What is a blockchain fork?
If you’ve had any exposure to the world of cryptocurrencies and blockchain technology, you’ve probably heard of the term “fork.” Not unlike the layman’s definition (and not the one that involves eating), a fork occurs when developers veer away to a new project using code based off of another already developed.
The topic of forks has received a lot of attention in recent past, when part of the ethereum community found it necessary to fork project due to a breach in an Ethereum-based contract known as “The DAO” and currently with the upcoming User Activated Soft Fork (UASF), which is set to occur August 1.
Forks come in different varieties, including soft, user-activated and hard forks.
A so-called soft fork is a backward-compatible shift in a blockchain, or decentralized network. Backwards compatibility means, in a decentralized framework, nodes are not required to upgrade in order to maintain consensus since all blocks with the new soft forked rules also follow the old rules; therefore, old clients accept them.
As such only miners are typically required to activate a soft fork as old nodes — the systems connected to the network — are able to accept blocks without upgrading.
Miners are inclined to eventually adopt the new version of the software or risk ending up on the losing end of the soft fork, essentially the minority group that decides to remain with either the old or new protocol, depending on how the pendulum of choice swings.
To be a successful soft fork, more than half of the mining power must be running for a client to recognize the change.
Nevertheless, as the label suggests, a soft fork is a less significant turn of events than a hard fork, which requires buy-in or acceptance across all players on the network.
User Activated Soft Forks
A User Activated Soft Fork, or UASF is a more sophisticated soft fork that can be enacted, typically, by the economic majority within a peer-to-peer network. It usually requires substantial industry support and a cohesive effort to make it work.
Nodes in a decentralized infrastructure, and the rest of the economic majority, which includes the networks ecosystem of wallets and exchanges, are typically the deciding cadre; however, this is not always the case, as with Bitcoin Improvement Protocol (BIP) 148.
In BIP 148, a UASF is initiated as a signal to move toward mandatory activation of Segregated Witness deployment. The window in which enactment of BIP to be initiative sits between midnight, Aug. 1, 2017 and midnight, Nov. 15, 2017.
Segregated Witness, or ‘SegWit’, is the process by which the block size limit on a blockchain is increased by removing signature data from Bitcoin transactions. When certain parts of a transaction are removed, this frees up space to add more transactions to the chain thereby increasing the overall throughput of transactions on the network.
BIP 148 is not the typical modus operandi for a UASF which implement a soft fork that requires action from miners. Normally nodes would just begin enforcement on a given “flag day” as with BIP16, which was how the Pay-to-Script-Hash (P2SH) soft fork was activated in 2012 — a flag day was signaled whereby nodes agreed to start enforcing the new protocol. P2SH was activated with relatively little friction.
But since four-fifths of the node network have already upgraded to SegWit capable software, it is up to the miners to shift and begin accepting blocks as according to the new protocol. Of course, a lot rides on where the rest of the economic majority — the wallets and exchanges — move to.
If the economic majority is signaling as of Aug. 1 for the adoption of BIP148, miners are incentivized to follow with the masses. However, nodes don’t represent a true reflection of the community since they can be rented on cloud services to skew the numbers.
Nonetheless, not shifting to the new protocol that has an economic majority would be an unwise financial decision because it would make it difficult to sell coins mined after that date as the blocks would not be accepted by the majority. This would be tantamount to mining an alternative coin not recognized by users and exchanges, a poor business decision.
Why is including SegWit so contentious?
SegWit fixes one of the longest known issues in Bitcoin that has gone unfixed in part termed transaction malleability which is important to the long-term, global scalability of Bitcoin’s blockchain network. Transaction malleability allows more sophisticated users to change the ID of a transaction before it is confirmed in the blockchain.
The reason this has become so contentious is because fixing transaction malleability would allow layer two technologies to be implemented in a less nuanced approach. Layer two technologies, such as lightning networks, would allow bitcoin transactions to take place off-chain in a far more streamlined way.
Now when you combine that with the fact that SegWit allows the witness signature to be excluded from the transaction data, you can begin to understand why some miners are putting up a fight.
Additionally, SegWit introduces script versioning, which would extend the bitcoin protocol by allowing rules to the witness to be changed by a soft fork. One innovation that is likely to be proposed are Schnoor signatures. Schnoor signatures would additionally help raise a blockchain network’s throughput because transactions would only need one signature which benefits are realized in the case of multisig transactions. Schnoor signatures also offer some privacy benefits too.
Bitcoin users typically pay a per byte fee to have their transaction approved by the network. Excluding witness data, which grows with the more witnesses a transaction has, would mean that transaction fees would decrease on a per transaction basis.
Coupled with the fact that with layer two technologies, where users can make transactions off-chain, miners stand to lose a significant portion of their revenue.
To put the range of profits in perspective, on June 7, miners on the Bitcoin network received over $1.78 million dollars in fees. On July 10, however, the total transaction fees decreased to $486,419.52, which correlated with less network activity.
Thus preservation of the status quo has significant financial merit for miners. However, the loss in revenue if miners don’t move with the economic majority will be even more substantial and presents a strong claim to believe, with majority support for SegWit, miners must and will follow.
Another reason SegWit has been so contentious is that some claim, that miners are using ASICBoost, which give them an advantage when mining. SegWit would help level the playing field for miners if this were the case.
SegWit is still far from the 95% activation threshold.
What is a blockchain hard fork?
With a hard fork, everyone — miners, merchants, and users — has to upgrade to the new client or code. Hard forks are not backward-compatible, which means old nodes will not, typically, accept blocks created by new nodes.
In this event, the blockchain becomes two blockchains as the network splits if there isn’t unanimous consensus.
In the context of Bitcoin Core’s scaling roadmap and the upcoming BIP 148 UASF on Aug. 1, and the New York Agreement (NYA), led by Digital Currency Group’s Barry Silbert, efforts to fork the network are momentous.
The New York Agreement
The New York Agreement is based on the “SegWit2x” proposal, that puts forth a proposal that couples activation of SegWit with an added block-size-increase hard fork at some later point.
SegWit itself offers an increase equivalent of two to four megabytes, but the added hard fork would double this to a maximum equivalent to eight megabytes.
According to DCG’s Medium post, the soft fork will be activated “at an 80% threshold,” (presumably) referring to hash power. And the hard fork will be activated “within six months.”
The percentage of blocks signaling for the NYA — by including the letters “NYA” in the blocks they mine — sat at 88% on July 11, which is above the threshold target needed for activation. Although, most of the core developers are against method off coupling SegWit with a hard fork later.
Can bitcoin remain as one chain is the central question because its value is based on the network. This becomes especially concerning when some propose to use their power to implement a User Activated Hard Fork.
While some people believe forks are a natural part of software development, the Singapore-based Qtum Foundation and others like us are working to eliminate them as much as possible.
The Qtum Solution
The Qtum Foundation, the developer of the Qtum blockchain which recently put out its first public test of its innovative platform, Sparknet, aims to solve this problem in part. A blockchain community consists of more than solely developers, miners, and node operators. That’s why taking a vote from just one of the groups isn’t ideal.
Jordan Earls, lead core developer and co-founder of the Qtum Project, said Qtum’s blockchain architecture was constructed in such a way, and with features in mind, to avoid the entire divisive construct of forking within in a decentralized network.
With Qtum’s combination of the technological advantages of the UTXO model, the EVM and proof-of-stake consensus, tethered to a unique Decentralized Governance Protocol (DGP), it would, according to Earls, be a trivial matter to enact a blocksize upgrade.
“Qtum’s blockchain won’t completely replace forks, but it can cut down on the number of forks needed,” Earls said.
“Basically the blockchain is designed so that the blockchain itself is aware of a governing system within it. Some of the parameters and roles can be changed using this governance system. Mainly designed to be used for reactionary purposes.” Earls continued.
Qtum wants to keep the network whole, while still innovating and taking as much input from community stakeholders. With Qtum’s Decentralized Governance Protocol, nodes, wallets, the core developers, and other industry stakeholders can coordinate more effectively allowing for seamless network upgrades.
The DGP is powerful enough that its governance structure can be completely replaced. So, the governing parties might later vote on a “meta-proposal” to replace the controllers of the DGP. This would allow for the governance to changed to a multi-tier setup, such as requiring a certain number of board members, as well as a certain number of core developers to vote on a proposal before it can be approved.
However, the end goal is much more ambitious than a traditional governance system. Because a smart contract can also be a governing party of the DGP, it is possible to create significantly more complicated structures. In the future, we could also require a certain number of community votes or votes from stakers.
Beyond even that though, it is also possible to create a smart contract which monitors the blockchain’s status and health. And this monitoring smart contract could be made capable of creating and approving its proposals. With this technology, it is possible to make the blockchain self-regulating, self-modifying, and self-aware.
We believe this technology is a significant step forward and will be instrumental in Qtum being the first self-aware blockchain that can quickly adapt to a rapidly changing ecosystem and community without requiring constant interruption of the ecosystem to fix unforeseen problems.
With over two years of heated debates on scaling, only time will tell if Bitcoin can push blocks further. One thing is for sure; it will be an interesting summer with the UASF, Segwit2x, and the release of DGP in August.
“With great power comes great responsibility,” Uncle Ben.