2017 is truly a spectacular year for cryptocurrencies. ICOs got harder to execute because investors stopped believing empty words and started doing proper due diligence. The scam artists quickly adapted, and the new trendy thing is to fork existing cryptocurrencies. Let's look into what a hard fork is, how one can create a hard fork, who benefits from it, and wrap up with the tentative schedule of upcoming Bitcoin and Ethereum hard forks.
What is a cryptocurrency hard fork?
A cryptocurrency is built out of the following components:
- A blockchain that keeps track of transactions.
- A set of rules that determine what a valid blockchain is. These rules are written as code in the mining software.
- A group of miners that donate their computational power (for mining rewards) that choose to accept a certain set of rules. In practice this means that miners get to pick which mining program to run.
A successful hard fork occurs when the following two conditions are met:
- A significant group of miners choose to accept the new rules of the mining game.
- A significant group of users choose to accept these rules as well, choosing to transact on the new blockchain that respects new rules, paying transaction fees to the new group of miners and setting an exchange rate that makes mining on the new blockchain profitable.
When a new cryptocurrency is born it needs to pick the mining rules and the initial state of the blockchain. Prior to 2017 this usually meant coming up with a genesis block and writing the mining software. These days, after Bitcoin Cash has proven that it's possible to choose existing Bitcoin blockchain as prior state instead of starting a new blockchain from a genesis block, people with an existing big amount of cryptographic tokens are incentivised to hard fork an existing cryptocurrency instead of starting from scratch. This explains why the only people advocating for Bitcoin and Ethereum hard forks are either Chinese owners of huge mining pools (Bitcoin Cash, Bitcoin Gold), or Barry Silbert (Ethereum Classic, Bitcoin SegWit 2x).
Visually, a hard fork can be represented like this. Let's say, a hard fork is scheduled to occur at block number 1268, and a group of miners have already installed the hard fork software.
Once the last pre-fork block is mined, in this case number 1267, is mined, some miners chose to run one mining software with one set of rules (in case of bitcoin cash split, they chose to run bitcoin cash code with an increased block size), and the other group of miners chose to run another set of software (keep the same block size, but add SegWit addresses, which enable some cool new features and consume about 4 times less memory per transaction). In this case, as of block 1268 on the now separate blockchains you will have the same amount of coins (bitcoin and bitcoin cash) as you had at block 1267. Free coins, yay!
Don't be mistaken: there is no such thing as free money. Hard forks should be considered an attack on the existing chain. They leech off the original chain's branding and marketing. Successful hard forks dilute the price of the coins on the original chain as well. If there's 21,000,000 bitcoins in existence, but then there is also 21,000,000 bcash that is also kind of bitcoin, the market will simply think that there's 42,000,000 bitcoin. Essentially, supporting a hard fork that brings no new value is the same thing as devaluing your existing holdings by 50%.
As long as you have enough money to mine a new hard fork, and enough money/influence to market the new hard fork as something good and thus convert users to adopt and use the new coin (giving the users free coins surely helps with marketing), you can create as many hard forks as you desire.
Schedule of upcoming hard forks
Date: October 25th, 2017
Marketed as "Make Bitcoin Decentralized Again", bitcoin gold promises to switch the mining algorithm to be incompatible with ASICs and make mining possible on the GPU. Namely, they want to switch mining algorithm from SHA256 to Equihash, the same function as used by ZCash. Back in the day, Litecoin emerged with the same proposition, except that it started from clean slate. Three years later we already have Antminer D3 - an ASIC built for Litecoin's scrypt algorithm, because Litecoin's adoption made engineering ASICs profitable.
The project is led by an owner of a large GPU mining farm in China. Sounds like he wants to make some extra cash and then start selling ASICs for Equihash.
SegWit2x was a long proposed compromise between the group that argued for bitcoin cash and the group that argued for SegWit. Now that we are already past the point of no return (hello bitcoin cash), it seems like SegWit2x movement will see a strong resistance that is likely to result in another hard fork.
Date: February 28th, 2018
Launched by the team behind the excellent ZClassic project, Bitcoin Private aims to bring the zkSNARK technology to Bitcoin. zkSNARKs, which stands for "Zero-Knowledge Succinct Non-Interactive Argument of Knowledge", was first pioneered in a privacy coin ZCash. The way ZCash works though is that new blocks give founders 20% of block reward, kind of like a tribute to the founders. ZClassic is a simple modification of ZCash that removes this tribute and instead gives full reward to the miner, as it should have been from the start.
The whole idea behind re-launching ZClassic as a Bitcoin hard fork seems to be a cheap marketing trick and a pump opportunity.
Here's everything you need to know about this hard fork.
- No premine
- Technology seems to be legit. It's the same Zcash/ZClassic code, but the genesis block will not be empty. Instead, it will be assigned according to a snapshot from BTC and ZCL chains
- You receive one BTCP (bitcoin private) for each BTC you hold
- You receive one BTCP for each ZCL you hold
- BTC is significantly more expensive and valuable than ZCL
Bitcoin Cash Hard Fork
Date: November 15th, 2018
Bitcoin Cash, the 4th largest cryptocurrency, undergoes a hard fork for protocol upgrades twice a year which usually goes largely unnoticed. This time around things are shaping up to be very different with their community failing to come to a consensus, this means Bitcoin Cash will separate into two independent BCH blockchains and in result two coins. The most likely outcome will see BCH split into two rival chains, one behind each of the coin's best known figures Craig Wright & Roger Ver. Bitcoin Cash ABC is known to be favored by Ver, whereas Bitcoin Cash SV has been authored by Wright's nChain company. Ver and Wright apparently have been unable to come to an agreement over the coin's future, with heated disagreements surfacing onto social media, it seems highly unlikely they will be able to put this argument to bed. It will be down to the community to make the decision for them!
One thing to take note of is that there is no native replay protection for this hard fork. A replay attack during a hard fork is when the transaction details of one blockchain can be used on the other. It would look like the following: you make a transaction on one of the BCH chains, then the receiver uses the details from that transaction to also receive coins from you on the other chain without your permission.
Here are the steps to take to avoid a replay attack:
- Don't make any transactions right away.
- Decide which chain you are going to primarily stick with and keep your existing wallet there.
- Install the other chain's version to access your coins and immediately send them to a new address you own on that chain.
Ethereum Metropolis Hard Fork
Date: October 17th, 2017
Ethereum foundation has been preparing us for this planned hard fork for quite some time now. This time around, the hard fork will introduce new features to Ethereum blockchain, including anonymous payments via zkSNARKs, performance improvements, and thus potentially smaller payouts for the miners. There have been talks that big miner groups want to branch off and keep mining the Ethereum blockchain with the old set of rules. This can potentially result in another Ethereum hard fork. We may have ethereum, ethereum classic, and ethereum for miners. Time will tell how this plays out.
There is still a lot of controversy about Casper, Ethereum's solution that will change it from a mineable Proof of Work cryptocurrency into a Proof of Stake one. Obviously, miners will oppose this move, as will a significant part of the users that believe that Proof of Stake is dangerous because it lets the wealthiest wallets do whatever they want with the cryptocurrency's future without reaching a consensus with the rest of the users. This update will most likely land in the mainnet some time in 2018, and I doubt that Ethereum Foundation will risk launching it before they run a marketing campaign explaining that Proof of Stake is good and the wealthiest ETH holders are trustworthy and we should all believe them. Remember that staking in Casper requires a minimum of 1500 ETH, which by the time the fork launches will be around $500,000 - $1,000,000. A very questionable decision which will surely result in another hard fork.
Date: March 5th, 2018
Callisto is an upcoming project on Ethereum Classic chain. In December'17 ethereum classic has adopted a new monetary policy which will limit the total coin supply of ETC. Their new plan is to pivot from being Ethereum's forgotten little brother to a smart contract platform for IOT with native token that acts as a store of value.
Callisto project aims play a similar role for Ethereum classic like Litecoin does to Bitcoin. The stated goals for the project are:
- Research and provide a reference implementation of an experimental protocol changes that aim to establish a smart-contract based on-chain governance system, completely financially transparent built-in development funding mechanism and balance the interest in the network between the miners and coin holders (ordinary network users).
- Improve the scalability of both ETC and Callisto networks by using one as a sidechain.
- Create a field for crosschain services improvements. It is also possible to establish a core of any crosschain service at the Callisto network and use Callisto smart-contracts state on ETC chain and visa versa which allows to facilitate the bandwidth of ETC chain. (Currently, DexNS, Address-To-Address message system, Token swap channels and ECNS are crosschain services that are deployed on ETC chain simultaneously).
While technically not a hard fork, but an 1:1 airdrop to existing ETC holders, the effect on ETC's value is expected to mimic one of a hard fork.
Not much to say here. It's a sad state of affairs that blockchain developers have to spend their valuable time fighting wealthy scammers as opposed to working on revolutionary technology.
However, I'm sure that most of these hard forks will be realized, because the majority of people will be all too happy to receive "free" coins.
Expect people to rebalance their portfolios within a month before a hard fork in order to hold more ETH, more BTC & more BCH, to get the cool new free coins, thus making existing altcoins cheaper, and making ETH and BTC more expensive.