What is a Hard Fork? Hard Forking Explained!

The Meaning of ‘Hard Fork’

In this article, we explore the bitcoin hard fork and what it means when a cryptocurrency is hard forking.

Ever since Caesar, the great Roman warlord, crossed the Rubicon, breaking age-old traditions and norms has increasingly become the only way to create a new world order.

Distributed consensus, a concept that makes blockchain technology attractive to people who are tired of centralized control of money, also comes with the responsibility to soberly establish where to stick your hard earned dollars, and when to bail. It is this realization that makes a hard fork a reality in blockchain technology.

But with traditional cryptocurrencies splitting every now and then, it can be confusing to anyone on where to keep your portfolio or what to do when your blockchain starts to split, or hard fork.

The Burden of Decentralization

Blockchain technology is interesting because each blockchain provides a set of rules that make it work. Miners, clients, and nodes will only agree to join, stay and secure a network because they fully understand the rules.

Updating any computer application creates a new version, and blockchain technology is not an exception. Picture how hard sometimes it is to work with an MS Excel workbook created using MS Office 97 if you are already in MS Office 2016!

Problems with current software and increasing innovation make people see what they can do with improvements. If you are a Bitcoiner, you can simply submit a BIP,  a ‘Bitcoin Improvement Proposal,’ which is simply a suggestion of how to improve one or more features of the software. If enough people like your idea, they can call for an improvement of the software to implement it.

But things can get complicated when people already within a network decide to change these rules for one reason or another. Indeed, BIPs may lead to ‘disagreements’ that may lead conservatives to stay with the old rules and daredevils to join the new ship.

If a blockchain finds itself in this situation, it either agrees on a compromise to stay together, or it allows the split to happen.

Building consensus on what to do is one of the freedoms introduced by the blockchain technology. The power of the people is direct and final on this interesting journey.

Soft Forks – The Consensus Updates

A compromise may not necessarily involve a significant change in the software. This then means that users do not have to choose what version to follow, and hence there is no forking.

Sometimes when updates happen, the old software may reject transactions made by the new software even if the new software accepts the ones made using the old software. This is called a soft fork.

There are two types of soft forks, based on who is supporting the upgrade. If a majority of miners support a soft fork, then it becomes easy for everyone to simply upgrade their software and the soft fork goes on smoothly. However, if a soft fork happens without majority hash power support, then the forked chain might act as a hard fork supported by the minority hash power or simply get abandoned by everyone and become orphaned.

The jury is still out on what is called a user activated soft fork (UASF). Theoretically, users, which include businesses, exchanges, and wallets running full nodes, would orchestrate a soft fork that furthers their interests in the blockchain. However, it requires more time, the support of a majority of the exchanges, and if not well designed, it might not gain the support of miners in the long run, and this may end up splitting the network

Hard Forks on the Bitcoin Blockchain

If a software update on the Bitcoin software results in a new chain which rejects all transactions created using the old version, this is effectively called a hard fork. It means that the new chain is not backwards compatible.

Some users may not want to carry out transactions on the old chain, and they will, therefore, transfer their resources to the new chain and vice versa. Some will want to work on both the chains. Whichever is the case, the longest chain wins and more often carries the name and support of the original chain’s developers.

Why forks happen

Hard Forks and Soft Forks are new pages in the life of a cryptocurrency. They are updates that are most necessary to make a currency more robust, competitive and accommodating. Remember that only about <1% of the world population is in crypto space. It is important for those within a blockchain to listen to the needs of those who would like to join it and try to focus on those changes.

Another reason why forks happen is if a currency has problems coping with its current problems. These could arise from several factors, including;

• An increasing number of transactions affecting processing speed, fees and waiting times.
• Malicious attacks of the blockchain targeting weaknesses found in the cryptographic code, allowing for theft of crypto, or sabotage of the network’s smooth running.
• Pre-designed improvements which are present in the design of the cryptocurrency.
• Innovations that may threaten the nature of the cryptocurrency, including security of the network. For example, this technology is still not ready for quantum computers and what they may do to cryptocurrency or other digital assets’ security.

The Bitcoin Hard Forks

‘Natural’ Forks

Bitcoin forks regularly.

This happens mostly as a by-product of distributed consensus during hashing, two miners might discover a valid block at the same time, and thus add it to the network, creating a fork.

However, if the next round of mining yields only one block, the miner will only choose one child of the previous mining to build on.

Since most miners are keen on earning a reward, they will only build on the longer chain, and the third confirmation will happen on the longer chain.

The shorter chain is then automatically orphaned, and the miner who created it loses out on the block reward, which in bitcoin, is awarded after 100 subsequent confirmations.

‘Intentional’ Forks

Using the BIP method, network members can activate hard forks. This is a reality that anyone in the industry must be awake too. It is essentially these kinds of forks that create new currencies off old blockchains. Let us have a quick study of the bitcoin hard forks that have happened in the past;

Bitcoin XT: The first big boy – Dec 2014

Mike Hearn and Gavin Andreesen implemented BIP 101 as a bitcoin hard fork in December 2014. They planned to improve the block size of bitcoin blocks to 16 MB and increase the speed to 24 transactions per second.

At first, they were quite successful, with 2000 validating nodes by August 2015, but the support has been waning.

Bitcoin Unlimited – Jan 2016

An interesting hard fork that started in January 2016. BTU intended to have user-defined block sizes, with a limit of 16MB on the higher side. Exchanges and wallets would set the block sizes they accept. Miners would, therefore, work with the exchanges and wallets that accept the block sizes they choose.

The project is still active, though their forking strategy is still not very well articulated. In fact, due to security flaws, they once suffered a 70% nodes crash as a result of memory leaks.

Bitcoin Classic – Feb 2016

Still working on an increase in block size, bitcoin classic was created in Feb 2016. They proposed a block size of 2MB. Despite getting the support of some major users, they did not go far with the 2MB block size and decided to promote user-defined block sizes.

The project still exists, supported by about 100 nodes, and have a five-year plan that will remain to be seen.

They also don’t have an existing coin yet, and exchanges like Bittrex are only selling futures.

Introducing SegWit

As can be seen, most of the previous hard forks were mainly trying to address block size and processing speed. But Dr. Wuille invented a way to reduce the size of a transaction by use of SegWit.

Here’s the SegWitian Deal:

A transaction consists of several components, the largest part of which is the digital signature that authorizes the transaction (about 60%). Using extended blocks, Wuille demonstrated in the Hong Kong Bitcoin Scaling conference how it was possible to remove the signature from inside the block and store it in an extended block. This would free up space in the mined block for more transactions.

Note:

Segwit is a soft fork that was introduced a few weeks after it was suggested in Hong Kong under BIP 141 but implemented as a BIP 9 soft fork on August 24, 2017.

As you may expect, some miners may not be happy if the block is made to confirm more transactions because this means that wait times are no longer a consideration when people are assigning transaction fees to their transactions hence fewer fees!

This is the genesis of the SegWit controversy.

Bitcoin Cash Hard Fork – August 2017

Realizing that SegWit was unstoppable on bitcoin core, some bitcoin members executed a fast hard fork that produced Bitcoin Cash. It’s work started some time from the conclusion of the New York Agreement of May 2017. The Bitcoin Cash wallets started rejecting bitcoin blocks on August 1, 2017. Apparently, many didn’t like SegWit. In fact, they released it without looking for support to split.

In very short order, they started attracting major influencers, like investor Roger Var, and ViaBTC, a major Chinese bitcoin miner. Bitcoin Cash has some very interesting phenomena that make it have a relatively stable survival rate;

• It is supported by Bitcoin Unlimited, Classic and XT.
• Bitcoin core miners can mine BCH and vice versa, allowing for opportunistic mining, and hence allow BCH to enjoy BTC’s massive hash power at times.
• It has broken into the top five currencies by market capitalization, currently sitting third behind Bitcoin and Ethereum.
• It seems to benefit from any current and future fall outs within bitcoin, and its price has been on a steady increase.
• It has a block size of 8 MB which allows for reasonable transaction fees and transaction times.

What is the Bitcoin Gold Hard Fork?

This unique hard fork deviates from the normal block size issue to a more interesting angle. Someone missed the Satoshi days when you could mine with a normal computer and decided to fork bitcoin back to the good old days. BTG eliminates the use of complicated computers called ASICs to the use of GPUs for mining.

This is achieved by changing the Proof of Work algorithm from the bitcoin’s SHA256 to a new one called Equihash, that adjusts the difficulty of mining with every block and essentially allows for the currency to bring the difficulty back to GPU territory, meaning that you and I are back in the bitcoin mining game if we choose.

This hard fork was therefore designed to cut the ‘power wings’ of the mining folks and bring the decentralization back to the blockchain, just the way Satoshi envisioned.

The SegWit2x hard fork

It must by now be clear that distributed consensus is not easy to maintain, especially when issues like scalability, wait times, block sizes, mining difficulty, and transaction fees start meaning different things to different types of people in a blockchain.

Segwit2X was designed as a compromise between those who wanted bigger blocks and those who favoured SegWit. It seeks to increase the block size for bitcoin to 2MB in addition to the SegWit that was initiated on August 25, 2017.

But SegWit2x has had a tough journey with most early supporters abandoning the consensus in the run-up to the hard fork, that was supposed to take shape by mid-November, 2016. It needed 95% hash power support to be effective, but that has not been possible so far.

What to do in the build-up to a hard fork

It is important to keep a straight and focused mind when expecting a hard fork. This is because many things are happening whenever a hard fork’s scent is sent in the blockchain ‘air.’;

• People buy a forking crypto, hard, expecting the free new coins that emanate from the fork.
• It happens mostly on established networks as happened when exchanges agreed to give all bitcoin holders an equivalent amount of Bitcoin Cash to seamlessly accommodate the hard fork and attract BCH network members.
• Futures may be overrated to give an impression of a ‘good buy’ so that when the coin is launched, ‘dumb money’ will rush for the coin, and whales may dump the coin and consolidate the old coin’s portfolio or collect fiat currency, which may crush a coin.
• Initial support by network members may be distorted by hype and good news. But reality might soon expose this hype and create a realization that there was not much support for the fork, and with its popularity may crash forcing a panic sell, which can make the price of the coin plummet.
• A coin’s potential may be underrated, and if one has a huge holding, may rake in big when nodes rush to the network after frustrations elsewhere, etc.

In all these instances, it is then possible to make good money from a hard fork by merely carrying out a proper study of all news surrounding it, sheer luck, guts and a knack for good opportunities.

Whatever mix works, it is good to know that you may want to hold your currency in a cold wallet as a hard fork happens. This is because you want to protect your portfolio from any instability that may be brought about by the fork, but also because exchanges will reward ‘safe’ portfolios with free forked coins – sometimes.

What does the future hold?

Hard forks are here to stay, folks! In fact, a blockchain must entertain hard forks to remain healthy, truly decentralized, and capable of attracting worldwide acclaim.

Hard forks arise out of a need to re-invent a blockchain, and disagreements can force a split in the chain, also known as a hard fork. Any improvements that do not bring about splits but are implemented anyway are known as soft forks.

There will be many more forks for any blockchain in the future. Some will survive the test of time, and some will cease to exist.

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