Since its creation, Bitcoin has been duplicated and modified countless times for often unnecessary or even stupid reasons. This is called in the jargon a Fork of the Bitcoin blockchain, the best known of which are Litecoin, BitcoinCash or BitcoinGold. We will show in this – long – blog post why there is only one Bitcoin (BTC) and why the value proposition of Bitcoin is unique and above all inimitable. Indeed, despite the fact that its code is ” open source ” and therefore freely reusable and modifiable, it is impossible to compete with it.
What are the different types of bitcoin forks?
There are three types of forks:
- The codebase fork, which copies all the Bitcoin’s source code, modifies it to change its rules and properties to start a whole new network with a clean transaction history. The best-known example is Litecoin, created on October 7, 2011, by Charlie Lee, a former Google and Coinbase employee. The first litecoin created, therefore, had no connection with the transaction history of the Bitcoin network. We can also cite the famous Dogecoin, which was originally a joke whose purpose was to show the ease with which one can create a cryptocurrency from the source code of Litecoin. Surprisingly enough, this story received a favorable reception from the community and the price of Dogecoin has increased considerably. Elon Musk once posted on Twitter a quote saying:
“Dogecoin might be my fav cryptocurrency. It’s pretty cool. ”
- The fork of the history, called hard fork that changes the code and copies the transaction history of blockchain. This kind of fork is said to be “contentious” because it gives rise to a change in the operating rules which are not backward compatible with the rules previously in force (also called the consensus rules).
During a hard fork, the network splits in two, social consensus then comes into play to define what is “real bitcoin”. The “real bitcoin” being in this case the one that will have the most support from the community, the most economic activity and the greatest security defined by the power of hashrate - we will come back to this later in this article. The best known examples are the BitcoinGold or the BitcoinCash which has caused a lot of ink to flow.
- The soft fork is an update of the network functionalities. These updates have the distinction of remaining compatible with the consensus rules of previous versions of Bitcoin. They are not mandatory and can be implemented by miners or node operators ( MASF: miner activated soft fork or UASF: User activated soft fork ).
The Map Of Coin website lists all the times where the Bitcoin protocol has been copied, duplicated, forked… According to this site, there would be 436 but the webmaster abandoned the update in 2017 it is very likely that this figure has doubled since!
It is always possible to correctly identify bitcoin using its ticker – a unique identification code – on exchange market places: BTC (or XBT for certain exchanges).
BTC identification of bitcoin is a kind of economic consensus, but there are other types of consensus that define what bitcoin is.
What Defines Bitcoin, the “Real” Bitcoin?
Bitcoin is above all a series of operating and consensus rules. Several implementations of these rules exist. There are several different software that can coexist on the same network and communicate with each other, regardless of the programming language used. The most common software is “Bitcoin Core”, but we can also cite “Bitcoin Knots”, “BTCD” or “Libbitcoin”. Find out more.
In other words, it’s a bit like on the road network (the Bitcoin network), no matter the model of your vehicle (the software installed on the network node), as long as you have a driver’s license and you follow the highway code using an approved vehicle (software that follows the rules of the Bitcoin consensus), you can drive without restriction or ticket (your transaction is valid and will not be rejected).
We can cite some rules of this technical consensus:
- There will be no more than 21 Million BTCs,
- The maximum number of BTCs put into circulation as a reward to minors
- The rules that define the validity of a transaction,
- Maximum block size
From the moment a network node uses software that changes one of the rules of the basic technical consensus, it is then excluded from the network… everyone is free to join it and follow its new rules.
In 2017, the debate about the best way to allow the network to manage a larger number of transactions. The members of the network do not agree, there is a separation between those who want larger blocks (allowing to manage more transactions) and those who simply want to reduce the size of the transactions in a backward-compatible manner. Those who prefer the option of larger blocks then create new software from the source code of Bitcoin and change the basic rules of technical consensus to create the BitcoinCash network (BCH), those who opt for the backward compatible solution make a soft fork activated by voluntary users.
Whenever a new copy of the Bitcoin code is created with a change, even the smallest of the consensus rules, it does not necessarily create a new bitcoin of identical value. Bitcoin Cash (BCH) for example is worth around 28 times less today than real Bitcoin (BTC).
Bitcoin is not only software, it is also a hardware infrastructure, an economic infrastructure and as well a human infrastructure.
I will explain all this in more detail.
Bitcoin, a hardware infrastructure
Bitcoin software is used on two major infrastructures: miners and validation nodes ( full node in English). These two parts of the network are both adversaries and partners.
The role of minors is to add the transactions awaiting validation in a new block, find the result of the cryptographic formula which makes it possible to add this new block to the history of previous transactions, then to propose this block to the nodes of validation.
The validation nodes, as their name suggests, verify that:
- Each of the transactions proposed by the minor is valid;
- No one is trying to spend the same bitcoin twice on two different transactions;
- The miner has solved the cryptographic equation that links the blocks together;
- The minor did not give himself a reward greater than that provided for in the rules established by consensus.
When a minor proposes a block which does not strictly follow the rules, it is then rejected by the validation nodes. It has already happened that a minor offers a block whose reward was greater than that authorized by the rules of the protocol, he was of course rejected by the validation nodes and did not touch his reward normally due. As Pierre Rochard puts it so well in this tweet, Bitcoin is an impenetrable validation fortress whose rules are strict and immutable.
The validation nodes also have the role of listing and propagating across the network the transactions awaiting validation. They are, in a way, the gendarmes and the dispatchers of the network.
These two hardware infrastructures of the network, miners and validation nodes, require a significant investment and are not as easily “duplicable” as the software itself (free and free, it can be modified very easily by whoever wishes). Find out more.
All new versions of the software whose consensus rules are modified also require the agreement of a majority of minors and validation nodes already present, or failing this, create a new infrastructure of validator nodes and minors.
The consensus of Nakamoto – the creator of bitcoin – helps determine which blockchain represents the real Bitcoin and its transaction history. This rule is simple: the chain that has accumulated the greatest proof of work – which has, therefore, spent the most energy – is the one and only valid chain. According to this rule, the version of the blockchain that has the most significant “security” (the hashrate ) is considered to be the only blockchain with the most reliable transaction history.
The hashrate is, therefore, the unit of measurement that calculates the security power of each network. Coin Metric offers a display of hashrates from several networks:
Hashrate Bitcoin VS Bitchcoin
As we can see, Bitcoin has a power of hash – the hashrate – and therefore a much greater security than any other competing network.
Minors using compatible machines could very well move from one network to another because Bitcoin and its copies (BitcoinCash, etc.) use the same security algorithm.
The risk for minority channels like BitcoinCash (BCH) would be that part of the Bitcoin miners (BTC) abandon the majority channel for a time, undermine on BCH and can thus carry out a 51% attack very easily to compromise the history transactions and attack network security. A 51% attack can occur when a minor (or a coalition of miners) alone has more than 51% of the hashing power of the network, thus being able to control the transaction history and make a double expenditure.
We consider on Bitcoin (BTC) that once a transaction added to a valid block, it is necessary to wait for 6 other blocks mined in succession (or 6 confirmations) to consider this transaction as probabilistically immutable (and therefore irreversible). This is the reason why, when you send bitcoins to a market place like Kraken or Coinbase via a transaction, they wait on average for 6 confirmations (6 mined blocks, more or less 1 hour) before giving you the opportunity to use these bitcoins on their platform (to exchange them for euros for example). It is a protection for them in order to consider the transaction irreversible.
To realize the difference in securing transactions between different bitcoins, the howmanyconfs site is very useful:
Bitcoin is the most secure cryptocurrency
We realize that Bitcoin Cash (BCH) needs 364 blocks/confirmations to have the same level of security as a transaction on Bitcoin (BTC). BitcoinSV (BSV) is 70 times slower to achieve the same degree of security as Bitcoin (BTC), the low hashing power of the BSV network is so low that it takes 2 days and 19 hours for a transaction to be as secure as on Bitcoin (BTC).
Bitcoin, an economic infrastructure
Although the physical infrastructure is important to explain the security of the network, the economic infrastructure also has an important part in the definition of what is “real bitcoin”.
Economic infrastructure is what gives value to bitcoin. It can be traders who accept bitcoin as a currency for goods or services, but it can also be marketplaces – exchanges – where the price is defined in relation to supply and demand.
As we saw at the beginning of the article, bitcoin is identified on marketplaces by a three-letter abbreviation BTC (or XBT) which is called a ticker.
During a bitcoin fork, marketplaces must choose whether they want to list this new digital currency, but also to which version of bitcoin to assign the BTC reference ticker.
Being listed on a marketplace is essential for a cryptocurrency because it allows participants to buy and sell this cryptocurrency against another, or against a legal tender currency (the euro, the dollars …) which allows discovery the “fair” price based on supply and demand.
Economic activity is split into two parts: On-chain activity and off-chain activity.
The off-chain activity represents all the exchanges that are not recorded on the blockchain.
All exchanges on marketplaces are recorded in the off-chain activity and can be measured by the volume of exchange. It is also posted on websites such as CoinMarketCap or CoinGecko .
It must be kept in mind that most market places are not regulated. The transaction volume figures they provide should be taken with great care.
Even if the wash-trading allows to inflate the figures of their volumes, one can still use it to compare the volumes of exchanges between the different cryptocurrencies and thus determine which are the most popular. However, trading volumes are essential indicators for assessing the market appetite for a cryptocurrency.
Capitalization (or market cap ) and a measurement tool often taken into account to determine the value of digital assets. The calculation of the capitalization is very simple, just multiply the total number of coins in circulation by the value of the last transaction executed on the exchange.
On-chain activity, meanwhile, represents all the actual transactions on the Bitcoin network that are mined and then added to the blockchain. It is a more realistic representation of the activity of a blockchain. The bitinfocharts site allows you to compare the on-chain data of Bitcoin and its most popular forks.
Comparison of on-chain data from Bitcoin and its most popular forks.
In this example, despite the fact that there are twice as many transactions made on BitcoinSV compared to Bitcoin, we can see that the value of its transactions is much lower (around 98%).
Chain analysis also showed that a single address on Bitcoin Cash was responsible for almost 50% of network transactions for a time. Also on BitcoinSV, 96% of the transactions come from a weather app and serve only to save the meteorological data.
Bitcoin, a human infrastructure
We can identify 5 types of people who revolve around Bitcoin:
- the hodlers
- the users
The human factor is very important for the adoption and definition of what Bitcoin is, they are the actors of social consensus. It is humans who are the source of physical infrastructure and economic activity.
There are obviously miners who decide to invest their money in mining facilities – powerful computers specially designed for this purpose – hoping to benefit from the rewards to which they are entitled for their work in securing the blockchain. Although they have the privilege to receive freshly issued bitcoins from the monetary creation provided for in the protocol – the reduction of this reward, the halving, occurs approximately every 4 years and the next should arrive on May 12 - they must sell part of these bitcoins in order to cover their operational expenses. Miners thus contribute to the redistribution of the money supply. Although miners’ electricity consumption is often criticized, they must find the cheapest energy resources possible in order to reduce their operational cost and remain profitable. It is important to note that these energies are mainly renewable, in particular through hydroelectricity.
Traders also have a role to play in discovering the price and redistributing bitcoins. Indeed, they bring liquidity to the market by risking their capital. Their speculation, although often controversial, is decisive in sending the necessary signals to the rest of the actors. However, the explosion of the Bitcoin derivatives markets could distort the picture.
The 2017 bubble, bolstered by speculation, allowed Bitcoin to hit the headlines of a lot of mainstream media. This is important for maximizing Bitcoin awareness, whether that awareness is positive or not. The main thing is to talk about Bitcoin.
The ” hodlers “ are another type of speculators. Rather considered as investors with a long term vision, they tend to buy more than they sell – I clearly fall into this category of investor. They have a deep conviction in the value proposition offered by Bitcoin and the appreciation of its price over the long term. They have exchanged part of their savings for bitcoin and then keep them, often away from exchanges, in their digital safe. They thus withdraw from the liquidity of the exchanges and scarcer the quantity of bitcoin available on the market places. This category of investors particularly likes the automatic recurring investment strategy –auto DCA in English – to smooth the entry point is to reduce the risk on Bitcoin which creates regular buying pressure on prices.
There are also developers who use their experience and know-how to develop the protocol and audit the source code of Bitcoin. They also have an important role in creating the tools necessary to interact with the network such as wallets, or any other service revolving around bitcoin such as exchanges, digital safe solutions, payment systems, etc.
Then there are of course the users who use bitcoin to exchange value around the world. They are still few in number today but this should increase considerably in the coming years. The main catalysts are the crises of the traditional monetary system like the one we are currently experiencing following the appearance of covid19. The economic consequences are likely to be significant. States will therefore go into debt heavily and central banks will print an unlimited amount of money which could weaken them. This loss of confidence in the fiat currency (the euro, the dollars, etc) could cause an increase in the adoption of bitcoin in the world.
All human actors use Bitcoin for various reasons, but all agree on the use of a single network. They therefore take part in the redistribution of bitcoins around the world and therefore define their social consensus. The more people who mine, trade, develop and use Bitcoin, the more Bitcoin confirms its status as the only true Bitcoin: The Bitcoin that brings together the most players, the most hashrates, the most economic activity, the most developers, etc.
Bitcoin is a protocol governed by a series of rules defining the functioning of a decentralized monetary system. These rules are immutable and incurable. Unlike Libra, for example – Facebook’s digital currency project – whose ambition has been drastically revised downward recently following pressure from regulators. This can NEVER happen to Bitcoin !!!
Bitcoin is a full-fledged monetary and financial system, its use is mainly related to money, financial transactions, international trade. Bitcoin manages to coordinate the actions of thousands of individuals who do not know and do not trust each other, in a fully self-regulating and decentralized manner. Confidence in the robustness of the Bitcoin network is fundamental to its use. Beyond being software, bitcoin – with a lowercase b – is also the unit of account for this monetary system.
To conclude, I hope you will have understood with this article why Bitcoin is unique!
Bitcoin, not shitcoins, only satoshis
Article Written by Jonathan Herscovici
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