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.