Nov 16, · Following the Bitcoin Cash hard fork, the overwhelming majority of nodes have shown support for Bitcoin Cash Node over Bitcoin Cash ABC. @satoshilabs will support this decision and has replaced the Bitcoin Cash ABC software running on its servers with Bitcoin Cash Node software. — Trezor (@Trezor) November 16, Oct 23, · A Bitcoin fork happens when new code is “branched” out of Bitcoin’s source code in order to slightly change the rules of the Bitcoin network. Soft forks that play well with the old rules, and hard forks that create new rules completely. Hard forks result in . Jun 23, · The fairly recent experience of forks and potential forks in response to the various Segregated Witness and blocksize increase proposals highlights the nature of emergent governance on the Bitcoin Network. 1 The result of the SegWit/blocksize controversies was a so-called hard fork of the Bitcoin blockchain, 2 producing two varieties of the.
Hard forks bitcoinHard Fork (Blockchain) Definition
In this guide, we explain why a blockchain splits and what it means for your cryptocurrency holdings. In very simple terms, a blockchain is a way of building and moving digital memory and using complex, cryptographic math to make that memory immutable and indisputable.
And because all of this is digital, it involves lots of software. Forks have to do with those rules, the protocol that sets the operating parameters of a blockchain. In other words, hard forks change how miners create blocks. Changes like that create an entirely new blockchain. Why do hard forks happen? Essentially, a cryptocurrency forks when its protocol is upgraded. Generally, this falls into two different categories.
Not all hard forks are the result of irresolvable disputes among crypto developers and miners. Sometimes, a cryptocurrency splits to restore funds after hackers or other attacks compromise the integrity of the blockchain or make off with millions in cryptocurrency.
In a soft split, the new blockchain is still compatible with the old one. Despite the fact that no two cryptocurrency splits are alike, they all come about the same way. Each cryptocurrency involves a protocol and a blockchain. The two blockchains, old and new, are incompatible. But they still share the original blockchain beginning with the block number that initiated it.
An airdrop is when coins are sent to an existing wallet for any reason. Although you might hear the two words used interchangeably in casual conversation, an airdrop is different than a fork. Learn about airdrops. With all the above in mind, to use the words of Coinbase when discussing a User Activated Soft Fork , and too add a few of our own notes, the result of a given soft fork or hard fork would generally be:.
Any of the above cases can occur with a given fork, but the 3rd option is the most common and thus the expected outcome over time with hard forks that create new cryptocurrencies. Again, Bitcoin Cash a Bitcoin fork and Ethereum a fork of what we now call Ethereum Classic are good examples of the expected outcome of hard forks that are meant to create two assets with market value. Both chains exist, but one is more popular and generally maintains a higher value. Why forks produce free coins : A blockchain is a ledger of transactions and is where the ownership of coins is recorded.
Anyone who held coins before a fork, and during the fork, therefore will necessarily have coins on both chains after the fork has occurred. The snapshot happens at a block number, the block number is important with forks, the calendar date is only important for understanding when the block number occurred. It is not necessary to hold the original coin after the snapshot has occurred. This can be used to keep the same coin with major changes to the blockchain or to create a new coin.
Hard forks make the old chain and new chain incompatible. Two different coins, with two different ledgers from X block forward , with two different sets of code, both originating from the same platform and blockchain. In cases like Bitcoin Cash, two different coins and blockchains-from-x-block-forward run starting at a given block and the two chains are not compatible.
HODLing your private keys : When a cryptocurrency forks, you want to be holding that cryptocurrency in a digital wallet where you control your private keys and not an exchange or third party wallet as a general rule of thumb. The reason for this is because exchanges and third party wallets have to do a lot of work to credit their users, where a person who owns their private keys can do this work themselves!
Your keys, your coins. Curiously, it seems that the combined value of the post-fork Bitcoin and Bitcoin Cash did exceed the value of the pre-fork Bitcoin. This suggests, but does not necessarily demonstrate, that the SegWit fork created value; that the market prefers the availability of choice between these two flavors of Bitcoin.
Bitcoin and Bitcoin Cash markets then as now are quite thin, so one should not read too much into any instantaneous price. Developers can freely depart the Bitcoin blockchain, and many have. Developers can, of course, also return; in this, they like miners can exercise a reversible exit. Of course, the exchange of harsh words and pride may make a return to the Bitcoin fold unlikely. This is essentially a commercial decision. The Exit of a supplier is the symmetric twin to the Exit of the customer discussed by Hirschman.
A hard fork, whether viewed from the perspective of a miner or of a user, is both Voice and Exit, and neither. Imagine that the relevant stakeholder views either an improvement proposal or the status quo to constitute decline.
A hard fork opens up both the desired and the dreaded pathways. So long as one of the fork branches promises an acceptable outcome to the stakeholder, he can follow that branch and discard that is, exit the other branch.
Again, the experience of a hard fork differs between miners and users. When facing a hard fork, a miner must act. Persistent hard forks result when the miners are divided; they arise where 1 some miners prefer the new rule and others prefer the status quo, and 2 both groups are, at least in the short run, each able to devote sufficient processing power to sustainably support a separate branch of the forked blockchain.
Given the reality of two branches, a miner must allocate his hashing power between one and the other. There is a technological aspect to this choice. A miner with a variety of mining rigs might devote certain rig types to one branch and other types to the other, depending on the match between machine capabilities and the contrasting hash power demands of the two branches. The miner who makes the all-in choice with respect to one of the two branches will participate in the formation of a Nakamoto consensus with respect to that branch.
This is Voice. Indeed, it is a maximization of Voice, as it is concentrated on that single branch. Moreover, the all-in miner has exited the abandoned branch. But recall this Exit may be reversed so long as that branch continues as an open network. The miner cannot avoid distributing its pre-fork hashing power between the two branches, exiting one branch or the other or part from one branch and part from another with its pre-fork hashing power.
Every mining rig has to be directed—at any given moment—to only one blockchain; it cannot serve two masters. A hard fork to a miner is like a religious schism. A community is fractured by a pair of mutually incompatible rules that require an adherent to take a stand, in or out, explicitly with one and implicitly with the other.
The user faces a quite different choice. The user experiencing a hard fork will have its coins UTXO recognized on both surviving blockchains. Both coins have market value though their value can and do differ significantly.
The user need not exit either solution. She can continue to hold both forms of coin. And again, the user can sell either coin, or both. This reflects unawareness of the hard fork, existence of lost private keys, the effects of inertia, or a hedging strategy. Developers are specialist, and they undertake discrete projects. One imagines that developers will have a purer experience of schism.
A developer is not only looking at which branch is likely to survive; he may find one branch more attractive from a technical standpoint. Moreover, he may locate his development efforts on the branch that is more receptive to his ideas.
Schisms are destabilizing and potentially value-destructive. Scale effects operate to discourage forks. In the case of a hard fork within the Bitcoin community, each branch requires a certain degree of infrastructure independent of the other branch. Forks create inefficient redundancy of infrastructure.
They also divide the developer community into smaller camps—which may or may not retard the rate of innovation—as well as rewards to be derived from innovation.
And as two branches share, at least in the short run, a quantity of nodes that had earlier been devoted to a single blockchain, there is likely some diminishment of security.
Of course, the value of all coins should not have significantly increased—unless the now differentiated Bitcoin and Bitcoin Cash networks, by presenting the market with differentiated products, unlocks value. Even so, the combined value of 21 million Bitcoin and 21 million Bitcoin Cash must outweigh the structural redundancies introduced by the fork in order for their co-existence to be economically stable. The eventual survivor should capture the current total combined market value of these two, highly similar coins.
Were Bitcoin Cash to suspend operation today, miners would migrate to the Bitcoin blockchain. Users of stocks of pre-fork Bitcoins would see the value of their corresponding Bitcoin Cash holdings evaporate and the value of their post-fork Bitcoin appreciate to a compensating degree, with little or no financial loss. Only post-fork acquirers of Bitcoin Cash would experience losses; those users would not likely be able to outrun the accelerating loss of value triggered by a dawning general recognition that Bitcoin would be the sole survivor of the two branches.
Where Exit is relatively costless, a stakeholder will depart an organization that it views to be in decline. Voice rises in importance where Exit is occluded. Exit is a fairly open course to users, miners and developers, so the presence and energetic exercise of Voice is, at first blush, anomalous. Hirschman describes the strange reaction of remaining engaged in the presence of the possibility of Exit and gives various accounts for it. One who has the chance for Exit in the presence of decline yet chooses to stay is displaying Loyalty.
Pursuing a loyal stance is risky, as the loyal stakeholder cannot know with confidence whether her continuing presence—an exercise of Voice—will bring about a positive improvement.
Stranger still are displays of Loyalty by stakeholders who have departed an organization and who remain engaged in influencing its destiny. These departed stakeholders exercise Voice from outside. Hirschman argues that such loyal departed have not in fact executed a complete Exit; their continuing engagement signals interest perhaps in the nature of an interest in the continuing production of a public good by the organization.
A user who rides both branches of a hard fork does not display divided loyalties. Post-fork users may wish to retain holdings of UTXOs on both branches as a matter of diversification, spreading risk between the two positions. Or the user may perceive distinctive utility from each position. A circulating story is that Bitcoin functions better as a store of value, while Bitcoin Cash is better suited for small payments.
A user could desire both access to both functionalities. A user that exits its position on one branch or the other, by selling coins, may continue to exercise Voice, by participating in the overall conversation or as a potential market re-entrant.
Loyalty to the larger Bitcoin project may engage users beyond their private interests. Miners may also display Loyalty and exercise Voice notwithstanding a decision to terminate mining on one branch or the other. Miners face both near costless Exit and near costless re-entry: the reversible Exit described above.
Reversible Exit creates an option and an option will usually have some positive value. Given this option value, miners may appear to act loyally to one or both branches of the soft fork by remaining engaged and exercising Voice. It features a complex of stakeholders that do not correspond, in function or interests, with the familiar players found in corporate governance contests such as shareholders, directors and management.
Blockchain stakeholders experience governance in different ways. Major governance events frequently take the form of hard forks. A successful hard fork will produce a continuing chain that incorporates the new rule or protocol, but a second branch of that chain may also survive at least for a while. The fairly recent hard fork that produced the split between Bitcoin and Bitcoin Cash is an example of such an event. The blockchain-specific hard fork gives users a range of Exit responses.
Users may sell Bitcoin or Bitcoin Cash or both. A user who believes that only one branch will survive in the longer run, but is not clear which, will be motivated to exercise voice in promoting rules and policies that will preserve and grow the Bitcoin ecosystem. Miners face the freest course: they can exit and return from one branch or the other at little cost or inconvenience. This possibility of reversing Exit may promote a more continuing interest in the exercise of Voice.
Miners, at the moment, seem particularly interested in supporting policies that will promote the maximization of transaction fees.
These interests will be expressed with regard to proposals for both branches, irrespective of which branch a miner may be actively working at the moment. Published on Jun 23, We apply it here to the Bitcoin blockchain, where it illuminates strange and unencountered qualities of the reactive choices open to varied stakeholders. Creative Commons Attribution 4.