Okay. In the last week or so, there’s been a lot of talk in town about forks; no! not the fork your mother taught you how to use, I’m talking about the bitcoin blockchain fork.
What I’ve covered in this post? What does a bitcoin hard fork or soft fork really mean? Are your bitcoins safe? What’s the biggest threat to bitcoin? What are my personal thoughts on all of this ‘forking’ that’s going to happen.
First, let’s understand what’s a ‘hard fork’? According to Investopedia, a hardfork is a radical change to the protocol that makes previously invalid blocks/transactions valid (or vice-versa), and as such requires all nodes or users to upgrade to the latest version of the protocol software.
Another way to look at it, a hard fork is a permanent divergence from the previous version of the blockchain, and nodes running previous versions will no longer be accepted by the newest version. This essentially creates a fork in the blockchain, one path which follows the new, upgraded blockchain, and one path which continues along the old path. Generally, after a short period of time, those on the old chain will realize that their version of the blockchain is outdated or irrelevant and quickly upgrade to the latest version.
A soft fork on the other hand is a change to the protocol where only previously valid blocks/transactions are made invalid. Since old nodes will recognize the new blocks as valid, a softfork is backward-compatible. A soft fork requires only a majority of the miners upgrading to enforce the new rules, as opposed to a hard fork which requires all nodes to upgrade and agree on the new version.
In another words, new transaction types can often be added as soft forks, requiring only that the participants (e.g. sender and receiver) and miners understand the new transaction type. This is done by having the new transaction appear to older clients as a “pay-to-anybody” transaction (of a special form), and getting the miners to agree to reject blocks including these transaction unless the transaction validates under the new rules. This is how pay to script hash (P2SH) was added to Bitcoin.
Are Your Bitcoins Safe?
According to an article I read recently in bitcoin.com, it said..
“the first and foremost piece of information all bitcoin holders should know is that in the event of a hard fork that splits the blockchain, bitcoins you possess will be perfectly safe.”
Ahh…thank goodness. Phew!
Over the past year or so hard forks have gotten a bad reputation for political reasons, but in actuality, most types of forks are merely protocol upgrades. A blockchain split occurs during a hard fork which in turn branches the chain into two parts. If this happens, there is nothing a bitcoin holder has to do but wait and watch the fork unfold.
The folks at the subreddit r/btc have compiled a very well written frequently asked questions post concerning protocol upgrades and how users are affected. The thread gives details about the hard fork process and what to expect.
Here’s what Andreas had to say in his recent tweet…
Users: If you hold bitcoin and there is a HF, you will now own bitcoin on both forks. You don’t need to do anything.
— Andreas (@aantonop) March 13, 2017
When the blockchain splits into two, there will be two digital assets immediately after the hard fork. Bitcoin holders who possess their private keys will have access to assets on both chains after the split happens. So, if you “keep your money” in a local wallet on your computer or on your phone, you can just relax, 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 pledged to support both assets if a blockchain split event takes place.
Do Not Leave Your Bitcoins On Exchanges
I can’t emphasize this enough. Do not do it! Yet you’ll find many users storing their Bitcoins on the exchange. Why is this so important?
Because, after a blockchain splits, customers storing bitcoin on an exchange will have to succumb to the rules of that specific trading platform. For instance, it’s highly possible that exchanges will pause withdrawals for 24-48 hours during and after the fork.
Most reputable exchanges should and will likely disperse both assets to their customers sometime after the event, but users should expect a waiting period while the businesses assesses the situation.
Recently Coinbase, one of US top bitcoin exchanges declared this on their website…
The other 20 odd bitcoin exchanges that revealed their hard fork contingency plans last week will also list both digital assets (creating another account for their customers, for the “new” forked coin). Yet it is safe to assume these exchanges will also pause deposits and withdrawals during a split event. Customers will have to follow the rules of the exchange they store their funds with, and each business will have different guidelines.
What’s The Biggest Threat To Bitcoin?
Honestly, there is NO threat!
Bitcoin is not just a technology, it is also a community – which is vulnerable to injections of disinformation and drama. Every activist network eventually gets infiltrated and filled with propaganda by either idiots or people who are paid to do this as a job (Reddit, I’m talking about you). My advice is to focus on the technology, which is real. Community fragmentation slows things down. If the brightest programmers are spending their days dealing with trolls (on Reddit), they’re not writing code, and that’s a danger. – Andreas M Antonopolus –
For me, it doesn’t matter if the chain splits hard or soft. Bitcoin Unlimited or Segwit. What I do understand is right now, the blocksize of 1MB is not big enough to hold the large number of transactions daily.
Due to this issue, bitcoin transaction fees paid by ‘bitcoiners’ has been skyrocketing. It used to be a few cents a year ago but today we’re paying anywhere between to $0.25c up to $1 per transaction. That’s relatively high considering Bitcoin hasn’t even gone mainstream yet.
Then, there is issue of transaction verification time. It’s taking way too long, sometimes hours on end. If there is to be a world where everyone uses bitcoin, these issue definitely can’t be happening then. There must be some form of consistency if Bitcoin is going to succeed as the world’s digital currency.
Notice how fast it takes for a credit card terminal to respond to a card swipe for a product purchase in the store? That’s the kind of speed I’m talking about. We must aim to get those speeds.
Remember, don’t store your Bitcoins on an exchange. Move it to a hard wallet or a digital mobile wallet like the Blockchain wallet right away if you haven’t already done so. The first bitcoin fork is just around the corner.
What are your thoughts on the upcoming bitcoin blockchain fork?