It’s difficult to find a more fundamental threat to Bitcoin’s continued existence than mining centralization. If —say— there are only a few mining pools, there is a very real possibility that these organizations face regulatory pressure of the kind that exchanges have also had to deal with: they could be forced to only include KYC’ed transactions into blocks. Since censorship resistance is arguably its core value proposition, I seriously doubt that Bitcoin would, in this scenario, have much long-term viability at all.

To that end, it was great to see Ocean launch DATUM (Decentralized Alternative Templates for Universal Mining) this weekend. Similar to Stratum V2 (implemented by Demand Pool), DATUM allows miners (or: “hashers”) to select the transactions they include in the blocks they find, while still splitting the block reward with other users of the pool. In other words, hashers get the benefit of pooled mining, without having to outsource transaction selection to the Ocean pool operators, thus making it more difficult to apply regulation. (It’s much easier to regulate a few big businesses —mining pools— in a handful of jurisdictions, than it is to regulate many smaller businesses and individuals —hashers— from around the world.)

Of course, the adversarial mindset will recognize that this doesn’t in itself solve the problem of mining centralization in its entirety. Most obviously, draconian lawmakers could ultimately just ban this type of pooled mining altogether. Besides, it’s not really clear that there is a demand from hashers to construct their own blocks in the first place– though that might of course quickly change if and when there in fact is regulatory pressure that stops pools from including certain transactions in blocks. (And Ocean is providing an incentive for hashers to select their own transactions by cutting fees for those that make use of the new feature.)

Either way, DATUM is an important step in the right direction. If nothing else, it should take away a lot of the concerns of Ocean themselves refusing to include certain “spam” transactions in their blocks: now every hasher can decide for themselves what transactions they do and do not want to include.

The more difficult it is to thwart Bitcoin’s censorship resistance, the brighter Bitcoin’s future looks.

Since its inception in 2009, Bitcoin has undergone several forks, or splits, that have given rise to new cryptocurrencies and variations of the original protocol. As of May 2024, there are over 100 Bitcoin forks in existence, with varying degrees of adoption and success.

These forks have sparked intense debates within the cryptocurrency community. Some view them as catalysts for innovation and progress, while others perceive them as disruptive forces that undermine the network’s stability and core values.

And this dichotomy is precisely what we’ll zero in on today. We’ll look at why these forks happened, what they have achieved, and what they mean for Bitcoin’s future.

Major Bitcoin Forks and Their Impact

Even though the nascent Bitcoin community was anything but cohesive, people were still somewhat successful in implementing Satoshi’s vision. However, the first crack appeared with the creation of Bitcoin XT in 2014, which fractured the community but provided a valuable lesson in governance.

This crypto schism occurred due to the devs’ wishes to increase the block size from one to eight megabytes, but others thought this was going too far. Thus, Bitcoin Classic (now shut down), with 2MB block sizes, was born, followed by Bitcoin Unlimited going in a completely opposite direction with gargantuan 16MB blocks.

However, this was followed by truly impactful forks, ones whose impact is felt even today. This includes:

Bitcoin Cash (BCH)

Bitcoin Cash (BCH) was created on August 1, 2017, as a result of a hard fork from Bitcoin. The primary motivation behind this fork was to address Bitcoin’s scalability issues, particularly the slow transaction times and high fees that resulted from Bitcoin’s 1MB block size limit.

Proponents of Bitcoin Cash, including influential figures like Roger Ver, argued that increasing the block size would allow for more transactions per block, thus reducing fees and speeding up transaction times.

Upon its creation, Bitcoin Cash quickly gained attention and was adopted by several exchanges and merchants. It also saw an initial surge in value, reaching a significant market capitalization.

Over time, Bitcoin Cash has continued to evolve, with ongoing development and updates aimed at improving its functionality and scalability. It has maintained a dedicated community of supporters who believe in its potential as a peer-to-peer electronic cash system.

However, it faces competition from other cryptocurrencies that also aim to offer low fees and fast transaction times. Today, the debate over scalability and transaction fees continues to influence Bitcoin Cash’s direction and development.

Bitcoin SV (BSV)

Bitcoin SV (Satoshi Vision) emerged on November 15, 2018, following a contentious split from Bitcoin Cash.

The fork was driven by disagreements within the Bitcoin Cash community, particularly regarding further block size increases and the direction of development. The project was spearheaded by Craig Wright and Calvin Ayre, who aimed to restore what they viewed as Satoshi Nakamoto’s original vision of Bitcoin.

Bitcoin SV significantly increased the block size limit, initially to 128MB and then to 2GB, allowing for a much higher volume of transactions. The proponents of BSV argue that this large block size is necessary for the network to support enterprise-level applications and massive transaction volumes.

Likewise, this significant increase in block size has also led to concerns about centralization, as running a full node becomes more resource-intensive.

Bitcoin SV remains a controversial fork within the broader Bitcoin and cryptocurrency community. Its focus on large block sizes and high transaction throughput positions it uniquely among major cryptocurrencies. However, it still faces ongoing challenges in achieving widespread acceptance, with Coinbase finally dumping it for good in 2023.

Bitcoin Gold (BTG)

Bitcoin Gold was created on October 24, 2017, with the aim of making Bitcoin mining more decentralized. It achieved this by altering the mining algorithm from Bitcoin’s SHA-256 to Equihash, which is more resistant to ASIC mining.

This change was intended to allow more people to mine BTG using regular GPUs, reducing the dominance of large mining farms and truly democratizing the token.

Bitcoin Gold uses the Equihash algorithm, which is designed to be memory-intensive and resistant to ASIC mining hardware. This divergence aims to democratize mining by making it more accessible to individuals.

Bitcoin Gold saw initial enthusiasm and was adopted by several exchanges. However, it has faced security challenges, including a major 51% attack in 2018 that resulted in $70,000 worth of double spend.

Today, Bitcoin Gold continues to exist as a smaller player in the cryptocurrency market. Its focus on decentralizing mining remains its primary distinguishing feature, though it has struggled to gain the same level of adoption and market presence as Bitcoin Cash and Bitcoin SV.

The Motivations Behind Bitcoin Forks

Bitcoin forks occur for various reasons, driven by a mix of ideological, technical, and economic motivations.

For example, one of the primary drivers for Bitcoin forks has been the need to address scalability issues. As Bitcoin’s popularity grew, the network faced challenges in handling an increasing number of transactions, leading to longer confirmation times and higher fees.

Forks have also been initiated to introduce technical improvements or new features to the Bitcoin protocol. These could include changes to the consensus mechanism, enhanced privacy features, or the introduction of smart contract capabilities

In some cases, personal motivations, such as power struggles, ideological differences, or financial incentives, have contributed to the creation of Bitcoin forks. If you pay attention to the historical volatility of forks such as Bitcoin SV and Bitcoin Cash, you will notice that some people viewed them as investment vehicles.

For example, Bitcoin Cash, which split from Bitcoin in August 2017, saw its price surge to around $4,355 in December 2017, shortly after its inception. However, it later stabilized and traded within a range of $200 to $500 over the following years.

How These Major Forks Have Impacted Bitcoin

Aside from the obvious impact, the increase in threats to the OG BTC, major forks have had both a tangible and intangible effect on the crypto community as a whole. Truth be told, none of these forks have emerged as legitimate solutions to cash flow problems, but their impact is nonetheless

Market Volatility

Bitcoin forks often lead to heightened market volatility. For instance, the Bitcoin Cash (BCH) fork in August 2017 caused notable price fluctuations in both Bitcoin and the newly created Bitcoin Cash. Before the fork, Bitcoin’s price was around $2,800, but it dropped to $2,700 immediately after the fork. Bitcoin Cash, on the other hand, started trading at approximately $555​.

Similarly, Bitcoin SV (BSV), which split from Bitcoin Cash in 2018, has seen its price swing dramatically. In January 2020, BSV peaked at around $441.20, but by June 2024, its price had dropped to around $63​. These fluctuations are often driven by investor speculation and market manipulation, with some viewing these forks as opportunities for financial gains.

Network Scalability and Development

Forks have also spurred significant debates and developments regarding Bitcoin’s scalability.

The original Bitcoin network has limitations, such as a one-megabyte block size and ten-minute block creation time, which constrain its transaction throughput. As mentioned previously, these limitations led to the creation of Bitcoin Cash, which increased the block size to 8MB to handle more transactions per block​​.

The forks highlighted the need for scalability solutions, prompting various projects and protocols to enhance Bitcoin’s transaction capacity. One prominent example is the Lightning Network, a layer-two solution designed to facilitate faster and cheaper transactions by creating off-chain payment channels

Security Concerns

Some forks have introduced security vulnerabilities. For instance, the lower hash rate and interest in Bitcoin SV have made it more susceptible to 51% attacks, where a malicious actor can control the majority of the network’s mining power, compromising its security.

This has, unfortunately, led to concerns about the long-term viability and security of certain Bitcoin forks. What’s the point of further forking if organized malicious actors can seize control so easily?

Conclusion

As the cryptocurrency market matures and becomes increasingly integrated with traditional financial systems, the impact of Bitcoin forks on the wider economy cannot be understated. The success or failure of these forks will not only affect the fortunes of individual investors and businesses but could also have ramifications for the stability and security of the global financial infrastructure.

Ultimately, the future of Bitcoin and its forks will depend on the community’s ability to find common ground and work towards a shared vision of a decentralized, inclusive, and resilient financial system.

This is a guest post by Kiara Taylor. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

As we celebrate the 10th anniversary of the first hardware wallet, it’s remarkable to see how far Bitcoin security has come. From the early days of precarious self-custody methods to the game-changing creation of the Trezor Model One, this revolution has transformed the way we protect our digital assets. With a decade of this experience behind us, it’s worth revisiting the challenges of early Bitcoin self-custody, the pivotal impact of the first hardware wallet, the essential role of self-custody in today’s Bitcoin landscape, and the innovative advancements continuing to shape the future of crypto security.

The Origin Story

It all began in 2011 when Marek “Slush” Palatinus logged onto his mining pool server and discovered 3,000 BTC were missing. A mining pool is a collective of miners who combine their computational resources to increase their chances of successfully mining Bitcoin blocks. Slushpool, now known as Braiins Pool, was the pioneering mining pool in the Bitcoin community, established in 2010.

This incident highlighted a significant issue: even tech-savvy Bitcoin enthusiasts could fall victim to online attacks. At that time, securing and managing Bitcoin was a daunting task, involving storing private keys on a computer. However, securing information on a computer is difficult; these complex machines are vulnerable to many threats that allow thieves to steal private keys controlling Bitcoin. The hack that cost Palatinus 3,000 BTC was a reminder of these early vulnerabilities.

Recognizing a pressing need for a simple, stand-alone device that could securely store Bitcoin, Slush, along with Pavol “Stick” Rusnák, embarked on creating the world’s first hardware wallet. Their vision was to develop an offline computer specifically designed to store Bitcoin securely and make it accessible to non-technical users. The concept was straightforward yet revolutionary: a small, single-purpose device that would keep private keys in an isolated environment, protected from online threats.

Before Hardware Wallets

Before hardware wallets became widely available, users had to rely on software wallets installed on computers or smartphones, which exposed them to a range of security threats. Malware infections and other attacks were common. Paper wallets were considered more secure but still required a computer to create the wallet. More secure methods, such as using air-gapped computers for cold storage, required significant technical expertise, and even these methods lacked an adequate level of security for larger amounts of Bitcoin.

The usability of early Bitcoin wallets was also a significant issue, with clunky interfaces and complicated backup processes. Many users failed to back up their wallets properly, leading to permanent loss of funds if a device was lost or damaged. Users were frequently unaware of best practices for backups, and the lack of standardized backup methods further increased the risk. A major improvement in backup standardization came with the introduction of Hierarchical Deterministic (HD) Wallets with BIP32 in 2012, allowing for easier and more reliable backups. Despite these advancements, there was still a lack of easy and user-friendly options for newcomers. In short, the period before Hardware Wallets was marked by significant security and usability challenges, making Bitcoin self-custody a complex and risky endeavor.

The First Hardware Wallet

In the years leading up to 2014, various attempts were made to develop simple, single-purpose devices for cryptocurrency storage. However, these efforts failed to gain traction or meet the necessary security standards. Recognizing the need for a robust solution, Slush and Stick monitored the landscape for two years before they finally decided to create their own hardware wallet.

In 2014, they released the Trezor Model One. This device was the first ever hardware wallet, combining user-friendly design, truly random private key generation, and the ability to easily sign transactions completely offline. In addition, it implemented the BIP39 standard, a new standard created by the Trezor creators to back up wallets using a list of 24 words representing the private keys, a standard adopted by many wallets and familiar to anyone who has put their Bitcoin in self-custody.

When the user first connects the device, it guides them through the setup process to create a new wallet. The device generates a recovery seed, which represents a human-readable version of the wallet’s master private key and enables wallet recovery in case of device malfunction. The user is prompted to write down this list of words on a piece of paper, ensuring the wallet is backed up, and the private keys remain offline.

This onboarding process ensures that users create a backup and keep it secure. The user-friendly design offers advanced security, making hardware wallets accessible to both beginners and experienced users.

The Open Source Advantage

A key aspect of Bitcoin is its commitment to open-source principles, and that’s why the founders of Trezor adhered to the same principles when developing the Trezor Model One. This approach has been adopted by most manufacturers in the industry. Open-source software allows the community to audit and verify a system’s integrity. This transparency ensures that potential vulnerabilities can be identified and addressed promptly and allows improvement by the global community. The first hardware wallet was open source, and many in the industry have embraced this approach for transparency, emphasizing the Bitcoin ethos, “Don’t trust; verify.”

The Importance of Self-Custody

Throughout Bitcoin’s life, we have seen many crypto exchanges and custodians collapse or suffer severe security breaches, showing the importance of holding your private keys. The mantra “not your keys, not your coins” emphasizes that relying on third-party institutions means trusting someone else with your assets, which can lead to big problems if the exchange gets hacked, mismanaged, or faces legal issues.

The Mt. Gox incident in 2014, one of the earliest and most notable exchange collapses, saw the loss of 850,000 Bitcoins, valued at hundreds of millions of dollars at the time. This catastrophic failure was due to both hacking and mismanagement, leaving users unable to recover their funds. Bitfinex also suffered a significant hack in 2016, resulting in the theft of nearly 120,000 Bitcoins. QuadrigaCX in 2019 saw users losing access to their funds after the sudden death of its founder, who was the only one with the keys to the exchange’s wallets. Cryptopia faced a debilitating hack in 2019, and Binance, the largest cryptocurrency exchange by volume, has also experienced breaches and faces increasing regulatory scrutiny. More recently, the FTX collapse in 2022 further reinforced the dangers of entrusting assets to centralized entities. Overall, mismanagement and fraudulent activities led to the loss of billions, impacting countless users and shaking confidence in centralized exchanges.

By using hardware wallets, individuals can achieve true financial independence, keeping their digital assets safe from the vulnerabilities of trusted custodians.

The Evolving Landscape of Hardware Wallets

Over the past decade, the hardware wallet industry has greatly expanded, with many companies offering a variety of products and features to meet different needs. User interfaces now range from simple button-based navigation to touchscreens and full keyboards. Many devices now support multiple cryptocurrencies, while some focus exclusively on Bitcoin. This range of devices caters to both beginners and advanced users, ensuring everyone can find a suitable option.

Another advancement has been the inclusion of secure elements—specialized chips designed to protect devices from physical attacks. However, all secure elements currently available on the market are closed-source, which raises transparency concerns. To address this issue, companies like Tropic Square are actively working on developing open-source secure elements to enhance trust and security.

Other significant advancements in the industry aim to enhance the security and robustness of wallet backups. Techniques such as Shamir’s Secret Sharing, Multisignature Wallets, and SeedXOR allow users to remove single points of failure, making it significantly more difficult for thieves to compromise the wallet.

Looking ahead, we can expect more improvements in hardware wallet security and usability. One notable development is the wider implementation of a new enhanced standard, SLIP39, which uses Shamir’s Secret Sharing. This method is becoming preferred over the traditional BIP39 standard due to its enhanced security and user-friendliness. With SLIP39, users start with a single list of words to back up their wallet and can later upgrade to a “sharded” backup with multiple shares. This approach provides a flexible and highly secure solution, making advanced security measures more accessible and practical for a wider range of users.

Looking Forward to the Next Decade

As we celebrate the first Hardware Wallet, it’s clear that this revolution has fundamentally transformed cryptocurrency security. From humble beginnings as a hobby project to becoming a trusted name in the industry, Trezor has pioneered innovations that have empowered countless individuals to take control of their financial future. The journey from the first prototypes to the sophisticated devices that we now use today is a testament to the vision and dedication of the Trezor team.

With the continuous evolution of Hardware Wallet functionality and a commitment to security and transparency, the future looks promising. As we look forward to the next decade, the industry remains dedicated to securing and innovating Bitcoin security and usability, ensuring that self-custody becomes increasingly accessible and secure for all.

This is a guest post by Josef Tetek. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.