What Are Bitcoin Hard Forks?
In early 2009, a mysterious software developer, working under the alias Satoshi Nakamoto, released a software program that created bitcoin, the first cryptocurrency. Since then, bitcoin has gone on to gain massive appeal across the globe and inspire hundreds of other digital currencies.
Many of these cryptocurrencies employ technologies that were already inherent in Satoshi's initial program and concept. Others take the bitcoin model and adapt or attempt to improve upon it. In some cases, bitcoin has spawned variations that are based on the same underlying concept and program but that are distinct from the original. In these situations, the bitcoin blockchain has undergone a process known as forking. With forking, the blockchain itself is divided into two distinct entities.
A bitcoin hard fork refers to a radical change to the protocol of bitcoin's blockchain that effectively results in two branches, one that follows the previous protocol and one that follows the new version.
During a hard fork, software implementing bitcoin and its mining procedures is upgraded; once a user upgrades their software, that version rejects all transactions from older software, effectively creating a new branch of the blockchain.
It is through this forking process that various digital currencies with names similar to bitcoin have been created, including bitcoin cash and bitcoin gold.
Bitcoin XT was one of the first notable hard forks of bitcoin.
Bitcoin cash remains the most successful hard fork of the primary cryptocurrency; as of April 2021, it is the eleventh-largest digital currency by market cap
It is through this forking process that various digital currencies with names similar to bitcoin have been created. These include Bitcoin Cash and Bitcoin Gold, among others. For the casual cryptocurrency investor, it can be difficult to tell the difference between these cryptocurrencies and to map the various forks onto a timeline. Below, we'll walk through many of the most important forks to the bitcoin blockchain over the past several years.
Understanding Bitcoin Hard Forks
In 2009, shortly after releasing bitcoin, Satoshi mined the first block on the bitcoin blockchain. This has come to be referred to as the Genesis Block, as it represented the founding of the cryptocurrency as we know it. Satoshi was able to make numerous changes to the bitcoin network early on in this process; this has become increasingly difficult and bitcoin's user base has grown by a tremendous margin.
The fact that no one person or group can determine when and how bitcoin should be upgraded has similarly made the process of updating the system more complex. In the years following the Genesis Block, there have been several hard forks.
During a hard fork, software implementing bitcoin and its mining procedures is upgraded; once a user upgrades their software, that version rejects all transactions from older software, effectively creating a new branch of the blockchain. However, those users who retain the old software continue to process transactions, meaning that there is a parallel set of transactions taking place across two different chains.
Is a Hard Fork Good or Bad?
Any hard fork can have a profound impact on the cryptocurrency; it is often an unstable time for the cryptocurrency. In some cases, the community will be divided about the necessity and the impact of the changes that are being instigated by the fork. In addition, the price of the cryptocurrency is generally very volatile around the time of a hard fork.
The Bottom Line
In a matter of years, bitcoin has already spawned a large number of forks. While no one can say for sure, it's likely that the cryptocurrency will continue to experience both soft and hard forks into the future as well, continually growing the cryptocurrency community while also making it increasingly complicated