Should I Be Concerned About A Fork in Bitcoin?

Back in March, BTC lost nearly $2 billion from its market cap because of a fork.

No, not that kind of fork.

Rather, it has to do with the blockchain technology which processes bitcoin transactions. Investors became extremely skittish when faced with the idea of bitcoin breaking off into two separate currencies (creating a fork), driving the value of BTC down. The digital currency has become so popular of late that it has created a huge backlog of transactions. This is because only a certain number of transactions can be processed per block.

Okay, so we kind of have to go over some background information before we can explain why this is a relevant concern, especially with the ever growing increase in BTC value – which some experts expect to hit over $3,000 by the end of 2017.

So, the way bitcoin works is through a process called mining. Really smart people with even smarter computers race to solve the algorithm of a block of transactions. Once it is solved and verified, it is added to the blockchain and the miners who processed the block are rewarded with bitcoins.

Now, even with the super smart people with their even smarter computers working on this all day, it takes time. And with the increasing popularity of the digital currency, there have been a huge number of transactions to process. Leading to a big backlog of transactions that need to be added to the blockchain. With the backlog, transaction prices for BTC have gone way, way up.

That’s where the problem comes in. People have suggested expanding the size of a block, in order to get more transactions processed in a single go. But no one quite knows how that would affect the integrity of the blockchain and whether or not that would be safe. But one group, Bitcoin Unlimited, has continued to push the agenda.

Which is where we get the fork. If Bitcoin Unlimited starts swaying people towards their way of thinking, there could be big trouble. Currently, the group has about 11% of the nodes under their control (nodes are basically what make up bitcoin’s technology, the blockchain, the transactions, all of it). If they were to gain 50% of those nodes, they could create their own blockchain, with bigger blocks. Thus, a fork in the system.

This would create two different currencies. Bitcoin core, the one that is running now, and bitcoin unlimited, the one that is proposing the larger blocks.

Some investors want this to happen. It would drive down the price of bitcoin transactions – which are relatively high at the moment – and would also remove quite a bit of the backlog, getting people up to date and setting everything back on the right track.

Others are very wary of this idea. A hard fork would drive down the value of bitcoin and there would be no guarantee that it would be able to climb back to where it is. Losing the value of their investment is never what investors want to hear.

So no one quite knows what to do, but they know they need to do something. With so much uncertainty, the value of bitcoin fell and dropped its market value nearly two billion dollars.

ReviewBitcoin.com noticed all of these concerns were raised in late March. A lot has changed since then.

First of all, on April 1st, bitcoin was legitimized in Japan. That’s when it started to see an astronomical rise in value. Since that date, it has risen over 33%. With the value going up so quickly, though, the speed of transactions has actually slowed and is still slowing.

Before, this would have been a bigger deal. But recently, we have seen that there is another way to speed up transactions without disrupting BTC with a hard fork.

Litecoin, a similar cryptocurrency, recently underwent the same problems, on a smaller scale. They made a small change to their transaction processing technology and were actually able to integrate a higher speed of transactions into their blockchain without dropping the value of the currency and without creating a totally new currency. It was a “soft fork” if you will.

Following their example, bitcoin could undergo a small change to its transaction technology without incurring any major problems, like a new currency forming. Many investors feel much more confident in this solution. Even bigwigs at bitcoin are chiming in with their support of the “soft fork” idea.

“That could increase capacity and move us to the next level,” said the director at Global Advisors Bitcoin Investment Fund, Daniel Masters, in response to litecoin’s success with a soft fork. When asked if this would create a rise in BTC values, he replied, “In 8-14 months, my forecast would be around $4,000.”