What is Bitcoin fork?
A “fork” is a change to the software of the digital currency that creates two separate versions of the blockchain with a shared history. Forks can be temporary, lasting for a few minutes, or can be a permanent split in the network creating two separate versions of the blockchain. When this happens, two different digital currencies are also created. Back on August 1 when Bitcoin fork took place, Bitcoin split into two currency Bitcoin and Bitcoin Cash.
What happens to your Bitcoin when Bitcoin fork
When a cryptocurrency forks, it leads to duplication. Any transactions and coins that were present prior to the fork are valid on all subsequent chains.
When the blockchain branches into two there will be two digital assets immediately after the Bitcoin hard fork. Bitcoin holders who possess their private keys will have access to assets on both chains after the split event occurs. So, if you “keep your money” in a local wallet on your computer or on your phone you can just stay put and watch the fork happen.
If you hold money on a bitcoin exchange, then it will be up to the exchange’s discretion on how they choose to disperse both token assets to customers. Most of the well-known industry exchanges have already supported both assets after Bitcoin fork took place back in August.
Users should remember that holding cryptocurrency on an online exchange is not recommended even during non-eventful times. Back in August when Bitcoin fork took place. Coinbase had temporarily suspended the deposit and withdrawal of bitcoin from the platform for 24 hours because technical risks posed by Bitcoin fork such as the possibility of replay attacks, network instability, or other factors.
Users holding the private keys to their funds will have access to both chains after a split occurs. So it is most recommended to hold your coins on hardware wallet if you don’t have one then at least keep it in a paper wallet. The best thing you can do is take control of your own local keys and prevent the third party (online exchange) from choosing a fork on your behalf.
What was the real reason behind Bitcoin fork?
The legacy Bitcoin code had a maximum limit of 1MB of data per block, or about 3 transactions per second. Although technically simple to raise this limit, the community could not reach a consensus, even after years of debate. In 2017, capacity hit the ‘invisible wall’. Fees skyrocketed, and Bitcoin became unreliable, with some users unable to get their transactions confirmed, even after days of waiting. Bitcoin stopped growing. Many users, merchants, businesses, and investors abandoned Bitcoin. Its market share among other cryptocurrencies quickly plummeted from 95% to 40%.
This one simple variable gradually led to the emergence of two competing factions within the Bitcoin industry. One group, consisting of the Bitcoin core developers, decided on a gradual approach that would first make more space in the ledger by shuffling how things were stored. And then as a second step, increase the size of the “blocks” or groups of transactions that were added to the blockchain (the ledger that records all of Bitcoin’s transactions).
Another group of developers leads by ex-facebook developer Amaury Séchet, however, disagreed with this approach. They didn’t believe it would actually work. So they came up with a different design. They decided to go ahead with this new design, which essentially meant diverging from the existing Bitcoin blockchain and creating their own version. The only way they saw implementing this design was to set a time and then start creating their own version of Bitcoin, Bitcoin Cash.
To understand what the Bitcoin core developers were proposing, imagine transactions being written on a piece of paper: the sheet of paper lists all of the individual sending of bitcoin from one address to another. It also contains a signature from the sender declaring that the sender actually owns the funds that she is sending, and another signature to say she now wants to spend some of those funds. These signatures take up quite a lot of space on the paper.
Bitcoin allows one piece of paper to be filed in the filing cabinet (the blockchain) every 10 minutes, and so if the piece of paper is full of transaction details, any new transactions have to wait to be put on the next bit of paper.
The proposal of the Bitcoin core developers called SegWit2x wanted to improve the way Bitcoin worked by saying that signatures could be moved to a separate piece of paper, one that is filed along with the sheet containing the transaction information. Because there is more room on the paper, more transactions can be written down.
The developers behind Bitcoin cash didn’t agree with the idea of separating the signatures from the transaction. They thought this was a “hack”. Bitcoin cash doesn’t use this approach, and instead of simply allowing a two times increase in the block size, Bitcoin cash can grow to eight times. They also changed the way signatures were used to better suit specific types of hardware used to store bitcoin.
Does Bitcoin Cash manage to solve the issue?
Bitcoin fork took place on August 1 which gave birth to new currency named Bitcoin cash. Everyone who had Bitcoin before this date theoretically has access to the same number of Bitcoin cash. The current price at the time of writing was US$458 per bitcoin cash. This was about 8% of the price of Bitcoin, which was US$5500.
Since the launch of Bitcoin cash, other exchanges have said they will support it, and so it seems to be gathering momentum. Having two different Bitcoins shouldn’t really pose too much of a problem for casual investors, given that they may have different characteristics and their price will start moving independently fairly quickly.
It’s too early to say whether or not the new cryptocurrency on the, ahem, the block will survive in the long term, though Bitcoin Cash manages to immediately raised the block size limit to 8MB as part of a massive on-chain scaling approach. There is ample capacity for everyone’s transactions. Low fees and fast confirmations have returned with Bitcoin Cash. The network is growing again. Users, merchants, businesses, and investors are building the future with real peer to peer cash.