Bitcoin vs. hard fork scenarios

Hans-Georg's picture
Thu, 2017-03-23 09:27 by Hans-Georg


This article requires some knowledge about bitcoin. If you do not understand how bitcoin works, read up on it first, but to understand a blockchain fork, quite a bit more learning is required.

Again and again there is a lot of confusion and fear about a coming hostile hard fork between Bitcoin and some new bitcoin fork, strongly reinforced by the always fear-mongering media.

Let us look at what could actually happen. I will sketch out a few conceivable scenarios for the near future, i.e. one or two years. These are the scenarios I can envision.

Fork taking over

Carried by an enthusiastic user base, the hard fork gains more hash power, and convinces most node operators and exchanges to use it instead of bitcoin.

The original bitcoin sinks into oblivion. Some bitcoin core developers begin to write code for the new algorithm and essentially join the group of the fork developers, strengthening the hitherto small developer group.

Developers work on improving the fork algorithm, fix its problems, and pull all the good development work over from the core code, so it does not go to waste.

Fork into two coins, both successful

Difficulty and transaction replay problems are quickly solved. Both coins find their followers. Holders keep both coins. In the long run either both coins find and fill different niches or one belatedly and slowly sinks into oblivion.

Fork into two coins, both fail

Users sell their bitcoins out of fear and buy other cryptocoins. Bitcoin disappears. Litecoin, Ethereum, Zcash, Dash, Monero and others take over.

Fork disappears

The hostile fork is attempted, but then fails to gain enough miners, nodes, or hash power to become sustainable. Alternative failure modes could be defects in the forked code leading to widespread node failures (has already happened in the past), or an algorithm that turns out to be economically or game-theoretically non-viable and is not fixed quickly enough.

Users flee from the forked branch. It fails and disappears.

Fork never happens

The fork plan never gains enough miners, nodes, or hash power to attempt the fork. One possible reason is that miners do not actually like one or more of the new ideas or could fear low fees. Another is that every time a fork becomes likely, users sell their bitcoins out of fear of a hostile hard fork, miners lose lots of income because of the sinking bitcoin price, which lowers both the value of their block reward and their fees, and therefore prevent it from happening.


The interesting point is that only one of these scenarios, and a highly unlikely one, is actually bad for bitcoin, because bitcoin would disappear. And even this may not be catastrophic for the cryptocoin landscape. It would be catastrophic only for those bitcoin holders who do not in time foresee what is coming.

I personally believe that the least likely outcomes are the ones I described first, while the most likely is the last. But let that not deter you from the essence, that almost all outcomes can end up being a roaring success.

This means that bitcoin holders will most likely not lose out in the long run. It also means that deep bitcoin price dips are not warranted. Of course they can still happen, because not everybody has read this blog entry. Smiley