A brief review of the bitcoin wars that are the hard-forks along the bitcoin blockchain history.
- Why Are There Bitcoin Wars?
- A Review of Why Bitcoin is Valuable
- What is a Hard-Fork Again?
- Planned Hard-Fork
- Contentious Hard-Fork
- Spin-Off Coins
- The Bitcoin Forks
Why Are There Bitcoin Wars?
The world of Bitcoin was born out of the Great Recession of 2008/2009 as a way to change the monetary system based on mathematical rules to create digital scarcity and themed after Austrian Economics. Due to its political, social and economic impact on the world, the Bitcoin community is a highly charged community with relatively strong political, social and economic views. The high stakes of peoples’ interest combined with a high market-cap digital token have lead to numerous conflicts around the Bitcoin protocol, with people trying to amend the protocol in-line with their ideology. The majority of Bitcoin community conflict has focussed on scalability, block sizes, scarcity and privacy, which potentially affects usability and underlying political and monetary principles.
How do you determine the “winner” of such technical, financial, digital warfare? Well for starters, it’s tough to tell initially. Usually within 6 – 18 months to a few years you can establish a dominant Bitcoin fork.
When it comes to Bitcoin specifically I’d say it is a “winner take all situation”. There will be other wildly successful cryptocurrency protocols, similar to how there are different operating systems like Linux, Android and MacOS. All three are successful. But there are not two successful versions of MacOS or Windows. The success of differing cryptocurrencies is determined by a number of factors that go beyond the scope of this post, but you can check out a brief outline here.
This post is focussed strictly on Bitcoin and its forks. Since the Bitcoin protocol has value and will be the framework for the future of finance and digital trust, there have been numerous attempts to change the Bitcoin protocol in favour of one group’s interest or ideologies over another’s.
I just want to preface this article with the fact that ANYONE can fork Bitcoin. You just need some technical know-how and you can fork bitcoin in your mom’s basement. There have been dozens of Bitcoin forks throughout the last decade. It would be fruitless to cover them all, so in this article, I will be covering the main/major Bitcoin forks.
A Review of Why Bitcoin is Valuable
Bitcoin is a protocol for trust-less (intermediary-less) exchange of value. Being a protocol means having a set of rules that the entire network follows. Protocols are math and they outline rules for communication and exchange of information and verification of information. In the world of computers, blockchain and cryptocurrency, protocols are the law. The protocols are indifferent to adoption, but the protocol with the greatest adoption will have the greatest value, according to Metcalfe’s Law.
Components of the Bitcoin protocol include consensus, Proof of Work (mining algorithm), hash-rate (amount of computational power in the mining effort), block size (in MB), block reward, block time, the maximum number of bitcoin (or tokens), scaling solutions, etc.
Network value is related to several factors, many of which are inter-related and can lead to positive feedback loops, in general keeping with Metcalfe’s law. Among all the factors that affect network value, they can be broken down into two main pieces: supply and demand.
Specifically, with respect to Bitcoin, supply refers to the total number of coins (stock), block reward size (flow), block time, and daily trading volume. Whereas demand refers to the hash-rate (security), number of nodes, number of developers, user experience, actual demand to buy bitcoin, and HODL rate/wave.
Bitcoin (BTC/Bitcoin core) is valuable because it is the largest, most decentralized, oldest and most robust cryptocurrency protocol in existence.
What is a Hard-fork Again?
A hard-fork occurs when there is a change in the main protocol, typically in the context of a system upgrade. If all developers, community members and users of a cryptocurrency agree on the proposed upgrades, the blockchain is hard forked and the old chain abandoned.
However, there are many instances where all members of the community, particularly miners (who create new blocks) do not have unanimous agreement on a set of proposed changes, usually for economic, social, or political principles.
Imagine a blockchain as a series of blocks linked (or “chained”) together linearly. This line of blocks has a mutually agreed protocol and together create a live blockchain protocol – a cryptocurrency. If there is disagreement about a protocol or protocol change/amendment, then the members in favour of their own version of the protocol can split off and continue their unique protocol on their own nodes and miners. This is best illustrated in the simple figure below.
When a cryptocurrency/blockchain has a hard-fork, there is a branched-chain (or a “forked” chain) that is now running in parallel to the original chain. A slightly different version of the original protocol. However, since protocols by their nature can only follow one set of rules, there are now two separate protocols, even if they have a common past.
Some points about Hard Forks:
- Some hard forks have backwards compatability, meaning that the forked blockchain can interpret and honour older blocks.
- Some hard forks are not backwards compatible.
- Hard forks duplicate coins: the coins of the original cryptocurrency have been duplicated on the new blockchain protocol, giving holders of the original digital token two sets of tokens (effectively “doubling” the number of coins, although they are technically separate protocols/cryptocurrencies).
For example, if you had 1000 bitcoin, and there was a bitcoin hard-fork to Bitcoin Cash, then you would have 1000 bitcoin and 1000 bitcoin cash.
There are 3 main types of hard forks:
- Spin-off Coins
Planned hard forks are scheduled on the network and typically agreed upon, giving users a chance to prepare for the switch and people typically abandon the old chain.
Contentious hard forks arise from fundamental disagreements within a cryptocurrency community of users, developers, miners/stakers. This results in a hard fork upgrade splitting into two blockchains since the two (or more) groups cannot compromise.
Spin-off coins are pseudo-hard forks since they apply the same protocol with some changes, but it is not a split in the blockchain, but rather a copy of the protocol on its own new chain with its own genesis block.
Bitcoin has had numerous hard-forks. You may recall Litecoin, Bitcoin Cash (BCH), Bitcoin Gold (BTG), Bitcoin Diamond (BCD), Bitcoin Private (BTCP), Bitcoin Satoshi’s Vision (BSV)… Where, when, why and how did they all come from?
The original Bitcoin, which is the strongest, most valuable coin today with the ticker BTC is formerly known as Bitcoin Core after the numerous hard forks, in order to avoid confusion.
Litecoin, LTC, (October 2011)
Litecoin is often referred to as the first fork of Bitcoin. However, it is a “spin-off coin”. So while it is not a direct hard fork of the Bitcoin blockchain, it certainly is one of the first copies of Bitcoin out there. However, technically speaking, the founders of Litecoin (Charlie Lee) did not chain split the Bitcoin blockchain but rather published a modified version of the bitcoin core protocol and called it Litecoin.
Despite this technical difference, many people colloquially refer to litecoin as a split of the Bitcoin Core protocol. Although, technically it is its own independent chain that does not share a genesis block with Bitcoin Core (unlike the other bitcoin forks discussed below).
Today, Litecoin is one of the few successful forks of the Bitcoin Core protocol, likely in part to the fact that it has some reasonable changes and does not include Bitcoin in its name; thereby carving out its own niche in the cryptocurrency market.
Litecoin, ticker LTC, was released in October 2011 by Charlie Lee (Google Employee, former Engineering Director at Coinbase). Litecoin has implemented a few changes from the Bitcoin Core protocol, which include:
- Block time of 2.5 minutes (vs. 10 minutes for Bitcoin)
- Increased coin limit by a factor of 4, to a maximum 84 million (vs. Bitcoin’s 21 million).
- Hashing algorithm called Scrypt (instead of SHA-256)
Litecoin has consistently remained in the top 10 cryptocurrencies by market cap over the last 5-7 years, and has preceded Bitcoin in the adoption of segregated witness (SegWit) as well as the Lightning Network, serving almost like a pseudo live test network for Bitcoin, unofficially. In fact, Litecoin is often referred to as the “silver” to bitcoin’s “gold” use case… not to be confused with the fork called bitcoin gold.
Bitcoin Cash, BCH, (August 2017)
There were multiple failed hard-fork attempts of the Bitcoin Core protocol until the Bitcoin Cash (BCH) hard-fork in August 2017.
The main reason behind the Bitcoin Cash Hard Fork was the scaling debate for bitcoin transactions. Bitcoin Core is notoriously slow, with a block limit of 1MB. The size of the block dictates how many transactions can be performed per block, which turns out to be a maximum of 2,500 (discovered in late 2017). When the network becomes congested, transactions are delayed or you have to pay a high transaction fee to have the miners preferentially publish your transaction on the next block, which makes bitcoin less useful as everyday use in payments.
A handful of scaling solutions were under discussion, one being an increase in block limit size, with the Bitcoin Cash community proposing an 8MB block limit, thereby greatly increasing the number of transactions per block. However, the downside to increasing the block size is that you may end up with centralization of nodes owing to the increased memory capacity to store the blockchain, meaning that only large corporations would be able to run the Bitcoin protocol and not your average Joe.
Another scaling solution was SegWit (Segregated Witness) which essentially simply decreases the number of data points that need to be stored on the blockchain so that more transactions can “fit” in each block. It was argued by the Bitcoin Cash (BCH) community that this would only be a temporizing solution.
A primary argument in favour of Bitcoin Cash was that it allowed bitcoin to be used as digital cash, as opposed to a digital investment (i.e. ‘digital gold’). The Bitcoin Cash protocol supposedly allowed users to truly transact with little to no cost. However, this ignored the centralization possibility with larger block sizes.
Therefore on August 1st 2017, at block height 478,558 Bitcoin Core was forked into Bitcoin Cash. Now the battle begins… which blockchain would have the greater strength, adoption, and value?
By August 9th 2017 it was 30% more profitable to mine Bitcoin Core (the original chain). Bitcoin Cash’s mining difficulty adjustment was fluctuating rapidly, which lead to alternating profitability between the two cryptocurrencies.
At the time of the hard fork Bitcoin Cash was trading at roughly 0.5000 BTC. At the time of writing, the Bitcoin Cash is trading at 0.0444 BTC. Bitcoin Core is roughly $10,000 USD and Bitcoin Cash is roughly $450 USD. Moreover, the strength of the network is also measured in hashrate. The more hash power in a network, the more difficult it is to commit fraud/51% attack, double-spend etc. The BCH Hasrate is ~5.0E Hash/s, and BTC is ~120E Hash/s.
While Bitcoin Cash is still in the top 10 cryptocurrencies on CoinMarketCap.com I believe that it is primarily due to the fact that it has the “bitcoin” name in it which is a huge marketing plus that gets it attention and newbies to the industry may invest in Bitcoin Cash as well as Bitcoin Core not really understanding that they are not getting the same network security for their money in Bitcoin Cash.
The main Bitcoin Cash Protocol differences:
- 8 MB block sizes
- No SegWit
- No “replace by fee” feature
- Faster proof-of-work difficulty adjustment
Later in 2017 Bitcoin Cash forked into Bitcoin Cash and Bitcoin Satoshi’s Vision (BSV). You can read more on it below.
In more recent news with Bitcoin Cash, a proposal that implements a 5% tax on all newly mined Bitcoin Cash coins. This tax will be given to a “BCH Miner Fund” with the purpose of funding Bitcoin Cash initiatives/projects in the industry. There has been some controversy over this, however, given the much smaller mining pool in BCH compared to BTC, it is easier to convince a smaller group to adopt big changes. Allegedly this change will be taking place in May 2020.
Discussions on YouTube and Twitter have suggested that this tax is a sign of centralization as well as a strong oligarchy in the BCH community, which is the opposite of what you need for a global, trustless, decentralized medium of exchange.
Bitcoin Gold, BTG, (Oct 2017)
The Bitcoin Gold fork off of Bitcoin Core officially launched in October 2017. The political narrative for the Bitcoin Gold (ticker BTG) hard fork from Bitcoin Core (BTC) was to allow Bitcoin to become more decentralized, owing to concerns of large, dominant mining pools in China that controlled the majority of the Bitcoin Core Hashrate.
In order to accomplish this, the Bitcoin Gold development team made a few key changes
- GPU/CPU mining only (no ASIC mining)
- Block time of 2.5-minutes (instead of 10-minute blocks)
Bitcoin Gold changed the protocol so that it is impossible for miners to use ASIC computer chips, forcing all Bitcoin Gold miners to use GPUs and CPUs. ASICs are specialized and highly expensive computer chips with one designed purpose that can be customized to mine BTC. However, this means the vast majority of the world population cannot mine BTC since if you are using your home computer/laptop’s GPU to compete against a factory full of ASICs you will almost never win any block rewards. The idea is that limiting the proof-of-work mining to GPU/CPUs would open up the mining pool to anyone with a laptop.
The Bitcoin Gold team decided to preserve some other characteristics of Bitcoin Core such as 21 million coin cap, a maximum block size of 1 MB and keeping the proof-of-work verification method.
In May of 2018 Bitcoin Gold suffered a 51% attack, which is almost like a death sentence for any proof-of-work cryptocurrency. Ironically, the whole point of BTG was to become more decentralized which in theory prevents 51% attacks. However, this obviously did not work out well for them. My thought is that with the ease of GPU/CPU mining, someone with a lot of financial resources could easily have become a heavyweight miner at little cost compared to ASIC chips, easily gaining control of >51% of the hashrate.
Interestingly enough, Bitcoin Core has a greater store-of-value use case and gold-like characteristics than Bitcoin Gold. Currently Bitcoin Gold is ranked coin number 40 on CoinMarketCap with a price of ~$11.50 USD/BTG and a market capitalization of roughly $200,000,000 USD. It is my personal opinion that this coin will dissipate into oblivion over the next 5 years, pumping only on hype owing to the fact that it has “Bitcoin” in its name, preying on unsuspecting naive No-Coiners looking to make a quick buck in the cryptocurrency markets.
Bitcoin Diamond, BCD, (November 2017)
Two teams of Bitcoin miners called “Team Evey” and “Team 007” decided to fork the Bitcoin Core into something called Bitcoin Diamond, BCD, in late November of 2017, at block height 495,866, during the big bull market that soon witnessed Bitcoin Core skyrocket to $19,000 less than a month from this small, unpopular hard fork.
Team Evey and Team 007 wanted to “improve” the Bitcoin Core protocol in four main ways:
- Faster transaction times (Tx/s). This can be done by either increasing the block size and/or changing the proof-of-work algorithm.
- Lower transaction fees. So it increased the blocksize to 8MB. As the Bitcoin core network became more popular and thus congested, transaction fees went up in order to have your transaction published by the bitcoin miners. Bitcoin Diamond was supposed to reduce fees.
- Increased the total supply to 210,000,000. This was to encourage more new users to buy Bitcoin Diamond at a lower price. It was thought that since the price of BTC at the time was around $6,500 USD it was too difficult for users to buy bitcoin core. However, this entirely loses sight of the value of bitcoin. One BTC is divisible into 100 million satoshis, and the more valuable one BTC then the larger the network, making it more accepted worldwide. If Bitcoin Diamond were to become successful by any stretch of the imagination then having a 10x coin supply won’t make the coins cheaper long term.
- Easier mining – the Bitcoin Diamond team prevents the use of ASIC mining chips and only supports GPU mining, making mining available to the more average person.
After the hard fork, the price of Bitcoin diamond increased from $61.71 USD to $91.47 USD. However, that was likely due to the general hype in the markets at that time. At the time of writing the $BCD price is $0.96 USD/BCD, with a circulating supply of 186.5 million coins (market cap of ~$180 million USD).
The Bitcoin Diamond developers did not understand the economic and political principles nor the mathematics behind bitcoin core. Increasing the coin cap to 210 million does not, long term, incentivize anyone to buy it at a “cheaper” price. The value is in the market capitalization, and Bitcoin core is divisible into 100 million satoshi’s each. Moreover, by preventing ASICs and only allowing GPUs it can increase the number and diversity of miners, however, having an 8MB block size counters this because miners and node operators now need much more massive storage capabilities (8x larger). Additionally, with the ASICs providing higher computational power it secures the network more than GPU miners, so Bitcoin Diamond sacrificed some security there.
Bitcoin Private, BTCP, (Feb 2018)
Bitcoin Private, BTCP, was a hard fork of the Bitcoin Core protocol that occurred on 28th February 2018 at block height 511,346. It is a combination of ZClassic and Bitcoin protocols.
- BTCP uses ZClassics memory hard equihash algorithm, making it ASIC resistant.
- It gives users the option to generate either public or private addresses (utilizing zk-SNARKs)
As you could deduce from the name, Bitcoin Private supports more privacy for users on the Bitcoin network.
At the time of writing, the BTCP price is ~$0.15 USD/BTCP. It had a peak of $71 USD in March 2018 and has been on a general downtrend ever since.
There is sparse data available on BTCP, but they do have a live website.
Due to its low market cap and very low use, I will not delve into it much.
Bitcoin Satoshi’s Vision, BSV, (November 2018)
In November 2018, approximately one year after the BTC/BCH hard fork, Bitcoin Cash hard forked into Bitcoin Cash and Bitcoin Satoshi’s Vision (BSV).
There were again some fundamental disagreements about the way the protocol should work. The Bitcoin Cash camp was lead by Roger Ver and Jihan Wu (CEO of Bitmain). The Bitcoin SV camp was lead by Craig Wright and Calvin Ayre.
The main changes to the BSV protocol were:
- Block limit of 128 MB
- Non-canonical ordering of transactions (no smart contracts)
The Bitcoin Cash ABC (BCH ABC, just known as BCH) protocol changes were:
- Canonical Transaction Ordering (smart contract abilities)
- Several minor technical fixes
- Oracle prediction services
Tensions regarding the hard fork were brewing since September 2018 and reached a peak on 15th November 2018 the date of the hard fork. During the ensuing weeks, the two groups were embroiled in a “Bitcoin Civil War” or “hash-war” as it was called. The blockchain that had a higher hash rate would be the more secure chain and possibly a longer chain. However, in the grand scheme of things as long as both chains had some sort of significant hash rate behind them they would both exist.
Like most wars, this one too was expensive. The conflict brought down the prices of both BCH and BSV, yet both groups deployed all their resources and millions of dollars into more mining equipment and energy resources for the mining, which lead to highly unprofitable operations. Basic economics tells us that this unprofitable war could only last as long as their bank accounts could.
Moreover, the BCH-BSV conflict occurred during the middle of a bear market, bringing the BTC price (and that of alt-coins) to their bottom, at around $3,200/BTC in early December 2018.
In the end, Bitcoin Cash (BCH) managed to employ greater computing power and hash rate, making it the longer, more dominant chain over BSV. Today the hashrate for BSV is about 3.5E hash/s, whereas BCH is about 5.0E hash/s… compared to Bitcoin Core’s ~120 E hash/s.
Markshire Crypto Final Thoughts
While some of these hard forks did truly seem to stem from fundamental disagreements on social, economic and political views, such as Bitcoin Cash and Litecoin, the rest of the hard forks (in my opinion) are rather petty and more likely greed/attention driven or due to a lack of patience.
The Bitcoin forks have been driven by small groups of intelligent, highly motivated individuals. Most of the issues have to do with scaling as well as decentralization. However, there is always the underlying issue of network security in the form of full nodes, miners and network users who HODL and use the cryptocurrency. You can have the most secure and private network, but if no one is using or HODLing your coins, then it is worthless.
The Bitcoin Wars is a delicate balance of social consensus, perceived value, user interface, adoption, network hash-rate/security as well as protocol adjustments that allow for scalability, decentralization as well as security.
As with all technology, it can and will improve. Just as the Internet couldn’t scale to allow people to send a picture in an email back in the late 1990s/early 2000s, and then it was developed to today where you can live stream video with millions of viewers all over the globe. In time, Bitcoin Core will develop and adopt varying scaling solutions.
I think that the route to becoming a primary source of financial value is first in growing in market cap as a store of value like gold. Then once it achieves a high enough value it may be used more commonly to transact as a medium of exchange.
- List of Bitcoin Forks
- The History of Bitcoin
- Learn About Bitcoin Forks
- Wikipedia, Litecoin
- Litecoin CoinMarketCap
- Litecoin Investopedia
- The Visual Capitalist, Bitcoin Forks
- Bitcoin Wiki on Bitcoin Cash
- Wikipedia Bitcoin Cash
- Investopedia on Bitcoin Cash
- Bitcoin Cash Mining Tax