Terminology You Need to Know for Bitcoin’s Next Fork

Dear First Stage Investor,

Bitcoin’s next fork is happening in a couple of weeks.

You’ll be hearing plenty from us on it, including what to expect and how it could affect you.

There will be plenty of articles in the popular press too.

To get you started, I thought it would be useful to review some of the basic terms people throw around when discussing subjects like forks.

We’ll start with the “fork” term itself.

Fork: Like a fork in the road splitting in two, either from a cryptocurrency wanting to innovate (as is the case with bitcoin’s upcoming fork) or repair damage (as was the case with ether).

Forks are put into motion when a coin’s code/software is changed. One road follows the old code. The new road follows the revised code.

Forks can be “hard” or “soft.” A hard fork is meant to create two blockchains (and sometimes two coins) where the existing software and upgraded software coexist. A soft fork is meant to result in one blockchain/coin, in which the existing software is replaced by an upgraded version. Bitcoin’s upcoming fork is a hard one.

Blocks: A cryptocurrency such as bitcoin is simply a set of code that delivers data in the form of bitcoins in defined quantities. Those quantities are called “blocks.”

Miners: They use high-powered computers to secure the blockchain. Miners verify bitcoin and other cryptocurrency transactions by running those numbers through formulas on their computers and get paid in newly minted bitcoins (or whatever cryptocurrency they’re “mining”).

SegWit2x: Bitcoin’s upcoming hard fork. Last August, miners agreed to implement the first phase of the proposal, SegWit. Coming up is the second phase. The new bitcoin code/software would allow the blocks where the data/bitcoins are stored to double in size.

Developers: The group that maintains bitcoin’s (or any cryptocurrency’s) code. It includes a number of people who have probably worked on the cryptocurrency’s protocol the longest. These longtime developers are sometimes referred to as “core” developers.

Node operators: The bitcoin (or other cryptocurrency) users who store copies of the blockchain’s full transaction history. With bigger blocks, they’ll be facing rising storage costs.

If you own bitcoin now, before the fork (which will occur November 16), you are automatically entitled to the newly forked coins (called S2X). Your existing bitcoin will still be there as well.

Once S2X is live, we’ll let members know if we recommend any action. For now, just hold tight and enjoy the ride.

Good investing,

Andy Gordon

Co-Founder, First Stage Investor