DTUBE - Crypto 101: 6 Things You Didn't Know About a Hard Fork

Bitcoin hard fork explained! Here’s what you need to know about the Ethereum hard fork, hard fork Bitcoin, & the SegWit2x hard fork.

Be sure to subscribe to our channel here: https://www.youtube.com/c/CryptoCoinConsultants
And feel free to also watch it on YouTube here:

Script:

1. What is a fork?
   If you watched my video on blockchains, you’ll know that a blockchain is a list of digital transactions, information, or data that are grouped together in “blocks” then added to a row of past blocks to form a “chain.” A fork is a divergence in a blockchain’s path, or in other words, when a blockchain splits into two different paths moving forward; just like a fork in the road. A blockchain that forks implies that it’s a permanent divergence into the two different chains, and miners can choose which chain they wanna direct their computing power towards. This means that both chains will contain the exact same history right up until the very point at which they diverged. From there on out, two separate networks will begin to exist. Forks happen when a group of miners choose to follow a new set of rules & protocol that differ from the already-existing set of rules. Bitcoin Cash, for example, was a hard fork of Bitcoin because it increased block sizes to eight megabytes per block; Bitcoin remains at one megabyte per block. There are two types of forks: hard forks & soft forks, and it’s important to know the difference between the two.

2. Soft forks
   A soft fork is when a change in the software protocol has been made in which previously valid blocks are made invalid. It’s considered “backwards-compatible,” since old nodes (or computers mining within the Bitcoin network) are able to consider new transactions to be valid. Soft forks require a majority of miners to upgrade their software in order to enforce the new rules, whereas hard forks require every single miner to upgrade their software. The benefit of a soft fork is that it allows new transactions types to be added to the blockchain that only the transaction’s participants are required to understand; the participants being the sender, the receiver, & the miners. This is how pay to script hash functionality (or P2SH) was made valid on the Bitcoin blockchain.

3. Hard forks
   Hard forks on the other hand, are extreme changes to the protocol that requires all nodes to upgrade their software, rather than just the majority. Unlike soft forks, hard forks are not backwards compatible. Therefore, nodes following the old set of rules are not able to consider new transactions to be valid; the changes in the rules are that extreme, since there are two clearly distinct sets of rules governing the system that a miner must choose from. One path follows the old protocol while the forked path follows the new, upgraded protocol. An example of this is the DAO hard fork, which gave birth to Ethereum & Ethereum Classic. The DAO (or decentralized autonomous organization) was a digital group whose infrastructure was built on the Ethereum blockchain. The group was hacked in June of 2016 and their funds were stolen. In order to restore the funds, Ethereum Classic was created, which was built on the principle that the blockchain cannot & should not be changed. Ethereum Classic continues to run on this original unforked path, and Ethereum as we know it today is using the newer, upgraded rules in their protocol. Although the term “hard fork” may sound a little scary or intimidating at first, don’t worry. Most people are unaware that forks are more or less simply protocol upgrades, and 99% of the time the chain doesn’t even split.

4. Bitcoin vs. Bitcoin Cash
   One of the most well-known hard forks occurred on the Bitcoin blockchain on August 1st, 2017 when Bitcoin Cash was created. For every Bitcoin you held, you were given an equal amount of Bitcoin Cash at the time of the fork. The fork occurred due to what’s known as the Bitcoin scalability problem, meaning the maximum number of transactions the Bitcoin network was able to process was extremely limited. To put things into perspective, Visa is able to process a whopping 47,000 transactions per second; Bitcoin is only able to do 7 transactions per second max! This created a bottleneck within the Bitcoin network, as transaction times were getting very delayed & mining fees to get your transaction processed were getting extremely high. As a result, the Bitcoin Cash hard fork took place, which increased block sizes from one megabyte to eight megabytes in order to increase the number of transactions the Bitcoin Cash ledger can process. Block 478558 was the last common block between Bitcoin & Bitcoin Cash. Since then, miners have been able to switch their hashpower back & forth between the two chains based on what they determine to be the most profitable at the time.

5. SegWit
   Just over three weeks after the Bitcoin Cash hard fork, a soft fork on the Bitcoin blockchain occurred on August 24th, 2017 that activated SegWit (short for Segregated Witness). This event increased the block size limit on the Bitcoin blockchain by removing certain parts of a transaction’s information; thus, freeing up more space on each block & allowing more transactions to occur on every block. But SegWit isn’t limited to just Bitcoin. It’s also been implemented on other popular coins such as Litecoin, VertCoin, and DigiByte to name a few. As you can see, the Bitcoin Cash hard fork along with the Bitcoin SegWit soft fork were both attempts at improving Bitcoin’s scalability issue.

6. EtherZero
   Bitcoin has had several other hard forks outside of Bitcoin Cash, while Ethereum, on the other hand, has had very few. But one such important, upcoming hard fork on the Ethereum blockchain is EtherZero, which some say is going to be the most successful hard fork in Ethereum’s entire history! It’s set to take place on January 19th, 2018 at block number 4,936,270. Before I continue discussing EtherZero, it’s important for you to know about masternodes. Masternodes are servers set up to facilitate the operations of a specific cryptocurrency, like sending or receiving coins. But in order to set up this server, you’re required to own a set number of coins, lock it up in a wallet, have an IP address dedicated solely to the server, and run the server for 24 hours a day with no more than 1 hour in downtime. The DASH cryptocurrency for example, requires you to own 1,000 DASH as collateral before you setup your server to run as a masternode. Like mining, masternodes get paid from block rewards in the form of the respective coin at higher-than-normal yields. These block rewards come from the transaction fees people pay when sending their coins to another wallet. Going back to our DASH example, masternodes collect 45% of the block rewards, which ends up yielding every masternode roughly 11% per year. The difference between Ethereum & EtherZero is that EtherZero plans on implementing this masternode system in order to improve & stabilize its own market value. They’re aiming for EtherZero’s market value to be 10% of Ethereum’s, or roughly $70. The team--comprised primarily of Dapp developers (or decentralized application developers)--hopes that masternodes will be of more benefit to cash users. They’re setting the initial masternode collateral point at 10,000 EtherZero. 45% of the block rewards will go to the masternodes, 45% to miners, and 10% to self-governing communities responsible for proposing changes that’ll improve the coin’s operations & functionality.

Disclaimer: This is not financial advice. I absolve myself of all responsibility (directly or indirectly) for any damage, loss caused, alleged to be caused by, or in connection with the use of or reliance on any content, goods or services mentioned in this article. As usual, DYOR.