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Bitcoin fork demystified

Splitting a cryptocurrency in a "hard" or supervised fashion has caused concern in the investor markets.


A brief history of Bitcoin (BTC)

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Bitcoin is a digital currency designed to be decentralized and peer-to-peer. In a way, it combine the age-old desire for human societies to preserve the value of their money with the modern technology of the Internet. Bitcoin was created by pioneer Satoshi Nakamoto, in 2009 as a decentralized, peer-to-peer digital currency. Computers connected to the bitcoin network become nodes. Transactions between these nodes are verified by performing hard calculations. Bitcoin is “Miner” by performing such hard calculations. Miners then record the transactions in an open, distributed ledger known as the blockchain. In exchange, miners receive newly-created Bitcoins as a reward for their computing work.

If you held Bitcoin at the same time from last year up until now, you’d be up on your investment about 300%. This defies what financial graduates and planners have been trained to advise in terms of long term steady growth without the inclusion of extreme volatility. There is a chance that this could change. It will have a price split in the near future, and if you’re like any semi-moderate investor in it, you’re in for a bit of a rough patch in gathering the bountiful gains the virtual currency has been reaping this past year. If this were to happen, we would be dealing with two Bitcoin(s).

The Fork

hard fork btc

The “fork” or the “hard fork” refers to a new set of “rules” for the coin, that differs from the old one. The validity of these transactions are verified by nodes that adhere to an agreeable standard. BTC forks happen all the time in day-to-day transactions; however these forks are minor, and generally correct themselves through the actions of various buyers and sellers acting collectively.

Before understanding the fork, it’s best to understand first what drives the Bitcoin price fluctuations. Behind the rising value of the coin is a distinction behind average investors and miners. Factors such as SEC inspections or analyst predictions can drive the investor side, while more technical factors like increasing mining power will drive the miner infused side. These miners, seen by some as hardware moguls, spend their time and capital on regulated machines that mine blockchain blocks, garnering Bitcoin in exchange for CPU power, while investors and holders can simply purchase part of the coin online through various exchanges. The size of the blockchain is ever-expanding and the amount of people wanting a piece of the seemingly infinite pie is growing as well, pushing out experienced miners and bringing in more noob-friendly investors who might have found out about through the ‘chain only recently. With the increasing volume, there is a high chance that in the foreseeable future Bitcoin will split, into Bitcoin Unlimited and the regulatory BTC – leaving us with BTC and BTU. Although it is a more segregated viewpoint, users are actually seeing more miners flock to BTU while regular investors and recreational holders will retain BTC out of pure lack of knowledge. Only time will tell the long term effects this will have on global markets.