What are Bitcoin or Altcoin splits or forks
We all hear about Bitcoin forks like Bitcoin Cache or Bitcoin Gold, but the obvious questions are - What are they? What do they mean? How can a virtual coin fork (or split)?
Well, ask no more! Here is the most simple explanation you will find on the web:
As we already know (and if not see Blockchain guid for begginers article), Bitcoin transactions are collected into blocks and those blocks are tied together in a structure called "The Blockchain".
This Blockchain contains all transactions, wallets and balances ever created/made and run by the Miners.
Miners are companies that run the Bitcoin network and in exchange for running it, they charge commissions for any transaction (moving coins from wallet to wallet) and receive a "Mining Reward" which is a reward automatically generated by the Bitcoin algorithm every time a miner tie a block to the Blockchain (today Bitcoin miners receive 12.5 Bitcoin for every block they tie).
Each Bitcoin/Altcoin has a protocol that follows its "Consensus Rules" which are a set of rules that all miners must abide and agree to in order to write a block to the Blockchain.
So what happens if a miner or anybody else wants to make some changes to the consensus rules? Well in that scenario a fork/split is required.
Forks are divided into two categories:
- Soft Fork – a soft fork happens when the new rules are added to the consensus rules and because no changes made to the original rules, previously mined blocks in the Blockchain will be backward compatible for miners that did not implement the new rules yet.
- Hard Fork – a hard fork happens when the required change actually changes some rules in the consensus rules (or removes some/all of them etc.). In that case, a new Blockchain branch is created sharing history with the old Blockchain.
Whether it’s a protocol change or a version upgrade, soft forks happen all the time. The hard forks are what the buzz is all about.
Because hard forks do not support previously mined blocks, the Blockchain splits into two separate Blockchains that share the same history – a classic one which retains all the rules of the old coin, and a new coin which abides to the new rules.
When a split occurs, you will receive the equivalent amount of what you had with the old coin in the newly created coin - so for example if you had 10 Bitcoin Classic, after the split you will receive 10 Bitcoin Cache.
In order to receive the new coins, you must have the old coins in a wallet on the day of the split. You can either reclaim the new coin by yourself if you have the wallet's private key.
If your wallet reside on some online wallet provider and you don’t have the private key, the wallet provider will credit your account (some tend to give hard time but eventually you will receive what's yours).