A HardForking Time For Bitcoin
A Bitcoin hardfork — what does it entail?
As more controversy surrounds Bitcoin’s looming hardfork, it would be great to clarify what
exactly a hardfork is. This might go a long way in calming the fears of some investors. Explaining
the idea of hardfork will make it easier.
Let’s imagine we have a group of miners (nodes/ computers) who are digging a tunnel, which in
this case is the blockchain. While mining, another group decided that it will split from the
original group with the aim of creating a better tunnel (blockchain), in a different direction of
course. There are reasons why the second group wants to split, probably because the first
tunnel is no longer safe, or maybe the second group is installing better lightening on the tunnel
(new features), or maybe just that the second group thinks that the tunnel is leading to a dead
end and thus the need to change the direction (invalidating or validating the blocks).
Eventually,
the first group stops and joins the second in ‘mining’ the new tunnel (or is forced to). If the
second tunnel fails, the two groups again mine the original tunnel.
To understand the whole hardfork issue, you must know what a blockchain is. A
blockchain in simple terms is the record of all the blocks that were completed. Going back to
the previous explanation, it means miners recording all the dirt they have picked up from a
tunnel and placing the record on the tunnel’s wall as they proceed.
Miners can only spend the coins they generated by mining after 100 blocks are
The technology is an open source, thus implying that everyone is free to modify it? Who
decides what update is suitable? Well, the majority.
However, instead of having just one centralized record (tunnel wall), the records download
automatically to every node connected to the network, providing a de-centralized ledger. A
hardfork is then an update to protocols within the nodes. Some nodes are immediately updated
to the new protocol but ultimately all the nodes will be updated.
After the fork update is completed, the theory behind it is that only one blockchain will be
mined and it will be the one that the majority users decide to go with. The reason why it is solely financial. Miners can only spend the coins they generated by mining after 100 blocks are completed. The blockchain then with the most mining power will be able to complete blocks
quicker and then the miners can access their earnings quicker. Since there will be more
computing power on one blockchain, transactions on that will be quicker and the value of the
other chain/coin could potentially dwindle to nothing.
Most exchanges have though pledged that they
will support both and assign new tokens to represent the coins.
As an investor, what happens to your coin during a hardfork? Well, let’s put it this way. Your
original coin is BTC1 while the new fork will be BTC2. If you have 500 BTC1 coins in your wallet
before the hardfork, after the hardfork, you will have an extra 500 BTC2 coins. Note, this
doesn’t mean that your total BTC has doubled since its likely one type of coin will lose its value
as the community decides which coin/ blockchain it prefers.
Depending on which coin (either BTC1 or BTC2) your wallet/exchange support, the rules may
change depending on how it handles the fork. Most exchanges have though pledged that they
will support both and assign new tokens to represent the coins.
If the minority group still has some mining power and support from the community, then it may
survive and become an altcoin with a lower value though than the majority coin.
The upcoming Segwit2X hardfork has made several investors anxious but it shouldn’t be so.
With the increased popularity of Bitcoin, this new update looks to increase the currency’s
transactions per minute and other benefits.
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