A Bitcoin fork is essentially a change in Bitcoin’s code that alters the rules of the network. As an open-source system, Bitcoin allows anyone to propose changes to its code, which can then be adopted (or not) by network participants. Forks can enhance Bitcoin’s capabilities, fix bugs, or even result in disagreements within the community, leading to network splits.
Since open source software is run by many decentralized parties, not all users immediately adopt the changes when developers add a change to the code. Some users might never upgrade to the new version.
Bitcoin’s code might be slightly altered to fix bugs and improve the user experience, but these changes are rarely labeled as forks. Instead, forks refer to significant code changes that alter the rules of the network.
Types of Bitcoin Forks
The two main types of Bitcoin forks are soft forks and hard forks. These forks differ in their compatibility with the existing Bitcoin network and the extent to which they alter Bitcoin’s protocol.
What Is a Soft Fork?
A soft fork is a backward-compatible change to the Bitcoin protocol. This means that the new version of the software can still communicate and interact with nodes running the older version of the code. Soft forks typically restrict the range of valid transactions or actions, rather than eliminating or altering existing rules.
For example, a soft fork might introduce stricter rules about block size or transaction validation. This makes the upgrade process less disruptive since nodes running older versions of the software will still be able to accept transactions and blocks from those running the updated version.
➤ Learn more about what is a bitcoin node.
What Is a Hard Fork?
A hard fork is a more significant change that breaks compatibility with the previous version of the Bitcoin protocol. Hard forks create a permanent split in the blockchain, often leading to the creation of a new cryptocurrency. This is because the new rules are incompatible with the old ones, and nodes running the old software will not be able to validate blocks created under the new rules.
Hard forks are riskier than soft forks because they can cause network splits. If not all nodes adopt the changes, the network could divide into two separate chains, each with its own version of the Bitcoin protocol. A hard fork requires overwhelming consensus from the community to be successful.
Hard forks are sometimes required to fix critical bugs or introduce radical changes to a protocol. However, because of the possibility of a network split, hard forks are avoided by the Bitcoin community as much as possible.
History of Bitcoin Forks
Since Bitcoin’s creation, several groups have attempted to create forks of the Bitcoin network. These spinoffs aimed to add new features or rules to the Bitcoin network, but never gained significant support from the community.
Bitcoin Cash (BCH)
In August 2017, Bitcoin Cash was created as a hard fork of Bitcoin, designed to address the issue of scalability. Bitcoin Cash increased the block size limit from 1MB to 8MB in order to process more transactions per block. The Bitcoin Cash community argued that the current block size was too small to support Bitcoin’s growth, while others insisted that SegWit was a more effective solution.
Despite the initial hype, Bitcoin Cash has struggled to gain widespread adoption. While it still operates today as a separate cryptocurrency, Bitcoin Cash’s value and security have lagged behind Bitcoin, primarily because it lacks the same level of network support and security that Bitcoin enjoys.
Bitcoin SV (BSV)
Another notable fork is Bitcoin SV (Satoshi Vision), which emerged from the Bitcoin Cash fork in 2018. Bitcoin SV proponents believed that Bitcoin should increase the block size even further, to 128MB, to enable even higher transaction throughput. This hard fork resulted in two separate chains, Bitcoin Cash and Bitcoin SV. Bitcoin SV continues to operate, but like Bitcoin Cash, it has failed to rival Bitcoin in terms of network effect and security.
How Bitcoin Forks Affect the Network
Since Bitcoin is an open source network, forking Bitcoin’s code and creating a new network is easy. However, convincing Bitcoin users that this new fork is better or more legitimate has been practically impossible. For this reason, all forks of Bitcoin have failed to build lasting network effects, value, and security.
Do Bitcoin Forks Cause Inflation?
Bitcoin forks do not create inflation for Bitcoin, as they are a completely separate asset and blockchain. The tokens issued on a fork of Bitcoin’s blockchain are not interoperable or fungible with bitcoin (BTC). This fact has been reflected in the steady devaluation of all Bitcoin forks in relation to Bitcoin.
For example, if a fork occurs and a new token is issued, holders of Bitcoin at the time of the fork may receive an equivalent amount of the new token. However, these new tokens are not counted as part of Bitcoin’s 21 million coin supply, so they don’t cause inflation for Bitcoin. As a result, forked coins usually lose value over time since they don’t have the same network security, adoption, or market trust as Bitcoin.
Do Forks Disrupt Bitcoin’s Consensus?
The proposal of a fork, whether a hard fork or a soft fork, can trigger discussion and debates within the Bitcoin community. In 2017, there was contentious and heated debate over the activation of SegWit.
Some Bitcoin users wanted to include a hard fork with the SegWit upgrade, which would have disrupted consensus and harmed the Bitcoin network. However, the members of the Bitcoin network came to consensus and adopted the soft fork version of SegWit while rejecting the hard fork. This demonstrates how forks, though contentious, can ultimately lead to agreement within the community as long as nodes continue to run interoperable code.
Why Bitcoin Forks Matter
Bitcoin forks are important because they highlight the decentralized nature of Bitcoin and the open-source protocol that governs the network. Forks enable the Bitcoin community to test new ideas, improve the protocol, and address emerging challenges. They also show the power of consensus within the Bitcoin community, as the nodes must come to an agreement before any changes are made.
However, forks also present challenges, particularly when there is disagreement within the community. A poorly executed hard fork can lead to a network split and confusion. As such, forks should be carefully considered and implemented, with widespread consensus among the community.
➤ Learn more about SegWit activation.
Key Takeaways
- In decentralized systems, a fork is a change to a protocol’s ruleset, usually reflected as a change in the source code.
- A fork can be a soft fork or a hard fork. Soft forks maintain backwards compatibility, while hard forks do not.
- Hard forks sometimes result in two separate networks. In the case of Bitcoin, forks have never competed with Bitcoin or truly split consensus.
