What is a “Bitcoin Hard Fork” and What Does it Mean for the Future of Bitcoin?
As Bitcoin Core and Unlimited’s debate over scaling issues continues to intensify, a large majority of the Bitcoin community aren’t even aware of what a hard fork means, let alone that it’s becoming a likely scenario.
Is a Hard Fork as Terrible as it Sounds?
In simplistic terms, a hard fork is related to blockchain-based technologies, such as Bitcoin, Ethereum, and others. The term implies a change of the protocol. When this is altered, it requires all users/nodes to upgrade, as the previous version is no longer valid.
This is where the term “fork” comes from. Just like a fork in the road, the respective blockchain is forked or split in two versions, the old and the new, and each version of the chain can carry on being used if nodes are still signalling their use.
This is something that happened to Ethereum, leading to the creation of Ethereum Classic, which represented the original version of Ethereum’s chain, while the new forked version was represented by the majority of the Ethereum community.
The Benefits of a Hard Fork
Ethereum’s reasons to hard fork more than once were to reverse transactions hackers stole, patch up bad code, and improve security against DDoS attacks. However, hard forks can also be used to improve features and help make the network more efficient and ready for wider adoption.
Bitcoin currently faces a hard fork from Bitcoin Unlimited in an attempt to solve the transaction congestion problems by increasing the block size and creating more space to enable the network to process more transactions, while Bitcoin Core is currently attempting a soft fork to enable their solutions to scale through Segregated Witness.
Are Soft Forks the Same as Hard Forks?
Soft forks aren’t met with as much fear and panic, making them a more favourable and democratic option for users in the cryptocurrency community.
Though similar, there are slight differences with soft forks. Rather than every user/node having to agree and change, only a majority of miners must agree to be able to enforce and activate the new version of the software.
For example, Bitcoin Core’s soft fork needs 75% of the nodes to signal approval for implementation, but it is currently at around 28% at the time of writing.
Each node that is run by miners must signal for the new software protocols to become activated. This gives the community a chance to decide on how they want their respective blockchain and cryptocurrency to advance.
A soft fork can be used to implement things such as security upgrades, fixing bad code, and managing scalability, it is just done much slower and in a more democratic manner.
Would a Hard Fork Harm Bitcoin in the Future?
If Bitcoin Unlimited successfully achieves a hard fork, then there will be two versions of Bitcoin. Many exchanges have prepared for this, with statements explaining that the original version of Bitcoin will be recognized and any forked versions will be seen as an alternative coin (altcoin).
Users may not know which coin to buy/sell, and this could further add scepticism to the reputation of Bitcoin. Potential companies that would accept Bitcoin as a payment method may be put off by this.
Rather than focusing on growing in price, there could be a war between each version of Bitcoin that results in attacks and slowing down the prosperity for Bitcoin as a whole, setting Bitcoin’s hard-earned progress back years.
Alternatively, it may just be another blip on the long-term path of Bitcoin. If the ETF rejection is any indicator, then Bitcoin dipping from hard fork fears may simply present investors/traders/users a very tempting buying opportunity!
Hard Forking Bitcoin Could Be Rough, But Won’t Harm Bitcoin’s Progress Long-Term
If we look at what happened with Ethereum’s hard fork, we can potentially understand what could happen with Bitcoin. The risk is higher, though, because Bitcoin is worth over $1,000 and is simply the largest coin, with an impressive amount of hashing power.
Ethereum hard forking in mid-/late-2016 created fear and long-lasting distrust for many months to follow. Ethereum Classic is the result of miners still using the old Ethereum chain, and this temporarily derailed Ethereum’s bullish run. Present day, Ethereum has achieved many things while gaining new all-time highs in the recent surge, and there is now also the Enterprise Ethereum Alliance.
This shows us that hard forks may not always be a smooth process, but long-term aren’t the death of a coin. Bitcoin and many other innovative, legitimate blockchains have huge potential after this scaling debate is resolved, hard fork or otherwise!