Everything you need to know about hard forks, soft forks, free fork money and fork scams.
Bitcoin frequently forks as do many other cryptocurrencies.
Forks are what happen when a cryptocurrency’s software gets changed or upgraded. Because a blockchain is decentralised, running across thousands of different users’ computers at a time, making changes is difficult.
Developers can’t simply force software changes onto the blockchain. Instead, they have to make it available, and then convince all users to install it and switch over to the new version.
- Hard fork. The new blockchain and software are incompatible with the old one. An entirely new coin is created.
- Soft fork. The new software or blockchain features are compatible with the old one. There is no new coin created, and there is no cloning of the blockchain.
At the time of a hard fork, the entire blockchain is cloned. This duplicates its entire transaction history, and all the coins on it.
But this clone has different DNA. For example, the new cloned species might have a larger block size or better encryption than the previous one.
It’s like an entirely new species of coin that is released into the wild.
- A successful fork. All the users install the updates and move over to the modified new version. The old blockchain goes extinct and the new one smoothly takes its place.
- A failed fork. This occurs when few or no users upgrade. Without enough users, the new cryptocurrency quickly goes extinct and the new coin becomes unusable and worthless.
- A contentious or experimental fork. Some users upgrade, some stick to the old one and some start using both. Now there are two species of coins, both of which are alive and well.
Some altcoins started life as contentious or experimental forks:
- Bitcoin Cash (BCH). Bitcoin Cash forked away from bitcoin on 1 August 2017 with a larger 8MB block size to introduce cheaper and faster transactions. It is valued at around US$1,500 at the time of writing (December 2017).
- Bitcoin Gold (BTG). Bitcoin Gold forked away from bitcoin on 25 October 2017, changing the mining system. It aimed to decentralise mining and take it out of the hands of powerful ASIC machines so that people could mine it with GPUs (home computers).
- Dash (DASH). A relatively early bitcoin fork from 2014, it was designed to enable quicker and cheaper transactions. It has been forked a number of times and spawned other new coins.
Anyone can fork whenever they want, so they’re happening all the time. Some forks are hobby projects, some are genuine attempts to improve a popular coin and some are outright scams.
For example, the “Bitcoin Platinum” fork was attracting some attention until it was revealed to be a hobby scam by a South Korean teenager. His aim was to create uncertainty in the market while he shorted bitcoin.
Do forks mean free money?
In many cases, yes, because they create a snapshot of the existing network, the new ecosystem will also replicate the coins being held by users. The new coin delivery to existing users is sometimes known as an airdrop.
In most cases, the new coin will be worthless, but in other instances, it will go on to become a valuable currency in its own right.
To get your free money, you will typically need to have the to-be-forked coin held in a wallet of your own, rather than on an exchange (otherwise the exchange will get the coins). You will also need to check that your chosen wallet supports the new coin.
How to claim your free money
If you’re entitled to free coins from a fork, you generally don’t need to do anything to actually claim it. It will automatically be created in your wallet.
Even if you can’t actually claim or use it right away, it’s still going to be waiting for you. There’s no expiry date. As long as you’ve prepared appropriately, you’ll be able to access it whenever you’re ready.
How to prepare for a fork
Forks happen too frequently to prepare for all of them, but fortunately you don’t need to. In order to be successful, a fork depends on having a decent proportion of users come aboard right away.
This means there’s usually a good amount of publicity around legitimate forks, and their due dates are typically specified well in advance.
You only need to make sure you’re positioned to get any free money that might be on the way, and decide for yourself whether the forked coin has a future.
- Make sure you’ve moved your to-be-forked coins into a private wallet, or checked whether your exchange has promised to support the new coin by awarding users their airdrop.
- Check that your chosen wallet can support the coin. Reputable forks should publicly publish their source code well ahead of time. This lets wallet developers make sure they can accommodate it, and that it’s safe to let in.
- Decide whether the forked coin is going to be more like an American dollar or more like a Zimbabwean dollar. Exchanges will often pre-sell fork coin futures for people who want to buy a new coin ahead of release. If you have faith in the new coin, this can be a way to get it for cheap.
What to do during and after a fork
If an exchange or wallet is bringing in a newly forked token, it will typically freeze transactions in the lead up to, and after, it on boards that carry the coin.
As a general rule, you’ll want to avoid making transactions during a major fork:
- Don’t perform any transactions with a newly forked currency until it’s known to be safe and functional.
- Be extremely cautious when downloading a brand new wallet to accommodate a forked coin. As a rule of thumb, you don’t want to trust a wallet or forked coin that’s not open source and hasn’t been thoroughly assessed by other users.
What do bitcoin forks mean for its prices?
User communities will sometimes oppose forks on the grounds that duplicating their currency will inevitably devalue it, that it’s unwanted competition and that all the disruption will hurt prices.
This is typically not borne out in reality though. In most cases, a successful fork ends up being great news for traders.
- News of an upcoming fork and coin airdrop often causes a buying spree, which pushes prices upwards.
- If public opinion is largely against the new forked coin, users will often immediately use it to buy more of the old coin. This can push prices even further up.
- If the coin goes on to become valuable in its own right, users who held onto it just got free money.
The cancelled Segwit2x bitcoin fork
A fork can fundamentally change the future of a coin and put billions of dollars on the line. A minor fork can be safely ignored, but a big fork is a big deal. The Segwit2x (B2X) fork was a big deal. It proposed increasing the bitcoin block size from 1MB to 2MB. This would have the effect of increasing transaction speeds and reducing fees, but also reducing the rarity of the coin and making it more minable. It was supported by those who felt that bitcoin needed a larger block size to scale effectively and to see wider use as a currency. At its peak, the B2X fork was supported by over 85% of users. Wallets and exchanges were being forced to choose a side.
However, it was opposed by a small but significant contingent of bitcoin developers, who had done a lot of previous work on the blockchain as well as by their supporters.
They accused the B2X developers of attempting a “corporate takeover” of bitcoin, warned of devaluation and said the fork was unnecessary and unsafe. Most of all, they were adamant that no one should refer to the forked version as BTC.
To get a sense of user sentiment, exchanges started trading B2X tokens ahead of the fork. Both B2X and BTC started seeing large price swings as users voted with their money. Eventually BTC prices were consistently sitting higher than B2X.
Just a few days before the fork, B2X organisers called it off, citing a clear lack of consensus and saying they didn’t want to risk fragmenting the community.
Even though the fork never happened, its results can still be seen in the market.
How the cancelled fork changed bitcoin
The fork was initially planned for 16 November and was only cancelled on 12 November.
Almost immediately, the price of bitcoin took a sizable hit and the price of Bitcoin Cash (BCH) jumped to a new high as pro-fork users traded their BTC holdings for BCH.
Bitcoin Cash has an 8MB block size, making it a natural choice for those who felt that a larger block size was necessary for the future of bitcoin.
The cancelled fork seems to have permanently pushed up the price floor of BCH and led to lasting value, but as the pro-fork users feared, the bitcoin network is struggling with high transaction fees and slow transfers. But apparently, this hasn’t really hurt bitcoin’s value.
There are several bitcoin forks in the works for December 2017 and January 2018.
Some or all of these forks are probably not worth paying much attention to. You’ll have to research them for yourself to decide whether they have a future.
- Super Bitcoin (SBTC). This fork arrived at block height 498888 on December 17. It supposedly aims to “make bitcoin great again” by adding Ethereum-style smart contract functions and other features to the bitcoin blockchain.
- Bitcoin Platinum (BTP). This fork is planned to come around block height 497757-498533. It’s now widely accepted that BTP was a fake fork and was invented by a South Korean teenager in an attempt to disrupt the market and profit from shorting bitcoin.
- Bitcoin Cash Plus (BCP). This fork is planned for block height 501407 and is expected to take place around 2 January 2018. It has the general vibe of either a well-attempted fake or a poorly-attempted legitimate fork.
- Bitcoin God (GOD). Scheduled for 25 December, the creator of the Bitcoin God fork, Chandler Guo, says he’s creating it in order to airdrop new tokens to all bitcoin holders as a Christmas present. He also says it’s not a joke.
- Bitcoin Uranium (BUM). Scheduled for 31 December 2017, BUM is another fork that says it wants to “make bitcoin great again” through decentralisation. Its main feature appears to be a general radioactivity theme, such as describing mining reward speed in terms of half-life.