Cryptocurrency Forks: The Flawed Consensus

Cryptocurrency Forks: The Flawed Consensus

Just as with any community-driven project or even democratic nation, consensus among the masses is often far from perfect. In the world of cryptocurrency, we have seen this flaw play out, with Bitcoin as the primary and dominant network but opinion differences leading to multiple forks resulting in the creation of multiple blockchains that appear and sound similar to Bitcoin, but are actually not.

Bitcoin Forks: BCH and BSV

A fork occurs when changes are made to Bitcoin's code and some miners and nodes agree with those changes, resulting in a new blockchain that looks and sounds like Bitcoin but which requires miners, nodes, and the community to maintain. Thus, BCH and BSV have struggled with growth.

Bitcoin Cash (BCH) is one of the most popular Bitcoin forks. It was created in 2017 with a goal to increase the transaction speed and lower the transaction costs compared to Bitcoin. With an 8MB block size, BCH can handle more transactions than Bitcoin which has a block size of 1MB. However, the low hash power and the lack of support from the community have hindered BCH's success.

Another Bitcoin fork, Bitcoin SV (BSV), was created in 2018 as a result of a disagreement between the Bitcoin Cash community. BSV claims to be the original Bitcoin and is focused on scaling and increasing the block size to achieve faster transactions. But, like BCH, BSV has faced a lack of adoption and community support.

Litecoin (LTC)

Litecoin (LTC) is not a Bitcoin fork, but it has similarities as it was created by the former Google engineer Charlie Lee in 2011 as a "lite" version of Bitcoin. LTC uses a different mining algorithm and has faster block times and lower fees compared to Bitcoin. However, Litecoin's growth has also been relatively slow due to competition from other altcoins and the struggle to distinguish itself in the crowded cryptocurrency market.

Hard Fork vs Soft Fork

A hard fork leads to the creation of a new blockchain, while a soft fork is a reverse-compatible option that does not create a new chain. In the case of a soft fork, there is no major difference, but users who do not update their wallets may be unable to transact with those who have updated theirs.

In the case of a hard fork, users have the same balance on both the old and new chains, but the new chain will also have an equal amount of new coins (e.g. BCH, BSV). The value of the new tokens will soon begin to deviate from the value of the original Bitcoin. In theory, a forked chain could also surpass the old version, as with Ethereum Classic (ETC) compared to Ethereum (ETH).

In conclusion, while forks can provide a solution to disagreements within the cryptocurrency community, it can also lead to competition and confusion among users, hindering the growth and adoption of these alternative cryptocurrencies.

Well-known Forking Events

To understand forks correctly, we need to understand the conditions under which they occur. These forks occur when there is a strong difference of opinion within a community, and this is understandable. If you simply want to push through your own upgrade and no one else agrees with it, then that's not feasible.

Bitcoin forks were largely motivated by the "scalability problem" of Bitcoin. This dispute led to a fact: the current limits of the Bitcoin core block size are set at 1 MB, which restricts transaction throughput to 7 tx/s, and this limited block size is related to security and decentralization. Moreover, Bitcoin can be used for daily transactions through lightning wallets, and for larger transactions, using the base layer transactions will be more appropriate.

Bitcoin XT

Bitcoin XT was created by Mike Hearn in 2014 as a Bitcoin core fork. In mid-2015, Bitcoin XT gained more and more public support, and one of the first developers who cooperated with Satoshi Nakamoto in developing Bitcoin core, Gavin Andresen, proposed BIP 101. BIP 101 proposes to increase the block size from 1 MB to 8 MB, and then steadily increase the transaction speed to 24 tx/s. This upgrade requires 75% network support, but since consensus was not reached, Bitcoin forked.

Bitcoin Gold (BTG)

Bitcoin Gold was forked out in October 2017 to create a new Bitcoin with a different protocol to prevent large Bitcoin miners from switching to the new protocol. It uses Equihash (created by Zcash) and does not allow large miners to profitably operate mining machines (ASICs).

Bitcoin Gold has been repeatedly targeted by DDoS attacks, and even the infamous 51% attack where malicious miners took control of 51% of the network and began rearranging the blockchain (mainly by creating tokens) in 2018.

Bitcoin Cash (BCH)

Bitcoin Cash split from Bitcoin core on August 1, 2017 and is currently the most recognized, promoted, and widely supported Bitcoin fork. It continues the work of Mike Hearn in 2014.

Support for BIP 91 to Increase Block Size Limit

In an effort to better reflect Satoshi Nakamoto's original vision for a P2P electronic cash system, some of Bitcoin's biggest contributors and advocates have proposed support for BIP 91. This proposal would increase the block size limit to 8 MB and gradually reach a new limit of 32 MB while keeping other settings the same.

Wu Jihan, the former CEO of mining giant Bitmain, early Bitcoin investor and advocate Roger Ver, and Craig Wright are among those who support this idea. However, it has garnered a lot of media attention and debate within the Bitcoin community.

Meanwhile, Bitcoin SV (BSV) has further conflicts about the contents of "Bitcoin Satoshi Vision". In 2018, Craig Wright forked it again from Bitcoin Cash with Calvin Ayre's support. Their modified block size limit is 128 MB, and BSV may further increase block size. However, it has already been subject to attacks and its network is continually threatened.

The History of Forks in Cryptocurrencies

In just a decade, the history of cryptocurrencies has been filled with dramatic events and numerous forks.

The first Bitcoin fork occurred in October 2011, creating Litecoin. Since then, countless forks have emerged.

Forks themselves are not necessarily good or bad. Most blockchain networks like Ethereum regularly undergo protocol upgrades that require fork execution, but unlike Bitcoin, they are mostly based on a consensus decision. The old chain quickly disappears like a tree branch with no nutrients.

However, when a fork leads to two different blockchains and community split conflicts, token price fluctuations usually occur. If conflicts can be resolved in a professional manner, it will help drive the development of the overall protocol and industry.

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Disclaimer

The opinions expressed in this article are of the author's personal views and not reflective of the stance or views of Blockcast. All information and opinions are for reference only and should not be considered as investment advice. It is recommended that investors make their own trading decisions and conduct their own research. The author and Blockcast are not responsible for any direct or indirect losses suffered due to actions taken by investors.