What are Bitcoin Forks? A Simple Explanation

Summary

This Bitcoin Whiteboard Tuesday video, hosted by Nate Martin from 99Bitcoins.com, explains the concept of a Bitcoin fork. A fork is a change in the Bitcoin protocol, which can result in the creation of a new coin with different rules. The video covers the distinction between soft and hard forks and their implications. It also addresses the potential to profit from forks by claiming new coins, but warns of the risks involved, such as scams and the complexity of the claiming process. The host advises viewers to research any fork thoroughly and to take precautions, like using a new wallet with a new seed phrase, before attempting to claim new coins. The video aims to educate viewers on the nature of Bitcoin forks, the reasons behind them, and the importance of making informed decisions when dealing with them.

Takeaways

• 📈 **Fork Definition**: A fork in Bitcoin is an alteration of the Bitcoin code or protocol, which can result in a new version of the cryptocurrency.
• 🤝 **Consensus Requirement**: For changes to be implemented, there needs to be a consensus among the participants; without it, a fork may occur.
• 🔄 **Types of Forks**: There are soft forks, which are backward compatible, and hard forks, which result in a completely new coin.
• 💰 **Profit Potential**: During a fork, Bitcoin holders may receive an equivalent amount of the new coin, potentially leading to profit.
• 🆓 **Free Money Illusion**: While it may seem like getting free coins, claiming them requires understanding the process and carries risks.
• 🚧 **Risks Involved**: Forks can pose risks, including scams and the complexity of the claiming process, which might lead to loss of coins.
• 💡 **Legitimacy Check**: Before engaging with a fork, it's important to research the project, its developers, and its credibility.
• 🛠️ **Technical Considerations**: Features like replay protection are crucial for a forked coin to ensure the safety of transactions.
• ⛔️ **Precautionary Steps**: It's advised to move your Bitcoins to a new wallet with a new seed phrase before attempting to claim forked coins.
• 🤔 **Personal Decision**: Deciding whether to claim forked coins is a personal choice that should be made after weighing the potential risks and benefits.
• ℹ️ **Educational Resources**: For safe coin claiming, follow guidelines from reputable wallets or publications, and always be aware of the risks involved.

Q & A

What is a Bitcoin fork?

A Bitcoin fork is an alteration of the current Bitcoin code or protocol, which can result in a split where one version of the game continues with the original rules and another starts with new rules.

What are the two types of forks in the context of Bitcoin?

There are soft forks, which are backward compatible with the original versions, and hard forks, which create a completely different coin that is not compatible with the original version.

Why might someone want to participate in a Bitcoin fork?

Participants might want to switch to new rules if they believe they are better, or they might want to profit from the fork by selling the new coins that are distributed to every Bitcoin holder.

How does a Bitcoin holder claim new coins after a fork?

When a fork occurs, holders of Bitcoin at the time of the fork will receive an equivalent amount of the new coin. However, they must claim these coins, which involves a process that varies for each new coin.

What are some risks associated with claiming coins from a Bitcoin fork?

Claiming coins from a fork can be risky due to the complexity of the process, the potential for scams, and the possibility of losing original Bitcoin if not done correctly.

Why might a developer choose to fork Bitcoin?

Developers might fork Bitcoin for marketing buzz, to quickly gain money by receiving a large initial amount of the new coins, or to execute scams that could affect Bitcoin's price or steal users' Bitcoins.

What is replay protection in the context of a Bitcoin fork?

Replay protection is a feature that ensures the new coin's network can differentiate between the new and old coins, preventing the accidental sending of original coins to a new coin address when claiming the forked coin.

What precaution should one take before claiming coins from a Bitcoin fork?

Before claiming coins from a fork, it is recommended to move your Bitcoins to a new wallet with a new seed phrase to minimize the risk of losing your original Bitcoin.

How can one safely claim coins from a Bitcoin fork?

To claim coins safely, one should research the project, understand the developers' track record, and follow guidelines from reputable wallets or publications. It's also crucial to understand the risks involved.

What is the difference between a soft fork and a hard fork in terms of compatibility?

A soft fork is compatible with the previous version of the blockchain, allowing both old and new nodes to work together. A hard fork, however, is not compatible with the previous version, leading to the creation of a separate blockchain.

Why might the recent Bitcoin forks be considered more of a marketing gimmick than an actual ideological difference?

Recent forks may be seen as marketing gimmicks because their primary purpose seems to be attracting attention and potentially gaining quick profits rather than offering substantial ideological or technical improvements over Bitcoin.

What is the role of a seed phrase in the context of claiming coins from a Bitcoin fork?

A seed phrase, often a series of random words, is used to generate the private keys for a Bitcoin wallet. When moving Bitcoins to a new wallet with a new seed phrase before a fork, it helps to ensure the security of the original coins and reduces the risk of loss during the claiming process.

Outlines

00:00

🤔 Understanding Bitcoin Forks and Their Implications

The first paragraph introduces the concept of a Bitcoin fork, posing questions about its nature, potential for profit, risks, and the myth of 'free money.' Nate Martin from 99Bitcoins.com sets the stage for Bitcoin Whiteboard Tuesday, a platform to clarify basic Bitcoin concepts. The discussion covers the birth of Bitcoin Cash in August 2017 and subsequent forks like Bitcoin Gold and Bitcoin Diamond. It explains that a fork is an alteration of Bitcoin's code, akin to changing the rules in a game. If consensus isn't reached, a split occurs, resulting in two versions of Bitcoin. The paragraph also distinguishes between soft and hard forks and touches on the reasons one might care about forks, including the potential to switch to new rules, the impact on the Bitcoin community and price, and the opportunity to profit from the distribution of new coins to existing Bitcoin holders.

05:00

💸 The Risks and Rewards of Claiming Forked Coins

The second paragraph delves into the reasons behind recent Bitcoin forks, suggesting that they are more about marketing and less about ideological differences. It outlines three primary motives for creating a fork: marketing buzz, quick money for developers, and potential scams. The paragraph warns of the risks users face when claiming coins from a fork and advises on how to safely claim these coins. It emphasizes the importance of understanding the project, its developers, and the legitimacy of the fork before proceeding. The need for replay protection in a forked coin is highlighted to prevent confusion between old and new coins. The speaker advises moving Bitcoins to a new wallet with a new seed phrase before attempting to claim forked coins, to minimize the risk of loss. The paragraph concludes with a reminder of the risks involved and encourages viewers to make informed decisions and to seek guidance from reputable sources.

Keywords

💡Bitcoin Fork

A Bitcoin fork refers to a situation where a change in the Bitcoin protocol results in a split from the original blockchain, creating a new version of the cryptocurrency with different rules. This is a significant event as it can lead to the creation of a new coin, such as Bitcoin Cash or Bitcoin Gold. In the video, it is explained that forks can be either soft or hard, with hard forks resulting in a completely new coin that is incompatible with the original Bitcoin.

💡Consensus

Consensus in the context of Bitcoin refers to the agreement among the majority of the network participants on the rules governing the blockchain. It is a fundamental concept because changes to the Bitcoin protocol require a consensus to be implemented. In the video, it is mentioned that if there isn't a large consensus about the changes, a fork occurs, leading to two separate versions of the blockchain.

💡Soft Fork

A soft fork is a type of Bitcoin protocol upgrade that is backward compatible, meaning that nodes running the new software can still interact with those running the old software. The video mentions that soft forks allow the new versions to play well with the original versions, unlike hard forks which create a completely different coin.

💡Hard Fork

A hard fork is a radical change to the Bitcoin protocol that makes previously invalid blocks or transactions valid, requiring all nodes to upgrade to the latest version of the protocol software. This type of fork is not backward compatible, resulting in a permanent divergence in the blockchain. The video explains that all recent Bitcoin forks, like Bitcoin Cash, are hard forks, leading to new coins with different rules.

💡Claiming New Coins

After a Bitcoin fork, holders of the original Bitcoin are often able to claim an equivalent amount of the new coin on the new blockchain. This process is known as 'claiming new coins'. The video emphasizes that while this may seem like receiving 'free money', it involves a process that requires users to claim these coins, which can vary for each new coin and carries certain risks.

💡Risk

Risk in the context of Bitcoin forks pertains to the potential dangers or losses that users might face when attempting to claim new coins or interact with the new blockchain. The video outlines that there are risks involved in claiming coins from a fork, including scams, loss of original coins, and the complexity of the claiming process.

💡Replay Protection

Replay protection is a feature implemented in some Bitcoin forks to prevent transactions from the original chain from being 'replayed' on the new chain, which could lead to a loss of coins. It is a crucial aspect of a successful fork that ensures the separation of the two blockchains. The video highlights the importance of replay protection in the context of safely claiming coins from a fork.

💡Blockchain

The blockchain is the technology that underpins cryptocurrencies like Bitcoin, consisting of a decentralized, public ledger of all transactions that have ever been executed. In the video, the blockchain is central to the concept of a fork, as it is the ledger that splits into two separate chains when a fork occurs.

💡Bitcoin Cash (Bcash)

Bitcoin Cash is a cryptocurrency that was created in 2017 as a result of a hard fork from the original Bitcoin blockchain. The video uses Bitcoin Cash as an example of a coin that was created to address perceived shortcomings in the original Bitcoin protocol, specifically by increasing the block size to allow for more transactions per block.

💡Market Manipulation

Market manipulation refers to the act of artificially inflating or deflating the price of an asset, often through deceptive practices. The video discusses how some Bitcoin forks may be created with the intention of manipulating the market, either by creating a buzz to attract attention or by allowing developers to gain an unfair advantage through the allocation of new coins.

💡Scams

Scams in the context of Bitcoin forks involve fraudulent activities where users are tricked into giving away their original Bitcoins or personal information during the process of claiming new coins. The video warns viewers about the potential for scams and advises caution when dealing with new forks, emphasizing the importance of verifying the legitimacy of a project before participating.

Highlights

A fork in Bitcoin is an alteration of the current Bitcoin code or protocol, where someone is changing the rules.

If there isn't a large consensus about the changes, two versions of Bitcoin will be created - one with the original rules and another with the new rules.

Bitcoin Cash was the first coin created from a Bitcoin fork in August 2017, followed by other coins like Bitcoin Gold and Bitcoin Diamond.

When a fork occurs, you'll have an 'original Bitcoin' and a 'new Bitcoin', such as Bitcoin Cash which changed the block size to allow more transactions per block.

There are soft forks that allow new versions to play well with the original versions, and hard forks that create a totally different coin.

You should care about forks because you might want to switch to the new coin, the fork can impact the Bitcoin community and price, and you can profit by selling the new coins delivered to every Bitcoin holder.

When a fork occurs, anyone holding any amount of bitcoins will also get the same amount of the new currency. However, you need to claim these coins.

Claiming new coins from a fork can generate money for nothing, but it also entails a considerable amount of risk from the user side.

Some recent forks are more of a marketing gimmick than an actual ideology, with the main reasons being marketing buzz, quick money for the devs, or scams.

To safely claim coins from a fork, research the project, its developers, roadmap, and what other publications have written about them.

Even if a fork is legitimate, it may not be worth the hassle and risk of claiming its coins, especially if the potential profit is low.

An important feature that a forked coin needs to implement is replay protection, to prevent accidentally sending original coins to a new coin address.

If you decide to claim your coins, follow guidelines only from well-known wallets or credible publications. Understand it's your responsibility and they won't be liable for any mistakes.

Before trying to claim any coin, move your bitcoins to a new wallet with a new seed phrase to reduce the chances of losing your Bitcoin to almost zero.

The presenter, Nate Martin from 99Bitcoins.com, provides a comprehensive overview of what Bitcoin forks are, how they work, their benefits and potential problems.

The video aims to give viewers a better understanding of forks and help them make informed decisions about whether to claim coins from a fork.

Transcripts

It seems like Bitcoin is forking every other day.

But what is a fork anyway? Can you profit from it?

Is it dangerous? Do you actually get free money?

Well stick around.

Here on Bitcoin Whiteboard Tuesday, we'll tackle these questions and more.

Hi everyone, I'm Nate Martin from 99Bitcoins.com,

and this is Bitcoin Whiteboard Tuesday!

During each edition, we’ll go over some basic ideas about Bitcoin.

That way you can learn more about Bitcoin yourself

or forward these videos to friends or family members who have questions.

Back in August 2017,

the first coin created from a Bitcoin fork came into existence: Bitcoin Cash.

However, since then,

numerous other coins have also been “forked” from Bitcoin;

such as Bitcoin Gold and Bitcoin Diamond.

Most people are still wondering what these forks are,

how did they happen, and can you profit from them.

So what’s a fork?

Well, a fork is basically

an alteration of the current Bitcoin code (or protocol).

In other words, someone is changing the rules.

Imagine that you’re playing a game with thousands of other people

from around the world then someone says, “Hey, let’s change the rules.”

Normally, for the game to stay intact,

everyone needs to agree on the rules being changed.

If that happens,

then the change is implemented and everything continues as normal.

But if there isn’t a large consensus about the changes,

then two versions of the game will be created,

one with the original rules and another with the new rules,

in other words, there will be a fork in the game.

That’s similar to a fork in the road.

The same can happen with Bitcoin’s code.

Generally speaking, when a fork happens,

you’ll have an “original Bitcoin” and a “new Bitcoin.”

For example, Bitcoin Cash changed the block size from 1 MB to 8 MB

so more transactions could be processed with each block.

Therefore, there are now people who support this change.

So they’ve switched to a new coin called Bitcoin Cash or Bcash.

You’ll also have people who decide to stay with the original rules

and keep using the original Bitcoin.

Of course, this explanation of forks is very simplified

since all forks were not created equal.

There are soft forks,

which allow the new versions to play well with the original versions,

and there are hard forks,

which don’t allow this feature and create a totally different coin.

All of the Bitcoin forks you’ve heard about recently

are actually hard forks.

Now why would you even care about forks?

Well, there are several reasons you should care about a fork.

First, you might want to switch over to the new rules and the new coin

because you think it’s better than using the original Bitcoin.

And second, the fork can have an impact on the Bitcoin community, Bitcoin’s adoption,

and even Bitcoin’s price.

Now we’ll get into this impact later on.

Finally, you want to profit from the fork

by selling the new coins that are delivered to every Bitcoin holder.

Wait, what?

I get free coins? Yes.

Let’s go back to our game analogy.

Imagine that your game has been running for a very long time,

and you’ve managed to accumulate a considerable amount of points.

Now someone wants to change the rules

but doesn’t want everybody to lose their points,

so the new game will start at a certain point in time,

and at that point,

everyone will have the same amount of points they accumulated up until that moment.

For example, if you had 150 points in the original game,

you could switch to the new game and still have 150 points.

If you want, you can also play both games in parallel

and in each, you’ll have 150 points.

Let’s see how this situation works for Bitcoin.

When a fork occurs, the people who decide on forking Bitcoin say,

“Look, we don’t like the original rules so we want to create new ones.

So starting with, for example, block number 453,342,

we’ll change to the new rules.”

Anyone who had Bitcoins at the time of the fork

will now have two Bitcoins: the original one and the new one.

You could decide which one to use, or you can even use both.

So, if you held 1 Bitcoin in your possession when the fork occured,

you’ll still have that 1 Bitcoin, but you’ll also be able to claim

1 “new Bitcoin” on the network which is running on the “new Bitcoin rules.”

I know it can get a bit confusing but generally here's what you should remember.

When a Bitcoin fork occurs,

anyone holding any amount of bitcoins

will also get the same amount of the new currency.

This situation doesn't automatically happen but you do need to claim these coins.

So each new coin has a different claiming mechanism

but we won't be able to cover them all in this video.

Once you claim your new coins, you can hold on to them or sell them.

In other words, you can generate money for nothing

since all you did was claim coins from thin air then sell them on an exchange.

Easy money or is it?

When the forking trend started out with Bitcoin Cash,

it seemed that the fork was a legitimate way of

expressing discontent with the road that Bitcoin was taking;

hence there was a fork in the road.

However, since then, the recent forks are pretty similar to each other

and the main reason for creating them

is more of a marketing gimmick than an actual ideology.

In other words, if someone thinks they can create a better coin than Bitcoin,

they can create a brand new altcoin.

So there's no need to create a Bitcoin clone.

But in this case, the devs seem to have decided to fork Bitcoin

for one of three main reasons:

1. Marketing buzz.

Bitcoin Forks are the new ICOs.

Everyone is looking to get free coins

so people are actively looking for information about them.

You're watching this video aren't you?

What better way to get eyes on your project without a lot of work.

Just say you're forking Bitcoin then you're done.

2. Quick money for the devs.

Some of these Forks aren't really copies of Bitcoin's history.

The rules are changed in a way that gives the devs

an initial large amount of the new coins

which then they can dump on the market once the coins start trading.

And 3. The fork is simply a scam.

Scams can be created in the form of creating a fork

in order to shorten Bitcoin's price

or more elaborate scams can create a fork to steal users real Bitcoins

during the process of claiming the new coin.

So as you can see, claiming coins from a fork also entails

a considerable amount of risk from the user side.

So how can you safely claim coins from a fork?

Well, first, I'd suggest reading a bit about the project.

Find out who the developers are, what their track record is,

how far along they are on their roadmap,

what other publications have written about them.

If all that makes sense to you then perhaps the fork is indeed correct.

However, even if a fork is legit,

that doesn't mean it's worth going through the hassle of claiming its coins.

The claiming process is usually complicated

and you risk losing your coins if you don't know exactly what you're doing.

Say you're holding 0.5 bitcoins and you're eligible for 0.5 Bitcoin Gold.

If so I'm not sure the immediate profit is worth the risk.

Of course it's a personal decision you should make.

For example, one of the most important things

that a forked coin has to implement is replay protection.

Basically, the network will be able to separate

the new coin from the old one

but it won't accidentally send the original coins

to a new coin address when claiming the forked coin.

In the end you decide that you want to claim your coins.

I suggest that you only follow guidelines

from well-known wallets or credited publications.

Keep in mind, in the end it's your money

and no wallet or publication will be able to take responsibility

if you do something wrong along the way,

even if they accidentally publish misinformation.

Remember, it's a risky business.

Understand that and make your own choices.

The only rule that you should always follow is this.

Before trying to claim any coin,

move your bitcoins to a new wallet with a new seed phrase.

That way, you'll reduce the chances of losing your Bitcoin to almost zero.

I hope you now have a better understanding of what Forks are and how they work

as well as the benefits and potential problems.

You may still have questions.

If so, just leave them in the comment section below.

If you're watching this video on YouTube and enjoy what you've seen,

don't forget to hit the like button

and make sure to subscribe for notifications to new episodes.

Thanks for joining me here at the Whiteboard.

For 99Bitcoins.com I'm Nate Martin and I'll see you... in a bit.