The Fork in simple ‘English’ is a technical term used to describe an option to choose between an update to the application code that users and operators of bitcoin machines use in mining bitcoin. The option is usually between sticking with the old application code or switching to the new one.
We also have two types of Fork, the Hard Fork and Soft Fork.
In a hard fork, the rule requires miners to switch to the new upgrade making machines running on the older application not to be compatible with the new upgrade.
A Soft fork on the other hand is a change to the application code that does not render the older application incompatible with the new. Bitcoin miners who are yet to upgrade to the new application codes can still see their transactions as valid.
Deciding on whether to go with a hard or soft fork is very critical in the world of cryptocurrencies as Hard Forks typically require that miners upgrade their software despite investing millions in servers.
Why bother with Hard or soft forks?
Bitcoin operates on what is known as blockchain technology. Think of a blockchain as a Microsoft Word document. Unlike a regular word document where access is limited to just one person, everyone can view this document. Changes made to this document, can be seen by everyone, and can’t be reversed.
Blockchain transactions involve two parties, and are usually confirmed by individuals/companies known as miners. In return for this, they are rewarded with bitcoin. There is a limit to the speed at which transactions that can be processed on the bitcoin blockchain at a time, due to the size of the blocks and for security reasons.
As more people have adopted the currency, the time taken to confirm transactions has grown longer. This has made the currency less attractive. While cryptocurrency transactions take a few seconds, more currencies are adopting technology that makes transaction time shorter. This has led to some individuals advocating for a change in how the blockchain processes transactions. This is known as a fork or upgrade.
Why is this affecting bitcoin price
Bitcoin enthusiast had been pondering about the need to improve the transaction time of bitcoins and reduce fees. Whilst they agree on the need to improve the technology, how they go about it is the bigger concern. One side (the miners) are proposing that they increase the block size limit of blockchain while the other side (core) want them to change the actual software technology used to run bitcoin.
Another group within the Core proposed a software called SegWit, which has also been rejected by others. The guys pushing for SegWit believe it will retain bitcoin as the worlds most dominant completion. Bitcoin has been facing serious competition from corporate backed Etherum which has capabilities similar to what the Core faction thinks SegWit will offer.
The miners understandably support the increase in size as it will make transactions faster and reduce cost of mining but do not support upgrades as it will mean they will have to invest more after investing millions of dollars on existing servers.
The SegWit software is expected to go live August 1 and if not adopted by all miners will mean that the world will have two sets of bitcoins running. If this occurs then miners will patiently wait to see which bitcoin does better thus the reason why the price is probably falling at the moment.
As August 1st draws near, the volatility in the cryptocurrency markets will likely persist as investors fear the impact of the fork.
The price of the world’s most popular cryptocurrency, Bitcoin, has crashed from a high of about $2,800 in June to under $2,000 as at the second week of July.
If you want to know what to do with your bitcoins or other cryptocurrencies, refer to our earlier article.