For newcomers to the cryptocurrency sphere, there are Bitcoin enthusiasts and then there’s everyone else. There are more than 1,600 coins listed right now on the premier pricing site – CoinMarketCap – and the tangle of coin offerings can be confusing, at first.
There’s a second layer of complexity at work, however. Brace yourself. There is more than one cryptocurrency calling itself Bitcoin.
It might be confusing to see the famous Bitcoin name in front of several different qualifiers, like Cash, Diamond, or Dark. Are they all part of the same project? If I buy a Bitcoin, can I use it in places that take Bitcoin Cash? Are they the same thing with tech labels I just don’t understand?
We’re going to do a quick review of what Bitcoin is and what it isn’t, discuss the bitcoin fork process, and hopefully clear up some of the confusion concerning the Bitcoin derivatives floating around there.
It’s worth noting that here when we say “derivative,” we’re talking about a coin with Bitcoin in the name. We’re not talking about those nebulous financial instruments called derivatives, which can include futures, synthetic options, and the like. The topic is already kind of confusing – no need to make it more so. We’re also not going to be talking about forks like SegWit that don’t carry the Bitcoin name – again, for simplicity.
The Original Bitcoin
The original Bitcoin was created around 2008 by Satoshi Nakamoto. No one yet knows who or what Nakamoto is. He, she, or it has never publicly identified themselves. That means that the code for Bitcoin – which is open source – is shepherded by a team of largely volunteer developers. We have no way of knowing if Nakamoto is still involved with the project at all.
Bitcoin started off with a simple idea: Take banks and governments out of the process of moving money around. According to Nakamoto’s original white paper, the goal was to create a blockchain where the blockchain users themselves could verify transactions. There would be no need for a bank or government agency to step in and regulate things. In short, money really could just change hands peer to peer, as easily as handing cash from one person to another.
The security of the system would be guaranteed by the cryptographic hash attached to each transaction and the open, transparent, and public record of those transactions being published on the blockchain. These hashes are made by a proof-of-work system. All that means is that each computer on the Bitcoin mining network has to solve large, complex math problems to create new coins.
That, in a nutshell, is Bitcoin. Now, here’s where it gets interesting.
A Word on Forks
We’re going to be talking about bitcoin forks, so a little terminology talk is in order. A fork is like a fork in the road for a coding project. It involves taking the open-source source code and going in a new direction with it.
There are two main types of forks. A soft fork tightens the rules surrounding the project. Transactions that were valid before the soft fork become invalid afterward, in other words. A hard fork loosens the rules surrounding the project so that some transactions that might have been invalid before the fork become valid afterward.
You might hear the term “compatibility” thrown around. Hard forks are not backward compatible. Soft forks are. You can think of this in terms of games if you like. A new game that can run on an old computer is said to be backward compatible with that system. A new game that can’t run on an old computer is not backward compatible.
Notable Bitcoin Forks
Bitcoin has been around a long time, and there have been many forks over the years. Here are the highlights and the coins you’re most likely to find on exchanges and price listing platforms, like CoinMarketCap.
- Bitcoin XT – Bitcoin XT was created in late 2014 by Bitcoin team member Mike Hearn. Hearn sought to include some new features and proprietary software into the Bitcoin code. Hearn’s goal was to increase the block size to 8 MB and boost the transaction speed to 24 per second. It has been considered a dead project since 2016, although it’s included here as the first major hard fork from the core Bitcoin project.
- Bitcoin Unlimited – Bitcoin Unlimited came about in 2015, again to increase Bitcoin’s block size and speed. Bitcoin unlimited allows miners to vote on block size, although this has brought about severe reliability issues. The project is still around, but its future development is kept largely private, and so it’s unlikely you’ll run into this outside of technological discussions.
- Bitcoin Classic – Bitcoin Classic was another attempt to increase Bitcoin’s block size and speed, which began in February 2016. The new target block size was 2 MB, but that quickly changed to a market-driven, dynamic block size. The project is still around, but it’s only about a 20th of the size it gained immediately after the hard fork.
- Bitcoin Cash – This is a biggie. Bitcoin Cash has been in a public spat with the original Bitcoin development team over the rights to the Bitcoin name. The Bitcoin Cash team considers itself the true Bitcoin and thinks the market – and Bitcoin Cash’s price – ought to reflect that. Bitcoin Cash was the result of the implementation of something called SegWit code on the main Bitcoin platform. By forking away from Bitcoin, Bitcoin Cash essentially created a clone without SegWit and with an 8 MB block size. This is one of the Bitcoin forks you’re most likely to encounter due to the very public nature of the ongoing spat and Bitcoin Cash’s relatively high price.
- Bitcoin Gold – Bitcoin Gold is a hard fork from the original Bitcoin that sought to reduce the influence of big-time miners using powerful machinery. This is in keeping with the democratized, peer-to-peer focus of the original Bitcoin white paper. Bitcoin Gold has dynamic mining difficulty and a mining algorithm that differs from the original Bitcoin algorithm.
- Bitcoin Dark – Bitcoin Dark was a privacy-focused fork of Bitcoin that has since been migrated to the Komodo platform. As such, Bitcoin Dark is no longer actively traded, but some users will still call Komodo coins Bitcoin Dark for nostalgia’s sake.
- Bitcoin Diamond – Bitcoin Diamond is an attempt to preserve the original code of Bitcoin while adding Lightning Network capability. Essentially, the developers hope that Bitcoin Diamond can be a faster, better, and cheaper version of Bitcoin. Bitcoin Diamond doesn’t view itself as a competitor to Bitcoin; rather, it sees itself as the next evolution of the currency. Bitcoin holders at the time of Bitcoin’s creation were granted free Bitcoin Diamond to that effect.
These are the major new players in the Bitcoin arena. It should be noted, however, that there are more than 30 projects out there carrying the Bitcoin name. As an open-source software, practically anyone can start a new cryptocurrency and attach “Bitcoin” to the name. That means that not every project that says “Bitcoin” was founded by the original Bitcoin team or is even a direct fork of the coin itself.
This hopefully clears up some of the confusion surrounding the mass of Bitcoins out there. As always, thoroughly do your own research on a given coin’s project before you invest, and be aware that not all Bitcoins are created equal.