reversible, and any bug in the code or unanticipated behavior on the network can only be fixed by issuing another hard fork. This can lead quickly down a deep rabbit hole.
The worst-case scenario in a hard fork situation is a chain split. A chain split occurs when a hard fork goes poorly and the network itself splits in two. Part of the network follows one set of rules, while the other part follows another set of rules. Chain splits are incredibly dangerous and essentially make the network unusable until the split is resolved by another hard fork. With a network and economy as large as Bitcoin’s, it would be extremely difficult to execute a follow-on hard fork to fix a chain split.
A bad enough chain split could literally kill Bitcoin.
What’s Bitcoin Cash?
When it became obvious the SegWit solution was going to be the winner in Bitcoin’s civil war, a group of disgruntled developers decided to create an alternate version of Bitcoin. This version, called Bitcoin Cash, would keep Bitcoin’s entire transaction history and all of its rules and structures. Only three things would be changed: the 1 MB blocksize limit would be increased, the SegWit code would be removed, and an “emergency difficulty adjustment” (EDA) was added.
Due to the nature of the fork, everybody who owned Bitcoin now owned an equivalent amount of Bitcoin Cash. Yet the two networks did not directly compete with one another. For one, Bitcoin Cash added a feature called “replay protection,” which prevented transactions on one network from affecting the other network.
Another reason for the lack of direct competition is because virtually all Bitcoin’s miners continued to mine Bitcoin, except for a few hours here and there when they were able to exploit Bitcoin Cash’s EDA for greater profits. Most Bitcoin owners, finding themselves flush with Bitcoin Cash, either sold the new currency or completely ignored it.
There was never any danger of Bitcoin Cash replacing Bitcoin. In fact, Bitcoin Cash was probably a good thing in the long run, because it removed discontents from the Bitcoin community by giving them their own altcoin to run.
What’s Bitcoin Gold?
Bitcoin Gold is an upcoming fork of Bitcoin that will occur on or around Oct. 25, 2017. As with Bitcoin Cash, when the fork officially occurs, Bitcoin owners will also possess an equal number of Bitcoin Gold coins. As with Bitcoin Cash, Bitcoin owners who find themselves in possession of Bitcoin Gold may either do nothing and keep the new coins, or may sell them and potentially increase their stash of Bitcoin (assuming the new coin is worth anything).
Just as with Bitcoin Cash, Bitcoin Gold will be an altcoin. Bitcoin Gold will feature replay protection as well, and since virtually no miners will leave the Bitcoin network to mine Bitcoin Gold, it will not threaten Bitcoin’s network in any way. There is zero chance that Bitcoin Gold will “take over” or “kill” the main Bitcoin chain.
Bitcoin Gold is a protest of the growing power and centralization of miners. Bitcoin miners continue to use more and more powerful specialized ASIC computers to mine Bitcoin. These ASICs are extremely expensive and benefit greatly from economies of scale, resulting in greater centralization on the Bitcoin network. At present, a handful of miners (or mining pools) control the majority of Bitcoin’s mining power.
Bitcoin Gold will be changing the consensus rules for its new network by using a different algorithm for mining. This change in algorithm will keep ASICs from working, resulting in miners using easier-to-obtain GPUs. This change is expected to decrease miner centralization on the Bitcoin Gold network.
Again, it should be emphasized that Bitcoin Gold will not affect Bitcoin in any way. Bitcoin Gold will be an altcoin, with its own network and its own rules.
Fork vs. airdrop
While Bitcoin Cash and Bitcoin Gold are technically forks of Bitcoin, they don’t affect Bitcoin’s network in any way. They are not a threat in any way. They simply use (most of) Bitcoin’s code, and they distribute their currency proportionally to all Bitcoin holders.
Considering that the term “fork” is usually associated with an attempt to upgrade a network, using that word to describe Bitcoin Cash and Bitcoin Gold tends to get quite confusing for novices. A better word might be “airdrop.”
An airdrop is a means of distributing the initial supply of coins when an altcoin is created. Byteball is a great example; users link their Byteball address to their Bitcoin address(es), and at certain times, they receive a number of Byteball tokens proportional to their Bitcoin ownership. Given that the only thing Bitcoin Cash and Bitcoin Gold are using the Bitcoin Blockchain for is initial token distribution, they really act more like airdrops than forks.
Don’t worry. None of these forks in any way harm the Bitcoin network. They aren’t increasing Bitcoin’s supply. How could they? They aren’t Bitcoin!