Just what is bitcoin fork?
A fork in relation to bitcoin is a split of the initial bitcoin blockchain which happens in the process changing the bitcoin blockchain. So far there have been two successful bitcoin forks and one that was canceled following the lack of consensus within the bitcoin community. In the month of August this year, bitcoin split creating another cryptocurrency called Bitcoin Cash. In October, another bitcoin fork happened resulting in the creation of the Bitcoin Gold. Notably, these forks are focused on improving the original bitcoin but still, it is important to site that the new forms of bitcoin created in the process stand in direct competition to the original. Considering these, bitcoin forks are not all that favorable to bitcoin. In order to understand what forks are all bout and why they happen, it is paramount to first gain insight into how the bitcoin system works.
How the bitcoin blockchain works
The blockchain is the technology underlying bitcoin. Transactions made by users of bitcoin are gathered into blocks on the bitcoin blockchain and converted into complex mathematical puzzles. Solving these puzzles is done through a process called mining the successful completion of which deems a transaction verified. The mining process is conducted using powerful computers which consume a lot of electrical energy in the process. This then means that only a handful of people can participate in the mining process considering the high cost of entry.
Bitcoin gold was created in an attempt to change this dynamic and allow more people to get involved in bitcoin mining. Essentially, less powerful equipment would be needed to mine bitcoin hence the cost would be less high. Moreover, having bitcoin and bitcoin gold would increase the user base through further decentralization of the bitcoin network. Notably, the fork which resulted in the bitcoin gold was pioneered by Lighting ASIC, a company which sells the mining equipment. Prior to the fork that resulted in the creation of bitcoin gold, another fork had happened in July resulting in the creation of bitcoin cash. This fork saw the price of bitcoin gain unprecedented volatility seeing that its price moved from highs of slightly above $900 to around $300 before stabilizing.
It is important to state that there has been a big difference in opinion regarding the implications of these forks on the original bitcoin. Some hold that they are good for bitcoin while others hold an opinion to the contrary quite vehemently. Those opposed to the forks hold that the forks result in the creation of more forms of bitcoin which confuse the users. Moreover, more forms of bitcoin discredit the fact that there are a limited number of bitcoins in supply. It is not a big surprise therefore that the hard fork coined Segwit 2x which was set to happen in November failed to meet the threshold of support it needed from the bitcoin community. Eventually, the fork was cancelled. Notably, the Segwit 2x was meant to increase the transaction capacity of bitcoin blockchain by increasing the size of the blocks from 2mb to 4mb.
The bitcoin blockchain currently allows for only about 300,000 transactions daily. Considering the growing number of users, this capacity needs to be adjusted. Whether this will be effected through another fork or through other means remains unclear at this point.