Bitcoin Forks: Pathways to Innovation or Disruptive Forces?

Since its inception in 2009, Bitcoin has undergone several forks, or splits, that have spawned new cryptocurrencies and variations of the original protocol. As of May 2024, there are over 100 Bitcoin forks with varying degrees of adoption and success.

These forks have sparked intense debate within the cryptocurrency community. Some see them as catalysts for innovation and progress, while others see them as disruptive forces that undermine the stability and core values ​​of the network.

And this dichotomy is exactly what we will focus on today. We’ll look at why these forks happened, what they accomplished, and what they mean for the future of Bitcoin.

Most Bitcoin Forks and Their Impact

Even though the nascent Bitcoin community was far from coherent, people were still somewhat successful in implementing Satoshi’s vision. However, the first crack came with the creation of Bitcoin XT in 2014, which fractured the community but provided a valuable lesson in governance.

This crypto schism arose due to developers’ wishes to increase the block size from one to eight megabytes, but others felt that this was going too far. Thus, Bitcoin Classic (now closed) was born, with 2MB block sizes, followed by Bitcoin Unlimited going in the complete opposite direction with gigantic 16MB blocks.

However, this was followed by some truly impactful forks, some whose impact is still felt today. This includes:

Bitcoin Cash (BCH)

Bitcoin Cash (BCH) was created on August 1, 2017, as a result of a hard fork from Bitcoin. The main motivation behind this fork was to address Bitcoin’s scalability issues, particularly the slow transaction times and high fees that resulted from Bitcoin’s 1MB block size limit.

Proponents of Bitcoin Cash, including influential figures such as Roger Ver, have argued that increasing the block size would allow for more transactions per block, thereby reducing fees and speeding up transaction times.

Upon its creation, Bitcoin Cash quickly gained attention and was adopted by several exchanges and traders. It also saw an initial increase in value, reaching a significant market capitalization.

Over time, Bitcoin Cash has continued to evolve, with continuous development and updates aimed at improving its functionality and scalability. It has maintained a dedicated community of supporters who believe in its potential as a peer-to-peer electronic cash system.

However, it faces competition from other cryptocurrencies that also aim to offer low fees and fast transaction times. Today, the debate over scalability and transaction fees continues to influence the direction and development of Bitcoin Cash.

Bitcoin SV (BSV)

Bitcoin SV (Satoshi Vision) emerged on November 15, 2018, following a contentious split from Bitcoin Cash.

The fork was driven by disagreements within the Bitcoin Cash community, particularly regarding the subsequent increase in block size and development direction. The project was led by Craig Wright and Calvin Ayre, who set out to restore what they believed to be Satoshi Nakamoto’s original vision of Bitcoin.

Bitcoin SV significantly increased the block size limit, initially to 128MB and then to 2GB, allowing for a much larger volume of transactions. BSV proponents argue that this large block size is necessary for the network to support enterprise-level applications and massive transaction volumes.

This significant increase in block size has also led to concerns about centralization, as running a full node becomes more resource intensive.

Bitcoin SV remains a controversial fork within the wider Bitcoin and cryptocurrency community. Its focus on large blocks and high transaction yield uniquely positions it among the major cryptocurrencies. However, it still faces ongoing challenges in gaining widespread acceptance, with Coinbase phasing it out for good in 2023.

Bitcoin Gold (BTG)

Bitcoin Gold was created on October 24, 2017, with the goal of making Bitcoin mining more decentralized. It achieved this by changing the mining algorithm from Bitcoin’s SHA-256 to Equihash, which is more resistant to ASIC mining.

This change was intended to allow more people to mine BTG using regular GPUs, reducing the dominance of large mining farms and truly democratizing the token.

Bitcoin Gold uses the Equihash algorithm, which is designed to consume a lot of memory and withstand ASIC mining hardware. This divergence aims to democratize mining by making it more accessible to individuals.

Bitcoin Gold saw initial excitement and was adopted by several exchanges. However, it has faced security challenges, including a major 51% attack in 2018 that resulted in $70,000 worth of double spend.

Today, Bitcoin Gold continues to exist as a smaller player in the cryptocurrency market. Its focus on decentralization of mining remains its main distinguishing feature, although it has struggled to achieve the same level of adoption and market presence as Bitcoin Cash and Bitcoin SV.

The Motivations Behind Bitcoin Forks

Bitcoin forks occur for various reasons, driven by a mixture of ideological, technical and economic motivations.

For example, one of the main drivers for Bitcoin forks was the need to address scalability issues. As Bitcoin’s popularity grew, the network faced challenges in handling increasing numbers of transactions, leading to longer confirmation times and higher fees.

Forks have also been initiated to introduce technical improvements or new features to the Bitcoin protocol. These could include changes to the consensus mechanism, improved privacy features, or the introduction of smart contract capabilities

In some cases, personal motivations such as power struggles, ideological differences, or financial incentives contributed to the creation of Bitcoin forks. If you pay attention to the historical volatility of forks like Bitcoin SV and Bitcoin Cash, you will notice that some people have seen them as investment vehicles.

For example, Bitcoin Cash, which split from Bitcoin in August 2017, saw its price rise to around $4,355 in December 2017, shortly after its inception. However, it later stabilized and traded in a range of $200 to $500 in the following years.

How These Major Forks Affected Bitcoin

Besides the obvious impact, increasing threats to OG BTC, major forks have had both a tangible and intangible effect on the crypto community as a whole. Truth be told, none of these forks have emerged as legitimate solutions to cash flow problems, but their impact is nonetheless

Market volatility

Bitcoin forks often lead to increased market volatility. For example, the Bitcoin Cash (BCH) fork in August 2017 caused notable price fluctuations in both Bitcoin and the newly created Bitcoin Cash. Before the fork, the price of Bitcoin was around $2,800, but it dropped to $2,700 immediately after the fork. Bitcoin Cash, on the other hand, started trading at around $555.

Similarly, Bitcoin SV (BSV), which split from Bitcoin Cash in 2018, has seen its price fluctuate dramatically. In January 2020, BSV peaked at around $441.20, but by June 2024, its price had fallen to around $63. These fluctuations are often driven by investor speculation and market manipulation, with some viewing these forks as opportunities for financial gain.

Scalability and network development

Forks have also caused significant debate and developments regarding Bitcoin’s scalability.

The original Bitcoin network has limitations, such as a block size of one megabyte and block creation time of ten minutes, which limit its transaction throughput. As previously mentioned, these limitations led to the creation of Bitcoin Cash, which increased the block size to 8MB to handle more transactions per block.

The forks highlighted the need for scalability solutions, prompting various projects and protocols to improve Bitcoin’s transaction capacity. A prominent example is the Lightning Network, a tier two solution designed to facilitate faster and cheaper transactions by creating off-chain payment channels.

Security concerns

Some forks have introduced security vulnerabilities. For example, the lower hash rate and interest for Bitcoin SV made it more susceptible to 51% attacks, where a malicious actor can control the majority of the network’s mining power, compromising its security.

This has unfortunately led to concerns about the long-term viability and security of certain Bitcoin forks. What’s the point of going further if organized bad actors can take control so easily?

Conclusion

As the cryptocurrency market matures and becomes more integrated with traditional financial systems, the impact of Bitcoin forks on the wider economy cannot be understated. The success or failure of these forks will not only affect the fortunes of individual investors and businesses, but could also have ramifications for the stability and security of the global financial infrastructure.

Ultimately, the future of Bitcoin and its forks will depend on the community’s ability to find common ground and work toward a shared vision of a decentralized, inclusive, and resilient financial system.

This is a guest post by Kiara Taylor. The opinions expressed are entirely our own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.