It's not always clear what forks could mean for you as a Bitcoin holder.
Bitcoin forks are often mentioned in the crypto space but less often explained. So while you may be aware that sometimes bitcoin does get forked, it's not always clear what this could mean for you as a bitcoin holder or someone looking to get involved in cryptocurrency.
Hard vs. Soft Fork
Hard forks and soft forks are pretty similar except for a couple of crucial things. Firstly, soft forks are essentially a form of software upgrade and shouldn't result in a chain split where two separate chains can emerge. On the other hand, hard forks result in a chain split as they require changes that would otherwise break the chain; however, this may often just be a necessary byproduct. Unless there is an active community looking to maintain and support the other chain for some reason, it is likely to die off relatively quickly.
Contentious Hard Forks
Contentious hard forks occur where a strong disagreement about the path forward or some other specific issues is a reality that can sometimes occur. Bitcoin cash is an example of a contentious hard fork. Created in response to the bitcoin SegWit upgrade, bitcoin cash attempts to take a different path instead of SegWit opting to favor block size increases.
What Should I Do When Bitcoin Forks?
In most cases, bitcoin forks don't typically require any action as a general user. However, if you are operating mining equipment or running a node, you may be required to update the software you are using to ensure you follow the path for which you agree. Changes to the bitcoin network tend to move slowly, ensuring consensus and that there is unlikely to be any confusion when a fork occurs. Provided you pay a little attention to bitcoin news, forks should result in minimal concerns on your end, even as a miner or node operator.
Source Code Forks
Sometimes the focus can be on the bitcoin implementation and surrounding code when considering forking bitcoin, primarily with the goal of starting an unrelated project. An easy example of this is Litecoin, which was a fork of the bitcoin core client codebase originally that was then modified to fit an alternative vision.
Codebase forks don't have to involve the current blockchain and can simply be a way to start a new project while leveraging some of the existing work. Furthermore, as bitcoin is an open-source project, anyone is free to create their own version of bitcoin and use the existing codebase released under the MIT license, one of the most permissive licenses around.
Forks that don't involve the current state of the bitcoin blockchain are forks that you wouldn't generally be able to claim unless there's a secondary approach to airdropping coins to existing bitcoin holders. Sometimes a snapshot may occur if wallet addresses use the same format to then go on to airdrop coins to those addresses with balances, but this is purely up to the developers of any new project.
How to Collect Bitcoin Forks?
If there is a contentious fork, or a new project using a snapshot to airdrop tokens to existing wallet addresses on a new network, you may wonder how to claim these coins. However, there isn't an easy answer to this question as the format for dealing with this can vary, and there are some serious risks to consider whenever you want to claim forked coins.
In some cases, you will be required to provide your private key when accessing coins from a bitcoin fork, which is always something to take extremely seriously. However, you should never even remotely consider doing this unless you are 100% confident in both the source of the wallet or other software and the project's legitimacy. So if you are considering looking to claim some forked bitcoin, it's almost certainly best to take a wait-and-see approach before jumping in to see what the consensus is in terms of how legitimate things are with the project.
Bitcoin has had an enormous number of forks throughout time. Many of these forks don't even reach the launch stage or maintain anything more than the slightest short-term interest. So, in a lot of situations, you'd have been better off waiting and seeing if the project survived beyond launch before considering to get involved at all. Unfortunately, many bitcoin forks attempt to do little more than cash in on the bitcoin name with less than honorable intentions.
How Forks Occur in Bitcoin?
Bitcoin forks occur as a byproduct of the bitcoin blockchain having no central authority. Consensus helps drive the bitcoin network forward, and forks are a way to ensure harmony is achieved in an accessible way. If a change was to be pushed through without the majority of the network thinking it was a good idea, it's very likely bitcoin would be forked, and that chain would be considered the real chain rather quickly via market discovery and mining hash rate shifting to the new chain.
Consensus gives anyone participating in bitcoin the ability to disagree straightforwardly while still allowing network participants to show their preferences with several clear metrics. For example, hash rate, network activity, node count, and even the market price of forked chains all help show a clear picture of what exactly bitcoin is. Thankfully, the developers that contribute their time and effort to the project seem to have a strong understanding of the importance of consensus, so all proposals to modify bitcoin in some way go through numerous steps to ensure the risk of hard forks that result in confusion are extremely low.
Where Does the Value Come from When Bitcoin Forks?
The value of coins associated with a bitcoin fork are priced through market discovery and very pure speculation. If there is faith that the project has any meaningful future or solves a problem in a way people think is a good idea; naturally, the price will begin to reflect that. On the other hand, if there is little faith in the fork, the opposite will occur quite quickly; it may not even achieve any meaningful exchange listings.
If you're interested in bitcoin, forks are an exciting thing to explore. While many of them don't reach a state of maturity, it does help to better showcase how consensus is a driving force behind bitcoin and an incredible thing for pushing bitcoin to be the best it can possibly be.