Bitcoin is not a constant. We are not obliged to live by Satoshi Nakamoto standards. So there were some pretty decent attempts to fork Bitcoin. As well as a number of absolutely miserable ones, of course.
So are forks good for Bitcoin development, and do we need them at all?
Let’s try to find out.
What Is a Bitcoin Fork
A Bitcoin fork is a significant event in the cryptocurrency world, representing a divergence in the Bitcoin blockchain. This occurrence happens when there's a fundamental disagreement within the Bitcoin community about the protocol rules or the direction of the cryptocurrency's development.
Forks can be categorized into two main types: soft forks and hard forks. Soft forks are backward-compatible updates to the Bitcoin protocol, where older nodes can still recognize new blocks as valid. Hard forks, on the other hand, are more dramatic changes that render the new version incompatible with previous iterations. When a hard fork occurs, it essentially creates a new cryptocurrency that shares a common history with Bitcoin up to the point of the split.
One of the most notable Bitcoin hard forks was Bitcoin Cash, which occurred in August 2017. This fork was initiated due to disagreements over how to scale the Bitcoin network to handle more transactions. The Bitcoin Cash proponents advocated for larger block sizes to increase transaction throughput, while the original Bitcoin maintained its focus on other scaling solutions like the Lightning Network.
The implications of a Bitcoin fork can be far-reaching for investors, miners, and the broader cryptocurrency ecosystem. When a hard fork occurs, holders of the original cryptocurrency typically receive an equal amount of the new forked coin. This can lead to increased market volatility as traders speculate on the future success of both chains. Moreover, forks can cause confusion among less technically savvy users and potentially fragment the community, diluting the network effects that contribute to Bitcoin's value proposition.
How Did Bitcoin Forks Begin?
Since its launch in 2009, Bitcoin has experienced several forks that have produced new cryptocurrencies and variants of the original protocol. There are almost 100 Bitcoin forks in use as of October 2024, varying in degree of popularity and success. The bitcoin community has become quite divided over these forks. While some see them as disruptive elements compromising the stability and core values of the network, others consider them as stimulants for invention and progress. And this duality is exactly what we will zero on today. We will examine the causes of these forks, their successes, and their implications for the direction of Bitcoin. Though the fledgling Bitcoin community was anything from cohesive, people were still rather successful in putting Satoshi's idea into reality. But the first break came when Bitcoin XT emerged in 2014, shattering the community but offering a useful governance lesson. The developers wanted to raise the block size from one to eight megabytes, but others felt this was excessive and resulted in this crypto divide. With 2MB block sizes, Bitcoin Classic (now closed) was born; then, Bitcoin Unlimited emerged, headed in the other way with massive 16MB blocks.
Truly Impactful Bitcoin Forks
However, this was followed by truly impactful forks, ones whose impact is felt even today.
Bitcoin Cash (BCH)
A hard fork from Bitcoin produced Bitcoin Cash (BCH), first produced on August 1, 2017. This fork was driven mostly by addressing the scalability problems of Bitcoin, especially the slow transaction times and high fees resulting from the 1MB block size limit.
Advocates of Bitcoin Cash, including powerful personalities like Roger Ver, contended that a larger block size would enable more transactions per block, so lowering fees and accelerating transaction times.
Bitcoin Cash attracted interest right away upon its launch and was embraced by several exchanges and stores. Its value initially surged as well, rising to a noteworthy market capitalization.
Bitcoin Cash has kept changing over time thanks to constant development and enhancements meant to increase its scalability and usefulness. Maintaining a committed community of supporters who see its promise as a peer-to--peer electronic cash system, it has
Other cryptocurrencies that also seek to provide low fees and quick transaction times, however, present competition. The argument on scalability and transaction fees still shapes Bitcoin Cash's direction and evolution nowadays.
Bitcoin SV (BSV)
Emerging on November 15, 2018, following a controversial split from Bitcoin Cash, Bitcoin SV (Satoshi Vision)
Disagreements inside the Bitcoin Cash community drove the fork, mostly about direction of development and additional block size increases. Craig Wright and Calvin Ayre led the initiative with an eye toward restoring what they thought of as Satoshi Nakamoto's original Bitcoin vision.
Originally set at 128MB and later to 2GB, Bitcoin SV greatly raised the block size limit, so enabling a far higher volume of transactions. The supporters of BSV contend that the network cannot support enterprise-level applications and significant transaction volumes without this big block size.
Similarly, given running a full node becomes more resource-intensive, this notable increase in block size has also raised questions regarding centralizing.
Still a divisive fork in the larger Bitcoin and cryptocurrency scene is Bitcoin SV. Its emphasis on high transaction throughput and big block sizes sets it apart among other main cryptocurrencies. With Coinbase eventually dumping it for good in 2023, it still struggles to be widely accepted though.
Bitcoin Gold (BTG)
Designed to distribute Bitcoin mining more widely, Bitcoin Gold was launched on October 24, 2017. It accomplished this by switching the mining technique from SHA-256 Bitcoin to Equihash, more resistant to ASIC mining.
This shift was meant to enable more people to mine BTG with standard GPUs, so lessening the dominance of big mining operations and really democratizing the token.
Designed to be memory-intensive and resistant against ASIC mining hardware, Bitcoin Gold employs the Equihash algorithm. This difference seeks to democratize mining by increasing personal accessibility of it.
Originally quite popular, Bitcoin Gold was embraced by several exchanges. It has, however, had security issues; in 2018, a significant 51% attack resulted in double spend worth $70,000.
As a minor participant in the bitcoin market today, Bitcoin Gold is still Though it has suffered to acquire the same degree of acceptance and market presence as Bitcoin Cash and Bitcoin SV, its emphasis on decentralizing mining remains its main unique quality.
Does Bitcoin Really Need Any Forks?
Driven by a mix of ideological, technical, and financial factors, Bitcoin forks happen for several purposes.
One of the main forces behind Bitcoin forks, for instance, has been the need to solve scalability problems. Longer confirmation times and more fees resulted from the network's difficulties managing an increasing volume of transactions as Bitcoin's appeal rose.
Also started are forks to bring fresh features or technical enhancements to the Bitcoin protocol. These might call for improvements in the consensus mechanism, more privacy protection, or the inclusion of smart contract capability.
Sometimes personal motives—such as power conflicts, ideological differences, or financial incentives—have helped to produce Bitcoin forks. Paying close attention to the historical volatility of forks like Bitcoin SV and Bitcoin Cash will help you to understand some people saw them as investment vehicles.
For instance, shortly after its launch, Bitcoin Cash—which broke off from Bitcoin in August 2017—saw a price explosion to about $4,355 in December 2017. Later on, though, it settled and traded within a $200 to $500 range over the next years.
Apart from the clear influence, major forks have had both a physical and psychological impact on the crypto community as a whole on the increase of hazards to the OG BTC. Though none of these forks have become accepted fixes for cash flow issues, their influence is clearly felt.
Downsides and Various Troubles
Many times, Bitcoin forks cause more market volatility. For example, the August 2017 Bitcoin Cash (BCH) fork generated notable price swings in both Bitcoin and the recently produced Bitcoin Cash. Bitcoin's price ranged from $2,800 before the fork to $2,700 right away following the fork. By contrast, Bitcoin Cash began trading at about $555.
Likewise, the price of Bitcoin SV (BSV), which broke off from Bitcoin Cash in 2018, has swung drastically. BSV peaked in January 2020 at about $441.20, but by June 2024 its price had dropped to almost $63. Investor speculation and market manipulation drive many of these swings; some see these forks as chances for financial success.
Additionally sparking important discussions and advancements on Bitcoin's scalability are forks.
The original Bitcoin network's transaction throughput is limited by things like a one-megabytes block size and ten-minute block creation times.
These constraints resulted in the development of Bitcoin Cash, which raised the block size to 8MB to manage more transactions per block as was already mentioned. The forks underlined the need of scalability solutions, which inspired different projects and protocols meant to improve Bitcoin's transaction capability.
One well-known example is the Lightning Network, a layer-two solution meant to create off-chain payment channels so enabling faster and less expensive transactions.
Some forks have brought security flaws. For example, the lower hash rate and interest in Bitcoin SV make it more vulnerable to 51% attacks, in which a malevolent actor can control most of the mining capability of the network, so compromising its security.
This has sadly raised questions regarding the long-term survival and security of some Bitcoin forks. If organized malevolent actors can grab control so readily, what good is further forking?