Forks in cryptocurrency are moments of both opportunity and conflict. While they can lead to innovation and new features, they also often result in heated disagreements among communities. Contrary to popular belief, not all forks result in a permanent split, but they do have a lasting impact on the blockchain ecosystem.
Cryptocurrency forks have not only shaped the trajectory of various coins but have also highlighted the speed at which the market can change—sometimes dramatically, sometimes subtly. Let’s dive into the most notable forks in cryptocurrency history, explore the different types of forks, and understand their lasting impact on the crypto landscape.
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Key Takeaways
- The two primary types of forks in cryptocurrency: soft forks and hard forks. Soft forks ordinarily involve minor protocol changes that don’t split the blockchain. While hard forks result in a permanent split, creating a new blockchain and cryptocurrency.
- Significant Bitcoin forks include Bitcoin Cash (BCH), Bitcoin SV (BSV), Bitcoin Gold (BTG), and Segregated Witness (SegWit).
- Notable Ethereum forks are Ethereum Classic (ETC), The Merge, Beacon Chain
- Forks can lead to volatility, confusion among traders, creation of new cryptocurrencies, division within the community, and increased complexity.
What Is a Cryptocurrency Fork?
A cryptocurrency fork is when a developer adds updates and features to a blockchain code which leads to it splitting into two paths. Each of these paths becomes independent and forms new blockchains and coins, but remains connected to the original chain. The cause of a crypto fork can be unintentional or an upgrade to the blockchain’s rules.
Types of Forks
There are two types of crypto forks.
Soft Fork
A soft fork in crypto refers to a backward-compatible change to the blockchain’s protocol, where older nodes can still validate blocks under the new rules, though they may reject blocks that violate the older, less strict rules. Soft forks typically don’t result in a split of the blockchain, although temporary forks can occur during the upgrade process. No new cryptocurrency is created in a soft fork.
A notable example is Bitcoin’s SegWit (Segregated Witness), which improved transaction efficiency without creating a new chain or coin.
Hard Fork
This occurs when changes to the blockchain protocol lead to the creation of new rules that are incompatible with the original chain. A hard fork typically results in a permanent split, where the new chain follows the updated protocol, and the original chain continues with the old rules. In some cases, a new cryptocurrency emerges from this split, while the original cryptocurrency remains.
Nodes that wish to participate in the new chain must upgrade to the new protocol. Examples of hard forks include Bitcoin Cash (BCH), Bitcoin SV (BSV), Bitcoin Gold (BTG), and Ethereum Classic (ETC).
Key Forks in Cryptocurrency History
Some notable forks in cryptocurrency history include:
Bitcoin Forks
Bitcoin Cash (BCH)
Bitcoin Cash (BCH), created in 2017, is a hard fork of Bitcoin. While it shares Bitcoin’s transaction history up until the fork, it operates on a separate blockchain. The main reason for this notable fork was Bitcoin’s scalability issue, as Bitcoin’s 1MB block size limit constrained the number of transactions that could be processed per block, leading to slower transaction times and higher fees during periods of congestion.
The Bitcoin community was divided, with some advocating for larger block sizes to handle more transactions and others wanting to keep the block size the same to prioritize decentralization. As a result, Bitcoin Cash was created with an increased block size limit of 8MB, allowing more transactions per block, which aimed to reduce fees and alleviate network congestion.
Bitcoin SV (BSV)
Bitcoin SV (BSV) was created in 2018 through a hard fork from Bitcoin Cash (BCH), driven by a desire to return to what its proponents claim is the original vision of Bitcoin, as outlined by Satoshi Nakamoto. The split was fueled by controversies over scalability, governance, and the interpretation of Bitcoin’s purpose.
BSV’s supporters, led by Craig Wright, a figure who controversially claims to be Satoshi Nakamoto, and Calvin Ayre, a notable entrepreneur, argued that increasing the block size to 128MB would allow BSV to scale and fulfill Bitcoin’s potential as a global payment system. While BSV has made this increase, it continues to be a contentious force within the crypto community, with its interpretation of Satoshi’s vision being hotly debated. The “SV” in Bitcoin SV stands for “Satoshi’s Vision.”
Bitcoin Gold (BTG)
Bitcoin Gold (BTG) emerged from a hard fork of the original Bitcoin blockchain in 2017 with the goal of decentralizing Bitcoin mining. By implementing a new proof-of-work algorithm called Equihash, BTG sought to shift mining away from specialized ASIC hardware, which had concentrated mining power in the hands of a few large operators, and toward more accessible GPU-based mining.
Led by Jack Liao, BTG aimed to return mining power to everyday users. The project also introduced robust replay protection to prevent transaction duplication across the Bitcoin and BTG networks, as well as a dynamic difficulty adjustment algorithm (DAA) to maintain network stability amid fluctuating mining power. While BTG aimed to democratize mining, its impact on achieving true decentralization remains a topic of debate.
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Segregated Witness (SegWit)
Segregated Witness (SegWit) is a landmark soft fork in cryptocurrency history that separates witness data (signatures and scripts) from the rest of the transaction data, addressing a vulnerability known as transaction malleability. This change in Bitcoin’s transaction format allowed more transactions to fit into each block, effectively reducing transaction size and lowering fees under certain conditions. By resolving technical barriers, SegWit also paved the way for scaling solutions like the Lightning Network.
Proposed by Pieter Wuille in 2015, SegWit became active in August 2017 after contentious debate within the Bitcoin community and was formally introduced as Bitcoin Improvement Proposal (BIP) 141.
Ethereum Forks
Ethereum Classic (ETC)
Ethereum Classic (ETC), which is the continuation of the original Ethereum blockchain, emerged in 2016 following the infamous hack of the Decentralized Autonomous Organization (DAO), which resulted in the theft of millions of dollars worth of ether. The Ethereum community was split into two camps: one group favored returning the stolen funds through a blockchain rollback, while the other insisted that the blockchain must remain immutable, adhering to the principle that “code is law.”
A hard fork ensued, leading to a split in the blockchain. The majority supported the rollback, resulting in the new Ethereum (ETH), which continued to be developed by Vitalik Buterin and a broader community of developers. Meanwhile, the original chain, which upheld the principle of immutability, became Ethereum Classic (ETC).
ETC focused more on immutability and decentralization.
Beacon Chain
The Beacon Chain, launched in December 2020, is a critical component of Ethereum’s upgrade from Proof of Work (PoW) to Proof of Stake (PoS). It serves as the backbone of Ethereum 2.0, managing the PoS protocol, coordinating validators, and preparing for future shard chains.
While the Beacon Chain handles validator management and staking, it does not directly process transactions or smart contracts. The execution layer of Ethereum, known as Ethereum 1.0, remains responsible for executing transactions and smart contracts. This multi-layer approach aims to enhance Ethereum’s security, scalability, and performance.
The Merge
The Merge is an important upgrade in the history of Ethereum transiting from Ethereum’s proof-of-work (PoW) consensus mechanism to proof-of-stake (PoS) consensus. The scalability issues faced by Ethereum’s growing popularity led to gas fees and slower transaction times, which prompted the creation of The Merge.
The original Ethereum Mainnet was combined with Beacon Chain to form The Merge in 2022.
Impact of Forks on the Market
Forks in the cryptocurrency ecosystem have impacted traders significantly, offering opportunities for profits and also the risk of losses.
The impacts of notable forks in cryptocurrency are:
- Market Volatility: Forks create fluctuations in the price of cryptocurrencies. These forks pose significant risks to traders and also offer profits.
For example, during the Bitcoin Cash fork, if you had 10 Bitcoin, you would also get 10 Bitcoin Cash. Creating new coins can lead investors to buy or sell the new currency, causing price fluctuations. The rapid trading activity may lead to price movements for the original and new cryptocurrencies.
- Confusion: Forks can lead to confusion on which path to follow when one cryptocurrency has been split into two different cryptocurrencies. Traders are left with a conflicting decision to buy, sell, or hold.
It might take a while for a trader, especially a new trader, to understand what just happened when a fork happens.
- New Cryptocurrencies: Forks create new cryptocurrencies offering traders new opportunities to explore.
Hard forks lead to the creation of two different coins and blockchains, for example, the fork with Bitcoin brought about Bitcoin Cash, and the fork in Ethereum brought about Ethereum Classic.
- Division: Forks can divide the community, leading to conflicts and challenges. Each fork in the Bitcoin community caused divisions and debates about Bitcoin’s future.
Some people believe Bitcoin should be like digital gold, focusing on security and decentralization, while others see its use as a transactional currency. These differing views have led to disagreement and conflicts, contributing to the creation of different forks.
- Complexities: Forks often make it harder for miners and nodes to operate smoothly because of the blockchain network’s divided resources. This may weaken the network’s security because the computing power (hash power) is spread thinner.
Conclusion
Understanding the cryptocurrency forks and the different types of forks is important to a trader in making a well-informed decision. Not all forks are a result of disagreement, often, the cryptocurrency community encourages it as it leads to new opportunities, solving specific problems in the network.
Recommended reading: What are The Differences Between Forex and Crypto Trading
The notable forks in cryptocurrency history have shaped the lives of traders, setting a pace that anything is possible in the cryptocurrency market.
FAQs
Forks in a blockchain occur when there are disagreements within the community or among developers about how the blockchain should evolve. These disagreements can arise from different opinions on technical improvements, changes in protocol, or governance issues.
Forks can be both good and bad, depending on the perspective. They can lead to innovation and improvements but can also create confusion, divide the community, and weaken the network if the resources are split.
If you hold coins in the original blockchain at the time of a hard fork, you will receive the same amount of the new cryptocurrency as you had in the original. For example, if you had 10 Bitcoin during the Bitcoin Cash fork, you would also get 10 Bitcoin Cash.
To claim new coins, you will receive them automatically if you have held the original cryptocurrency in a wallet or exchange that supports the fork. The new coins are usually distributed automatically, but the process can vary depending on the specific fork.
Yes, forks can weaken the network by splitting resources, making it more vulnerable to attacks. For example, the Ethereum Classic (ETC) fork in 2016, following the DAO hack, led to a split in the network which some believe increased vulnerability to attacks. Similarly, Bitcoin Cash (BCH) and Bitcoin SV (BSV) forks resulted in temporary security concerns due to network splits.
