Why Blockchains Fork: A Tale of Two Cryptocurrencies
On August 1st, a new cryptocurrency chosen Bitcoin Cash appeared online. For the first fourth dimension in Bitcoin'south eight-twelvemonth history, the original blockchain network underwent what'south called a "hard fork." A hard fork occurs when a small-scale faction of Bitcoin (BTC) miners separate off onto their own blockchain network, spawning Bitcoin Cash (BCH).
Why the split? The technical reply lies in the long-standing Bitcoin community debate over block chapters, the nuances of which we'll get into before long. More broadly, the Bitcoin fork speaks to a fundamental ideological rift over what's more important: preserving the decentralized nature and independent control of the Bitcoin network or accelerating transaction speeds to make the cryptocurrency more feasible for mainstream eastward-commerce and payments.
Bitcoin's divide is the second high-profile cryptocurrency fork in the past year, afterward a smart contract vulnerability and subsequent hack led to a split on the Ethereum blockchain in 2022. The result: Ether (ETH) and Ethereum Classic (ETC). Bitcoin and Ethereum's forks came about for entirely different reasons, yet the parallels between the splits can explain a lot well-nigh the complicated nature of reaching a consensus on major decisions within a blockchain network. When an impasse is reached, a fork may follow.
Collectively, all 4 Bitcoin and Ethereum coins still sit near or at the top of the constantly fluctuating cryptocurrency market capitalization index. Simply yous shouldn't necessarily take a coin's marketplace cap at face up value, according to Peter Van Valkenburgh, Director of Research for Coin Center, a nonprofit arrangement focused on the policy problems facing cryptocurrencies.
"The headlines are focusing on 'Wow, Bitcoin just gave nascency to a $10 billion baby,'" said Valkenburgh. "Simply the reality is, until there's liquidity on these markets—enough people trading their Bitcoin Cash coins on exchanges and making transactions on the Bitcoin blockchain—the market place capitalization is really based on bogus scarcity. That's bad economics."
The concepts and technologies at play can be confusing fifty-fifty for software experts to wrap their heads around. PCMag spoke to Valkenburgh to sort through how a blockchain fork works, how the Bitcoin and Ethereum splits parallel one another, and what the future may hold for the newly minted Bitcoin Cash.
Blockchain Networks: A Quick Explainer
If you don't understand what a blockchain network is and how it works, then the rest of this article volition be even more than disruptive. To aid, Valkenburgh gave a succinct explanation of the mechanics underlying the Bitcoin blockchain.
"The reality is, at that place are no Bitcoins, they don't exist. They're a construct of software and people's imaginations. The only thing that describes the beingness of Bitcoins is the blockchain, a ledger of all transactions," said Valkenburgh.
A blockchain is fabricated up of two chief components. First is the peer-to-peer (P2P) network of computers around the globe, oftentimes called nodes, collectively validating and bundling batches of encrypted transactions together into lawmaking blocks. Each block is then added to the end of the chronological chain, stored not in one key location but, rather, synchronized on each node across the network.
Since the blockchain is decentralized, no one unmarried party (such as a bank, financial institution, or government) tin control what happens on the network. At the same time, the blockchain gives you consensus agreement and timestamped, tamper-proof information. This eliminates the need for online tertiary parties to facilitate that transaction.
"The Bitcoin blockchain records every issue throughout Bitcoin's history—new coins and evidence of transfers—back to 2009 when the network started," said Valkenburgh. "Every computer on the network as well has to be running compatible software and so that the nodes tin meet and validate transactions. So, if your software is not compatible or if you fail to meet or invalidate any of the consensus rules baked into the Bitcoin code base, then the network would ignore your transaction. That'southward all it is to have a Bitcoin: the power to broadcast a valid transaction and transfer that balance."
These "Trustless Consensus" rules include concepts such as Proof of Piece of work, public and private key encryption, and well-nigh chiefly in this case, a cap of one megabyte (MB) on Bitcoin block size. This particular rule has been a point of contention between Bitcoin core developers and the miners who are coding new blocks since the dawn of the network—and it'south the ongoing contend that ultimately led to the Bitcoin Cash fork.
Breaking Down the Bitcoin Fork
Similar every other cryptocurrency or public blockchain, Bitcoin is open-source software. Changes and modifications to how that software works demand to exist canonical by consensus and every CPU gets a vote. Every bit Valkenburgh explained, if a group of nodes modify their software without consensus, those nodes then invalidate a rule held by the rest of the network and create their ain fork of the blockchain.
"If you lot suspension any of the consensus rules, and then the network will ignore you. If you and a bunch of people choose to break information technology in a certain way, you'll all then be compatible on a parallel network," said Valkenburgh. "What happened with Bitcoin Cash is, a small minority of miners and enthusiasts frustrated with their perception of the scaling debate made those modifications and forked Bitcoin."
Bitcoin Cash increases the cake size to 8 MB. The reason miners desire to increase block size in the showtime place is pretty uncomplicated: As Bitcoin has grown in popularity, the network has come under heavier strain to process and validate the transaction load. As a result, transactions take started backlogging. Completion times take ballooned from an boilerplate time of 10 minutes to a high of more than xl hours during a slowdown this past June.
Bitcoin Network Transaction Speeds, 2022-2017
Credit: Blockchain.info
Increasing the cake size has been the subject area of heated argue in the Bitcoin community for more than two years. Bitcoin Cash simply forked it into reality and increased the cake size to eight MB. Though, in point of fact, Bitcoin Greenbacks actually stole another fork's thunder.
At the Consensus 2022 blockchain conference in New York this past May, a prominent group of international Bitcoin companies appear the New York Agreement, which resolved to introduce a difficult fork within six months called Segwit2X. This fork besides planned to change the cake size simply compromised on the contentious outcome past only raising the capacity to 2 MB. Some factions of the community felt that block size shouldn't be modified at all, while others (such as the nodes now running Bitcoin Cash) believed but doubling the size wasn't enough.
Segwit2X currently still has the support of the vast majority of the Bitcoin network which, in essence, makes it a software update as long as the consensus of nodes upgrades to it. Jeff Garzik, CEO of enterprise blockchain company Bloq and a former Bitcoin core developer, is leading Segwit2X evolution. In spite of the release of Bitcoin Cash, Garzik said that Segwit2X is pushing forrad with its own fork to upgrade Bitcoin.
#SegWit2x and NYA accept successfully met all goals so far, and go along as planned. #bitcoin https://t.co/cq6UZWOeMw
— Jeff Garzik (@jgarzik) August ii, 2022
What We Can Learn From Ethereum
The impetus for the Ethereum fork was a much more dramatic hack and Ether heist rather than adept 'ol fashioned network stress. Nevertheless, the value and relative stability of both the ETH and ETC cryptocurrencies in the time since the fork shows the possibility for a successful path frontward.
Some background on Ethereum and its fork: The Ethereum blockchain network is different from Bitcoin in that, beyond the cryptocurrency it powers (Ether), it's also a blockchain application platform for building smart contracts and decentralized apps. Ethereum besides has more support from major tech companies and enterprise organizations, including the more than than 150 members of the Enterprise Ethereum Alliance.
Ethereum is besides governed a bit differently. While the Ethereum blockchain is a decentralized network with consensus voting, the platform was designed and is still overseen by the core developers who make up the Ethereum Foundation, including Ethereum co-creator Vitalik Buterin. When a vulnerability in a smart contract called the Decentralized Autonomous Arrangement (DAO) resulted in a heist of $l 1000000 worth of Ether, Buterin and the developers fought burn down with burn down: they hacked the hackers and reclaimed the cryptocurrency.
The debate came when deciding how to proceed from there. Buterin and the core developers were faced with a determination: If they intervened and create a new version of the network, it would fix the vulnerability and reimburse the DAO investors. At the aforementioned time, Ethereum'due south official documentation stated that decentralized apps should exist "without whatsoever possibility of...censorship, fraud, or third-party interference." Essentially, violating a core principle of the blockchain in order to relieve it.
"When the fork happened, there was a major ideological discrepancy for Ethereum," explained Valkenburgh. "One side believed all the miners should become together and reverse this transaction, fix the flaws in the smart contract code corrupted by the hacking attempt, and requite anybody who put their money into the DAO their money back. Immutability is less important than keeping an equitable system that functions. The other side said [the DAO] is an uncensorable smart contract that should proceed running and not exist reversed. So, by rolling dorsum the DAO hack, yous're breaking a [cadre tenet], and we're going to maintain the religion."
The community ultimately decided to go ahead with the fork, with the new Foundation-led network maintaining the Ethereum name (ETH) and the latter group choosing not to motility to the new blockchain and instead condign Ethereum Classic. Despite questions of whether Ether would survive the split or if Ethereum Classic could be a viable currency, the networks navigated the fork and both remain agile and feasible cryptocurrencies today (although ETH has skyrocketed in value as compared to ETC). Valkenburgh said this comes down to the force of Ethereum'due south community and could serve equally an example for Bitcoin's fork.
"I was on the side of Ether simply, to my surprise, the vibrant developer customs working on Ethereum Archetype has helped the price ascent slowly from $2 when it emerged to effectually $14 today. Ethereum at the time was about $10 and recently has averaged around $225," said Valkenburgh. "Maybe we'll come across that with Bitcoin Cash. In that location are definitely strong ideological differences in both examples. But the departure in this case is, Ethereum's fork had less to practice with technology and blueprint than what to do near equity and this one 'bad apple' transaction. With Bitcoin, you have this impasse with varying technical solutions."
What's the Future of Bitcoin?
The saga of Bitcoin, Bitcoin Cash, and the Segwit2X fork is ongoing. Thus far, support for Bitcoin Greenbacks has been divisive among the Bitcoin exchanges, only the tide seems to be turning. Bitfinex and Kraken, ii of the top five exchanges (platforms for ownership, selling, trading, and exchanging cryptocurrencies) appear support in advance of the split. The big holdout had been Coinbase, the most popular online exchange, which had stated it would not support BCH—until announcing it volition add back up by 2022. For those worried about how the fork would affect Bitcoin'south market value, subsequently a brief dip following the divide, Bitcoin rebounded to gear up a new record. After breaking the $three,000-per-Bitcoin threshold, the original cryptocurrency has hovered around $iii,300-$three,400 this week.
Beyond the short-term controversy over what exchanges support Bitcoin Cash, the larger argue that will shape Bitcoin'south future comes down to centralization versus decentralization. The power of a blockchain network lies in its ability to facilitate trusted online transactions without a third party in the middle. Bitcoin was originally conceived as a P2P electronic greenbacks organisation for global transactions. The argue over block size and transaction speeds all comes back to Bitcoin'southward viability equally an alternative to banks and credit card companies for mainstream online transactions.
The goal in this case would exist to accelerate transaction speeds and reduce latency to the point where a consumer could walk up to a checkout counter and buy groceries with Bitcoin, without waiting an 60 minutes or more for the transaction to be validated. To exercise this, however, Valkenburgh explained that the network itself might be forced into centralizing a decentralized arrangement.
"When data goes through the cyberspace, it has latency. Sending a Bitcoin transaction from the US to Red china takes longer than sending packets from me to y'all in New York. And the latency gets worse the more data being sent," said Valkenburgh. "Bitcoin blocks need to propagate through the network to validate and start building the adjacent block on the concatenation. And if the blocks are big, they propagate slowly and unevenly."
Miners always want to hear about a new block showtime. If blocks become larger and larger, leading to substantially more latency, then Valkenburgh said there's a stiff incentive for miners to geographically co-locate within the aforementioned region. That's a slippery slope, one that colors in the other side of the debate over block size. What'due south more than important: maintaining the decentralized autonomy of the Bitcoin network or furthering Bitcoin's charge to revolutionize global payments?
"What would be probable is, all the miners decide to geographically co-locate in Western Prc where there's cheap hydroelectric power or in Iceland or possibility the Pacific Northwest. The fundamental role miners play could then be more easily controlled, either by a cartel of miners who get together privately to cake or censor transactions or, more probable, from a government," said Valkenburgh. "It's sacrificing censorship resistance for the ability to employ your smartphone to purchase a Coca-Cola with a Bitcoin."
Valkenburgh is a staunch supporter of maintaining decentralization only said the debate over block size is mostly because nosotros haven't figured out a better solution. The inability to execute cantankerous-border payments and trustless, online transactions were considered a key flaw of electronic cash systems—until Bitcoin creator Satoshi Nakamoto institute a mode to build one that didn't. With the step at which cryptocurrencies and decentralized blockchain technology is evolving, the Bitcoin and Ethereum forks may ultimately be remembered equally zilch but footnotes for what came next.
About Rob Marvin
Source: https://sea.pcmag.com/feature/16924/why-blockchains-fork-a-tale-of-two-cryptocurrencies
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