- Forking: Anyone can create Bitcoin fork but why not to do it?
In this crypto-revolutionary world the term ‘forking’ has become a common word especially after the first ‘hard fork’ which occurred on 1 August 2017. Until today only two major forking has taken place- Bitcoin Cash and Bitcoin Gold while a proposed third one, SegWit 2x was cancelled because of lack of consensus (after the developers refused to implement replay protection which would have resulted in accidental loss of funds). Since then “Forkcoins” or in simple terms alternative coins which ‘split off’ from Bitcoin are raging hot. So, what is ‘Bitcoin Forking’? More importantly, how does it impacts the current system?
What is Forking?
Let us take an example, 100 people are walking down a road and they reach a fork (divisive point). Now, 80 people decides to go right whereas remaining 20 decide not follow the rest and they take left- because they believe it to be better than right. And now anyone, who comes to the fork after them, may decide for themselves who to follow. In terms of cryptocurrencies the minority of followers are the creators of a new coin (or creator of Bitcoin Gold and Bitcoin Cash).
Now with a pinch of technicalities, Forking majorly takes place when a group of miners, who create or release Bitcoin, believe there are other more efficient option than existing cryptocurrency (in this case Bitcoin). So, a fork is a change in the software of the cryptocurrency (like Bitcoin) which creates another separate versions of blockchain but with (obvious) shared history. Hence, forking hints a split of chain on which the cryptocurrency runs. It makes the chain to go in two different directions with different rules. Putting it simply, forking is said to take place when a blockchain splits into two. It happens when the miners disagree with the existing rules of Bitcoin and they want a change.
The size of a block is limited to 1 MB since 2010. This, in recent years, has drawn sharp criticism because it limits the number of transactions which can be stored in a block. Because the high number of transactions are filling blocks to their full capacity, the network fee rate (paid to the miners) has increased exponentially. The fee before 2015 was around $ 0.01 but has risen to $ 5–10 in recent days. People, quite simply, try and pay higher fee to get their transaction approved faster. The forking has allowed the size of Bitcoin to be raised to 8 MB meaning now the same block can record 8 times the transaction it used to record before.
One of the other reasons for the forking is SegWit. SegWit is adamant to increase the block size upto only 2 MB, which most network participants find ‘inefficient’ especially when the number of transaction will only rise and 2 MB size of blockchain will need to be increased again in the near future. The participants argue why to delay the inevitable and why not raise the limit to 8 MB now.
One of the valuable element about fork is the requirement of consensus. It means all or a big majority of the network’s participants have to comply or agree with the proposed changes. The consensus play an important role in forking. If every network participant or a vast majority of participants agree (provide consensus) to the changes then the whole system moves to a new direction. However, if only a few or small minority gives consensus to the changes then the system is divide into two directions (like Bitcoin Cash and Bitcoin Gold).
Impact of Forking-
In August 2017, when forking actually happened, it gave birth to Bitcoin Cash. All Bitcoin holders got equivalent amount of Bitcoin Cash to their accounts. An instant capital gain opportunity. However, not all Bitcoin companies and exchanges today provide Bitcoin cash. It is because it takes time to implement Bitcoin cash on the platform. When Bitcoin Gold was created in October 2017, Bitcoin holders were not provided with Bitcoin Gold like they were when Bitcoin Cash was created.
The most important point of impact is the price of the Bitcoin. In both the situations the price moved in both directions before stabilising in subsequent weeks. In simple terms, forking provides opportunity to everyone in the world. Those who have not invested get a chance to buy Bitcoin at a relatively lower price and those who already have Bitcoins get additional coins and a bright chance of price rise to earn profit.
Forking: Anyone can create Bitcoin fork but why not to do it? was originally published in buybitcoin-blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
- Date of publication:
- Mon, 03/12/2018 - 06:57
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