Bitcoin Forks

Bitcoin Forks¶

A Bitcoin Fork refers to a split in the Bitcoin blockchain, resulting in different versions of the blockchain and corresponding cryptocurrencies. Forks are primarily divided into two types: Hard Forks and Soft Forks. Forks are usually caused by disagreements within the community regarding protocol upgrades or changes.

Hard Forks¶

A hard fork is an incompatible upgrade to the blockchain protocol, meaning that new version nodes cannot be compatible with old version nodes (old nodes do not accept blocks from the new version). A hard fork causes the blockchain to split into two independent chains, producing two different cryptocurrencies.

Classic hard fork examples:

Bitcoin Cash (BCH): The Bitcoin community had disagreements about scaling block size and transaction processing speed. Supporters wanted to increase the block size (from 1MB to 8MB) to improve transaction throughput.

Bitcoin Gold (BTG): To make mining more decentralized, Bitcoin Gold adopted a new mining algorithm (Equihash), allowing ordinary users to mine using GPUs and avoiding ASIC miner monopolization.

Bitcoin SV (BSV): A fork caused by disagreements within the Bitcoin Cash community about protocol upgrades and vision.

Soft Forks¶

A soft fork is a backward-compatible upgrade to the blockchain protocol, meaning that new and old version nodes can coexist, and old nodes can still verify new blocks and transactions. Soft forks are typically used to improve network functionality or add new features without requiring all participants to immediately upgrade.

Common soft fork examples:

Segregated Witness improved transaction processing speed and efficiency by separating signature data from blocks, increasing the effective capacity of each block. For more, see Segregated Witness.

Taproot aims to improve Bitcoin's privacy, efficiency, and smart contract functionality. It introduced Schnorr signatures and MAST (Merkelized Abstract Syntax Tree) technologies. For more, see Taproot.

Bitcoin Historical Fork Timeline¶

The Origins of BTC, BCH, and BSV¶

Since Bitcoin's birth on January 3, 2009, it grew from being popular only among tech enthusiasts to gradually entering the public eye, with an ever-expanding user base and increasing transaction volume. Since each block in the Bitcoin system is limited to 1MB, the number of transactions that can be stored in each block is very limited, thus restricting overall transaction throughput. The Bitcoin network began experiencing congestion, excessively high fees, and transactions waiting a long time to be processed. At the time, Bitcoin could process approximately 4-7 transactions per second, which is clearly insufficient compared to Alipay, PayPal, and other services. Low transaction efficiency made BTC unable to serve as a cash payment system.

In 2015, voices calling for scaling emerged in the Bitcoin community. Miners supported increasing Bitcoin's block size to increase transaction capacity, while small-block advocates represented by the Core development team argued that this could not fundamentally solve the problem and instead advocated using Segregated Witness and the Lightning Network to alleviate Bitcoin's congestion. The dynamics between miners, development groups, and users were relatively chaotic, and the Bitcoin community debated the scaling issue for three years. Community conflicts gradually became irreconcilable, and calls for a hard fork grew louder.

Finally, on August 1, 2017, miners executed a hard fork at block height 478,558. Six hours later, the ViaBTC mining pool successfully mined the first Bitcoin Cash (BCH) block (nr 478,559), splitting the Bitcoin community in two. Bitcoin Cash inherited Bitcoin's transaction data but removed Segregated Witness, upgrading the block size limit to 8MB (later upgraded to 32MB), committed to solving Bitcoin's block congestion and high fee problems through on-chain scaling. BCH was subsequently distributed to Bitcoin holders at a 1:1 ratio. To refine the system, BCH underwent hard forks every six months. After several upgrades, the system gradually stabilized, with its market cap entering the top ten crypto assets.

In April 2018, the BCH community published a mid-term development roadmap announcing plans for technical upgrades and improvements to BCH. This mainly included two aspects: one was scaling, increasing block size to 32MB; the other was adding or reactivating several Bitcoin script opcodes to give the BCH network smart contract capabilities similar to Ethereum, thereby expanding BCH's applications.

However, Australian scientist Craig Wright (CW), who claimed to be Satoshi Nakamoto, explicitly opposed this plan. He believed that Bitcoin established a solid foundation in version 0.1, and that BCH only needed to expand capacity and lock the protocol, declaring that he would "completely lock down the Bitcoin base protocol and scale to 128MB." He established a project called Nchain and on August 16, 2018, created the BSV node client, threatening to implement a fork coin called Bitcoin Satoshi Vision (BSV) on the BCH protocol, with the goal of restoring Bitcoin's original protocol.

After several rounds of verbal sparring between the two camps, tensions once again reached a peak and became irreconcilable. On November 16, 2018, BCH officially hard-forked into BCHABC and BCHSV. This fork led to a consensus split and a crash in major cryptocurrency prices. Subsequently, BSV performed a "hard fork" on July 24, 2019, increasing block size from 128MB to 2GB, higher than any other blockchain project. In the days following the upgrade, the BSV chain successfully mined a 256MB block, setting a world record for the largest block mined by a public chain. From then on, the Bitcoin camp was divided into three: BTC, BCH, and BSV.

BCH Forks Again¶

On November 15, 2020, BCH officially hard-forked at block height 661,648, splitting into Bitcoin ABC (BCHA) and Bitcoin Cash Node (BCHN). The reason for this fork was that BCH's main development team, BCH ABC, insisted on introducing the "Infrastructure Funding Plan" (IFP) in the November upgrade. Initiated by some large miners, it was primarily intended to solve the funding problems facing the development team, requiring that 8% of BCH block rewards be allocated to an infrastructure development fund as key development funding for BCH. However, this was strongly opposed by the majority of miners and the community. This BCH fork was an interest dispute between miners and developers.

Developer compensation is a common issue across blockchain projects. Miners are clear participants and protectors of the blockchain ecosystem who can earn system token rewards. Developers, on the other hand, bear the work of upgrading and improving the entire public chain but cannot directly earn income from the system. Currently, developers generally receive compensation through community donations or commercial investment.

The commercial investment model risks shareholders using equity to gain control over the development team. The BCHABC team rejected commercial investment to maintain their independence, but the limited funding obtainable through community donations meant the development funding issue remained a challenge for BCH's future development.

BCHABC Camp: Insisted on advancing the donation plan and announced on February 18, 2020, that the relevant code had been added to the ABC version 0.21.0 client. They also emphasized that this did not mean miners would lose 8% of their income - due to difficulty adjustments, mining income would only decrease by 0.2%.

BCHN Camp: Early BCH developer Freetrader led the creation of a full node called BCH Node, developing and releasing the IFP-free BCHN 22.0 node version, promising to maintain the BCH protocol without forcing miners to pay a "miner tax."

Looking at the block production data from the last week before the fork, 84.2% of blocks were mined by the BCHN community, while 0% were mined by BCHA. The BCHN camp held an absolute advantage in hash power over the BCHABC camp.

Ultimately, on November 15, 2020, BCH officially hard-forked into BCHA and BCHN. BCHN won with an overwhelming advantage and carried on the BCH legacy.

Impact of Forks¶

For coin holders, if you hold your own private keys, you only need to wait during a fork (avoid transferring during the fork, as replay attacks could result in lost coins). After a BCH hard fork, the new chain and original chain share the same transaction data, addresses, private keys, and transaction methods. One coin before the hard fork becomes two coins after the fork - simply download the wallet corresponding to the new chain and import your original chain wallet private key to receive an equal amount of the new chain's coins.

For miners, BCHA was rejected by most miners due to the "miner tax." Since BCH, BSV, and BTC all use the SHA256 proof-of-work algorithm, the three currencies share compatible algorithms and mining hardware. Hash power flows freely among the three cryptocurrency networks, with miners' pursuit of higher returns resulting in similar daily mining revenues across BTC, BCH, and BSV. Therefore, hash power for BTC, BCH, or BSV sharing the same PoW mechanism may be strengthened.

From a hash power and security perspective, if the combined price of fork coins after the fork exceeds the price of BCH itself, more hash power will flow in. If the combined price is lower than BCH itself, hash power will flow out. Additionally, the original BCH hash power is split between two chains, which reduces hash power on the forked chains, correspondingly lowering the cost of a 51% attack and increasing blockchain network security risks.

Reference: https://www.defidaonews.com/article/669122