The last Bitcoin hard fork happened recently on the 1st of August and this gave birth to a new Bitcoin variant called the bitcoin cash. Similarly, the Bitcoin blockchain is expected to undergo two hard forks in the next couple of days and just like the bitcoin cash split, questions are lingering with this upcoming fork events. This article seeks to help you better understand the processes, what it means as well as what to do to help secure your bitcoin.
What is a Hard Fork?
Hard fork is the term used to describe a split in an existing cryptocurrency blockchain which is catalyzed by a change in the underlying technological protocol. This leads to a change in the main features of the blockchain such as the rise of new block sizes and their corresponding effect on the speed and efficiency of transactions. Hard forks can either be a part of a plan to improve the workings of an existing blockchain or it could arise as a result of controversy within a particular blockchain community. For example, the Ethereum Metropolis hard fork is part of a plan to improve the Ethereum blockchain which is based on the consensus of the larger Ethereum community – this fork will bring more efficiency by increasing transaction security, scalability as well as improve users’ privacy.
A hard fork borne out of controversy such as that of bitcoin on the 1st of August this year, usually arises as a result of disagreement within a blockchain community – this usually results in the creation of a new chain and the resultant birth of a new cryptocurrency.
So why these Bitcoin Forks? Bitcoin will undergo two controversial hard forks in the next couple of days;
Bitcoin Gold, expected to occur on the 25th of October and Segwit2x, which is to happen on Block 494,784 and at the current bitcoin transaction rate, this should likely occur on the 18th of November.
This was actually announced right before the bitcoin cash hard fork. The aim of Bitcoin Gold (BTG) is to re-decentralize bitcoin such that anyone at all anywhere can mine bitcoin – it will ensure that the issue of miner centralization is solved through a change in the consensus mechanism which makes them resistant to mining-specific (ASIC) hardware. ASIC is what large and centralized mining pools currently use. ASIC hardware can currently perform a million times faster than your normal computer CPU.
The motivation for this is pretty straight forward. Those with higher processing power can easily wield greater influence over the Bitcoin network and this could compromise the security of the system which is inconsistent with the spirit of decentralization on which the entire bitcoin concept was built on.
Bitcoin Gold hard fork will be taking the power away from big players and creating an equal playing field for all-and-sundry such that any CPU or GPU irrespective of hashing or processing power can be used to mine – this will help in giving true meaning to the decentralization of blockchain and cryptocurrency technology.
The Segwit2x hard fork is a major one. It is very controversial… so much so that it has divided the bitcoin community along political and philosophical lines. This controversy is as a result of a community-wide debate to help solve bitcoin’s scalability issue with its ever increasing adoption. The current 1MB block size of bitcoin is a major hurdle in its processing ability as the number of bitcoin transaction grows daily. This is therefore causing longer processing times and increased transaction costs. It is noteworthy to know that currently the bitcoin blockchain processes 7 transactions per second as compared to Visa’s capacity to process in excess of 50,000 transactions per second, and with increased bitcoin adoption, this processing ability will need to be improved as soon as possible.
The segwit2x hard fork is in two parts;
- Segwit – This will help to increase the volume of transactions possible on the blockchain.
- 2x – This will increase the current bitcoin block size from 1MB to 2MB – it implies that the existing bitcoin protocol will need to undergo changes as such the need for a hard fork.
As expected, this proposal has deeply divided the community with proponents of segwit2x on one hand arguing a case for its transaction speed and lower fees whiles opponents on the other hand are of the view that this will increase mining centralization, result in brand confusion and a resultant concern of transaction security. Many in the community also feel that this is being orchestrated by a select group of elites and this goes against the concept of community-involvement which is a stark contrast to what decentralization stands for.
What you should do with your bitcoin
Usually, new cryptocurrencies are created as a result of hard forks. An example for this is when on the 1st of August, holders of bitcoin who made use of wallets that supported the bitcoin cash hard fork were availed with a corresponding amount of bitcoin cash as the amount of original bitcoin they held at the time of the hard fork.
And just as it happened with the bitcoin cash hard fork, some wallets and exchanges have clearly indicated that they will be supporting it whiles some have explicitly stated their unwillingness to support the forks; we are to expect two new coins– BTG and B2X.
No exchange has indicated their support of Bitcoin Gold (BTG) as at yet. However, the Coinbase and Bitfinex exchanges have stated their support for the Segwit2x (B2X) hard fork. It is however advisable to keep your bitcoins in a private wallet where you alone have access to the private keys. Leaving bitcoins on exchanges can be quite risky.
Some wallets such as Trezor, Ledger Nano S, Coinomi, Exodus and a couple others have also indicated their intention to support these hard forks. This means that holders of bitcoin in these afore-mentioned wallets are likely to receive free coins when the bitcoin blockchain experiences these changes in its underlying protocol.