What the Fork?
What the Fork – – Bitcoin first successful fork was Bitcoin Cash in August 2017, Bitcoin Gold fork in October 2017 – how many forks can Bitcoin handle?
The Bitcoin software was designed to be independent of any centralisation – including development of the software. If there are new improvements or changes that are made on the software, a new chain is created and the old one continues to exist. For a branch to remain viable and grow – miners and users have to support it. If miners are users support the new branch and the old branch, we get what we call a fork in the network – two chains are created with an identical history. The chains will differ going forward based on the implemented developments of the forked chain.
In essence anyone can fork the Bitcoin network – if they would have the hash-power (mining power) and users to support the new chain. Forks have been popular lately because of the successful Bitcoin Cash (BTH) fork that saw people get an equal amount of Bitcoins and Bitcoin Cash coins after the fork, if the fork is a successful one and the new forked coin has market value, users to help Bitcoin before the fork would in essence have extra “free money” from the fork.
We then saw the Bitcoin Gold fork in October of 2016, the coin is trading at over $100 in exchanges, so we could call this a successful fork and holders of Bitcoin would again have received “free money”.
There are a couple of things one needs to be aware of before a fork. The price of Bitcoin tends to rise as people expect to get “free money” from the fork, we have seen the value of other altcoins drop and Bitcoin increases in value. The majority of people will generally collect their coins and return back to their altcoin holdings after the fork – like we saw with the Bitcoin Cash fork.
I say this all the time, but you would need to be in control of your private keys in order to ensure that you get the forked coins. Exchanges will generally ensure that you are rewarded with the new forked coins, but it is not always guaranteed and in some cases, you might wait a couple of weeks to months before the exchange decides to support the new coin, losing precious time to gain value from the coin if you intended to sell it.
Replay protection – ensure that the new fork has means to prevent replay attacks from happening. Because the coins are identical, all the private and public keys before the fork are identical. After the fork, newly created keys will be different. If you move or sell coins on the new or old chain – any other individual can replay your transaction on the parallel chain, because your transaction is already signed by your private key, it will be a valid transaction. This means your transaction can be duplicated in the parallel coin without your consent or knowledge. This can only happen when you create a transaction, therefore ensure you are aware of how to prevent repay attacks especially if you transact on the smaller chain with less value and could potentially lose your real Bitcoins as a result.
Bitcoin forks have happened and will continue to happen in to the future, generally the chain that retains the majority of the hashing power and user support will retain the Bitcoin name and popularity. Exchanges, miners and developers have a big influence on that – therefore ensure that you are aware of how your specific exchange intends to handle the fork before it happens and if you are unsure, transfer your Bitcoins to a personal private wallet.