Proposals to change or alter the Bitcoin network’s block reward, block size, mining difficulty and other major elements require a consensus from Bitcoin miners located all around the world. Typically, miners and the members of the Bitcoin community run Bitcoin full nodes, which operate as a decentralized architecture to spread out information across the network. Using this unique infrastructure, the Bitcoin community can decide on which implementation or change must occur to optimize the network.
The Bitcoin network allows two types of changes called soft and hard forks. A soft fork refers to a set of extra rules that are implemented onto the existing Bitcoin protocol. An example of a soft fork would be the introduction of Segregated Witness, a proposal to optimize the space in the current Bitcoin Core blocks, by storing some of the internal data outside the original transaction.
For the proposal to be accepted and implemented, roughly 95% of the network’s hash power must support the change. Once the soft fork is implemented, miners that fail to upgrade their nodes will be incompatible with the new set of rules, producing blocks that are invalid under the newly revised protocol. The incompatibility issue with new and old blocks is the precise reason behind Bitcoin Core’s implementation of a strict consensus rule.
A hard fork adopts previously invalid blocks under a new set of laws, effectively implementing a new protocol onto the blockchain network. However, hard forks are not forward compatible as they fail to accept new blocks under the old protocol, and require all full nodes operating on the network to adopt the change. This presents a danger of a network-split, wherein two chains could co-exist on one single network.
Bitcoin Classic, a block size increase proposal developed by Bitcoin Core developers Gavin Andresen and Jeff Garzik, and Bitcoin expert Jonathan Toomim is an example of a hard fork. Bitcoin Classic operates on an activation threshold of 75%. If three quarters of the Bitcoin network’s hash power switches to Bitcoin Classic, it will effectively implement the new Classic protocol, replacing the Core chain and increasing the block size to two megabytes instantaneously.
Like all hard forks however, the implementation of Bitcoin Classic could potentially result in a network split, which will allow the Classic chain and Core chain to co exist. In a situation like this, Spondoolies-Tech CEO Guy Corem explains that the separate chains will have separate coins, which will have different market values and demand, allowing users to trade two coins under the same network.
“By implementing the above, upon Classic activation, each Bitcoin will be split to ClassicCoin and CoreCoin. Each coin will be transact-able separately and will have a different market value. Most of the exchanges will probably support both Chains, hence each Coin will have different market value based on supply and demand.”
Coinbase CEO Brian Armstrong explains that historically, in the event of a split-chain, the minority chain drops out in a matter of minutes, which eliminates the danger of implementing a hard fork like Bitcoin Classic.
However, other bitcoin experts, including Spondoolies-Tech CEO Guy Corem and Bitmain co-founder Jihan Wu, state that Chinese miners are not in support for Bitcoin Classic, as they believe that the proposal is heavily influenced by Western bitcoin companies’ attempt to decentralize mining power.
Two thirds of the mining market share is currently controlled by three Chinese bitcoin companies, BitFury, F2Pool and Antpool. There is an opinion within these companies that Western companies, like Coinbase and Circle, are trying to push the implementation of Bitcoin Classic to eliminate centralization of mining power.
“In my opinion, Chinese culture has always longed for powerful leaders. In the west however, people are more used to competition between multiple authorities, and deem centralization as great threat. So opponents like Classic, tend to gain more sympathy in the west, but hostility in the east.”
- Jihan Wu
With the exception of Western bitcoin companies, the world’s largest mining firms officially announced their support for Bitcoin Core and their newly released roadmap to implement Segregated Witness as a hard fork in June, 2016.
Bitcoin companies, such as Bread Wallet, stated that they will support a hard fork to increase the block size in the near future. If Bitcoin Core releases an economically viable hard fork to increase the block size, then Breadwallet is willing to support Bitcoin Core instead of Bitcoin Classic.
“We support a hard-fork blocksize increase to be implemented and rolled out as soon as practical. (we think the seg-wit soft-fork will likely gain consensus and take effect even sooner than the hard-fork will be able to, which is great). We hope bitcoin-core will do this immediately, but until they do, we support classic as it appears to be the leading hard-fork option. My mind will be changed when the implementation is released and the activation process started. If they get there before classic with a robust, well tested implementation, then that's great.”