Understanding Bitcoin Forks: Evolution & Divergence

Bitcoin forks showcase its flexibility as a decentralised system.

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Explanation and timeline of bitcoin forks
Last updated:
January 29, 2024

tl;dr

  • Forks, categorized into software and consensus types, are divergences in blockchain protocol, each leading to different paths or new cryptocurrencies with varying functionalities.
  • Bitcoin has undergone various soft forks like P2SH and SegWit to address transaction simplification, security, and scalability issues within its network.
  • The debate around Bitcoin's 1 MB block size led to hard fork proposals, birthing new cryptocurrencies like Bitcoin Cash and Bitcoin SV, each embodying a different vision for handling scalability.
  • BTC, BCH, and BSV, known as "The Three Sisters," emerged from Bitcoin's evolutionary journey and the block size debate, each representing distinct visions and technical features for cryptocurrency's future.

Bitcoin stands as the pioneering force in the world of cryptocurrencies, but its journey has not been without shifts and turns. One of the most significant events in its history is the phenomenon of 'forks'—divergences in the protocol that lead to the creation of new cryptocurrencies or variations of the original.

While the term "fork" may evoke images of divergence, it's a testament to the inherent flexibility and adaptability of decentralized systems. This article delves into the nature of Bitcoin forks, explaining their causes, implications, and the varied paths they chart.

Looking for more insights into Bitcoin itself? Check out our definitive guide: What is Bitcoin and how does it work?

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Definition of Forks

A fork, in the context of blockchain and cryptocurrencies, can be visualized as a split in the road. It's an avenue by which the original code of a cryptocurrency can branch off, leading to two potential paths.

Software Forks

This is reminiscent of the open-source nature of many blockchain projects. By taking the original, open-source code of a project, developers can then tweak, adjust, or repurpose it to create a new cryptocurrency. Such forks might share similarities with their progenitor but can also vastly differ in terms of functionality, philosophy, and purpose.

Consensus Forks 

The blockchain, by design, is decentralized. Therefore, changes to the system or its rules need consensus. When changes are proposed, they can lead to potential divergences, depending on their compatibility.

  • Soft Fork: Imagine an old machine still functioning with a new software update. This backward compatibility characterizes soft forks. While newer rules are added to the system, the old ones can still operate. However, if the older version tries to introduce new functionalities, it may not be recognized by updated nodes.
  • Hard Fork: This is a more rigid, definite split. Once a hard fork is activated, the entire network needs to update to the new rules. If not, they’re left behind on an entirely separate blockchain. The result? Two distinct cryptocurrencies with shared histories up to the fork point.

Type of Forks

Software Forks

  • Tenebrix and Litecoin: Before Litecoin's advent, there was Tenebrix. However, it had controversies due to potential 'pre-mining'. This led Charlie Lee to introduce Litecoin in 2011. Litecoin wasn't just a clone; it offered four times faster block generation times and implemented the Scrypt hashing algorithm, making it more accessible for individual miners using CPUs and GPUs.
  • Peercoin: Sunny King and Scott Nadal introduced Peercoin, aiming to address Bitcoin's energy consumption. Peercoin's novelty was its hybrid PoW/PoS system. Instead of solely relying on miners, Peercoin also allowed coin holders to "mint" new coins, thus reducing the energy footprint.

Blackcoin: As the next evolutionary step, Blackcoin discarded PoW entirely. Introduced in 2014, it was a leap towards energy-efficient block generation, setting a precedent for future PoS coins.

Consensus Forks & Scaling Debate

When it comes to the evolution of Bitcoin, consensus forks have played a pivotal role, reflecting changes or proposed changes to the very rules governing the system. These are not mere software upgrades but shifts in the foundational principles that participants agree upon. Let's delve deeper.

Bitcoins Soft Forks

Bitcoin has seen multiple soft forks:

  • P2SH (Pay to Script Hash): Introduced to the Bitcoin network in 2012, P2SH was designed to simplify the Bitcoin transaction process. Before P2SH, sending to a script (a set of locking conditions) required the sender to know the script's details. With P2SH, the recipient creates the script and gives the sender a corresponding address, simplifying the transaction.
  • Strict DER Encoding for Signatures: Implemented in 2016, this was more of a security-focused soft fork. Before its introduction, there was a minor malleability issue with Bitcoin's signatures. This update made sure every signature followed a strict format, reducing potential vulnerabilities.
  • OP_CHECKLOCKTIMEVERIFY (CLTV): This is essentially a time-locking feature. CLTV allows users to create a transaction output that can only be spent after a certain timestamp or block height. This was a stepping stone for more complex smart contracts and was instrumental in the development of payment channels and the Lightning Network.
  • SegWit (Segregated Witness): Introduced in 2017, SegWit was one of the most debated soft forks in Bitcoin's history. It addressed transaction malleability by segregating the witness information from the transaction data. As a byproduct, it also effectively increased the block size without a hard fork, making more room for transactions.
  • Taproot: In November 2021 the Bitcoin got a long-awaited update, which improved scalability, increased privacy and added additional smart-contract functionality. Beside adding Schnorr signatures, which reduce the size of Bitcoin transactions and therefore make it possible to add more of the to a block, also Merklized Abstract Syntax Trees (MAST) were introduced, which enables additional privacy features. Also Tabscript was added, which is the basis for Bitcoin Ordinals.

The Scaling Debate & Hard Fork Proposals

One of the central debates that has shaped the trajectory of Bitcoin's development is its block size, and how many transactions each block can accommodate. The origins of this debate trace back to the early days of Bitcoin.

Genesis of the 1 MB Block Limit

The block size wasn't always fixed at 1 MB. Early versions of Bitcoin had block sizes ranging between 500-750kB. This was an adequate size for the initial user base, as Bitcoin was still in its infancy and not as widely adopted.

On 15th July 2010, in a seemingly innocuous commit named “fix openssl linkage problems”, the 1 MB block limit was secretly introduced. It wasn't until 30th September 2010, in the commit “don't count or spend payments until they have 1 confirmation” that this limit was enforced. The introduction of this cap was part of the Bitcoin Version 0.3.13 release.

A prevalent theory suggests that Satoshi Nakamoto, Bitcoin's mysterious creator, introduced this limit as a temporary anti-DoS measure. Given that Bitcoin was still a novel concept, it was vulnerable to spam attacks, where attackers could flood the network with tiny transactions, thereby bloating the blockchain and making it unmanageable. The 1 MB block size limit was seen as a safeguard against such potential attacks.

Early Discontent with the Block Size

It's worth noting that concerns over the block size limit emerged quite early in Bitcoin's history. Only two days after Version 0.3.13 was released, Jeff Garzik, one of the early Bitcoin developers, expressed a desire to increase the MAX_BLOCK_SIZE parameter. This moment is often pinpointed as the start of the block-size-debate.

While Satoshi's introduction of the limit might have been a protective measure, it was clear even in the early days that as Bitcoin grew, scalability would become a pressing concern. And while the initial intent behind the limit was to ensure the network's security and stability, it inadvertently set the stage for one of the most prolonged and divisive debates in the crypto community.

Unfolding the Debate

As Bitcoin's popularity surged, the 1 MB block size began to show its limitations. With more transactions than the block could accommodate, the transaction validation time increased, leading to delays and higher fees. This was seen by many as contrary to the very ethos of Bitcoin – a fast, decentralized peer-to-peer payment system.

Proposals like Bitcoin Unlimited, SegWit2x, and others were introduced as potential solutions. However, the community was divided, with different factions advocating for different solutions, and consensus was hard to achieve. This divide eventually led to hard forks, giving birth to new cryptocurrencies like Bitcoin Cash and Bitcoin SV, each embodying a different vision for Bitcoin's future.

The block size debate underscores the challenges of decentralized governance. While it presented technical and philosophical challenges, it also showcased the resilience and dynamism of the Bitcoin community. As different factions proposed their visions, the core ethos of decentralization and consensus-driven decision-making remained at the heart of the discourse.

The 3 Sisters – BTC, BCH, and BSV

Bitcoin's evolutionary journey has given rise to multiple forks, each presenting a distinct vision for the future of cryptocurrencies. Among these, three stand out as the most notable: BTC (the original Bitcoin), BCH (Bitcoin Cash), and BSV (Bitcoin Satoshi Vision). Often dubbed as "The Three Sisters," these cryptocurrencies share a common heritage but have divergent objectives and technical features.

Bitcoin (BTC) 

As the progenitor, Bitcoin has firmly established itself not just as a digital currency, but also as a store of value, often likened to "digital gold." Over the years, BTC has primarily focused on ensuring security, robustness, and decentralization. 

While it remains the most widely recognized and valued cryptocurrency, the block size has remained at 1 MB (with SegWit applied it is practically 4 Mb), with scalability being addressed through proposals like the Lightning Network and SegWit.

Bitcoin Cash (BCH)

Born out of the tumultuous scaling debate in August 2017, Bitcoin Cash (BCH) supporters championed on-chain scaling solutions. They believed in the vision of Bitcoin as a transactional currency for everyday use. 

To facilitate this, BCH increased the block size limit, starting at 8 MB, with the potential for further increases. This allowed for more transactions per block, aiming to provide faster confirmation times and lower fees, thereby making it a more viable option for regular transactions. 

The maximum BCH block-size at time of writing is 32 MB.

Bitcoin SV (BSV)

The narrative of divergence continued within the BCH community, culminating in another fork in November 2018: Bitcoin SV. BSV stands for "Bitcoin Satoshi Vision," reflecting the proponents' belief that their approach aligns closely with what they perceive as the original intent of Bitcoin's mysterious creator, Satoshi Nakamoto. 

BSV has made aggressive strides in block size enhancement, escalating to a block size of 128 MB shortly after its inception and later removing the block size cap altogether. BSV's focus is on restoring certain protocol features from the original Bitcoin protocol and massively scaling the network to accommodate a vast number of transactions. 

The maximum BSV block-size at time of writing is 4 GB.

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About the author

Peter is deeply engaged with the revolutionary world of decentralized, unconfiscatable blockchain technology. His expertise in on-chain analysis and data engineering empowers him to provide in-depth, data-informed insights into the dynamic realm of cryptocurrency.

Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto regulations, we recommend contacting a certified legal advisor in the respective country.