Hard Forks are Altcoins
In a recent medium post, Bitcoin developer Jimmy Song asserts that hard forks and not upgrades to a crypto platform’s network. They’re “altcoins”. Before diving into his explanation of why he considers them to be altcoins, Jimmy writes:
“Bitcoin is the oldest coin by far and is backwards compatible. That is, the software that was used back at the beginning can at least in principle be utilized today.”
He then proceeds to state that the flagship cryptocurrency has “no peers” because every other coin out there is just a copycat of Satoshi Nakamoto’s creation. The skilled developer takes us back to 2011 when there was an outburst of various coins that came out. He gives the example of IxCoin that was released, which required a premine. As crypto enthusiasts would know, premines are done so that their developers can use them to compensate themselves for their work. Notably, premines have been criticized because oftentimes the developers are rewarded excessively, when you compare the premine to the total supply.
Namecoin and Litecoin
Jimmy then gives the example of Namecoin and Litecoin, both of which did not have a premine, and made proper announcements so that everyone would be able to mine them. Then the Bitcoin developer writes that 2013 started the wave of ICOS; in fact, Ethereum and Factom had their own ICOs. The well-written and easy to understand crypto history lesson by Jimmy then starts to explain what hard forks are.
In case you’re unaware, hard forks are not backwards compatible, thus producing two separate networks. “Technically speaking” as Jimmy writes, the coin that starts trading on the upgraded network is referred to as the the hard fork of the coin from the previous version of the network. The developer then gives the example of the most well-known August 2017 hard fork: Bitcoin Cash (BCH). He explains that the Bitcoin ledger remained intact with this hard fokr, but it incorporated a “backward incompatible change.” These changes were a much larger 8 MB block size compared to only 1 MB on the original Bitcoin network. Also, replay protection was added by using a different signature hash.
Significant Issues that Altcoins Have
According to the developer, ICOs, altcoins, and hard forks experience the same kind of problem. He states the problem by posing the following question:
“How do they get value at all?”
He says that there are several ways to give value, but the primary method is to make them serve some kind of use or purpose. You need not just make them “useful”, but you also need to make sure you “distribute” them. This part, Jimmy acknowledges is the “hard” part. With ICOs, he points out that this is taken care of through “social means.” The ICO development team does this by taking money from interested people and giving them a token in return. The funds raised via the ICO are then directed toward more marketing efforts and attempting to get the token listed on various crypto exchanges. This, of course, is done to further increase distribution.
Airdrops Explained by Jimmy Song
Other ways to raise funds, according to the Bitcoin developer, is simply by word of mouth or via Airdrops. He explains that Airdrops are handing over coins to a limited number of people according to a specified yet “artbitrary criteria.” A number of well-known crypto platforms gave away coins via Airdrops such as Ripple and Decred.
After explaining what Airdrops are, Jimmy writes that a hard fork is like a “brand new altcoin”. The key difference though is that with a hard fork, the party in charge of initiating the hard fork receives an airdrop. Because of this, Jimmy argues that you can think of every hard fork of any coin as simply a completely new coin. He also points out that the original ledger remains intact, but the software for the new coin becomes backwards incompatible.
Altcoins are Ledger + Software
The developer further writes that it is logical to think of a coin to consist of a ledger and accompanying software. Also, he says that altcoins require some “initial state.” The ledger can begin with a blank slate, the way Litecoin did. Or, you can use an initial state to benefit the creators the way Bytecoin did. Better yet for the creators, you can begin with an initial state that is sold to the general public – that’s what ICOs do.
But in the case of Bitcoin Cash, the ledger began with the same state that Bitcoin had. After giving a few more examples, which you can read by referring to his medium post itself, Jimmy states that altcoins require software, which is pretty obvious. He then adds:
“The software is what validates each ledger and strictly speaking, each combination of backwards-incompatible software and ledger is itself a new altcoin. What was interesting was that for most of the history of cryptocurrency, the combination of old software and ledger was more or less abandoned. This changed with the hard fork of Ethereum resulting from the DAO hack.”
He then explains that the people who believed the old version of the Ethereum software was more “fair” chose to stick to it, thus creating Ethereum Classic. By this logic, he says that “every hard fork in any coin creates a new altcoin.”
Here though, with a few final comments, I’d like to argue that a hard fork might technically be an altcoin, but for all practical purposes it is not. For example, we’ve got the Bitcoin Cash (BCH) hard fork slated for May 15th. The software upgrade will increase the block size from 8 MB to 32 MB. It will also remove SegWit and bring back the op codes left out by Satoshi Nakamoto back in 2009 due to security concerns. One could argue that Bitcoin Cash could become what Satoshi Nakamoto had really wanted Bitcoin to be. Therefore, I say that hard forks should not really be referred to as altcoins. Moreover, Bitcoin Cash, despite having a lunatic leader like Roger Ver, is actually a legitimate coin with meaningful use cases.
You can now refer to the Jimmy Song’s medium post for a few more pertinent points he makes.