What are Forks?
Bitcoin- the cryptocurrency is basically a software which runs across a network of peers. Since the software is open source, it can be modified by anybody. When modifications are made, there are always chances that the software might be incompatible with the network. When the changes are incompatible, the software’s policies are changed. When the changes are compatible, the software’s consensus changes; the entire network has to synonymously agree with the change.
Basically, modifying the core software is referred to as how to fork a coin.. This how to fork a coin concept is tricky since it has two meanings. The second meaning of how to fork a coin refers to the split in the network’s shared ledger; it is normal to confuse the two. Examples of bitcoin’s consensus rules include:
- Miners can only create up to 30 bitcoins.
- The transactions must have the appropriate ECDSA signatures.
- The transactions must have a proper date format.
When a user makes use of forked software that does not alter the rules, the blockchain does not get forked. Instead, when users use forked software, they still agree with the currently existing bitcoin network’s rules. When a user uses forked software that alters the rules, the end result will be a brand new blockchain or either a fork of the original bitcoin blockchain.
What are Alt Coins?
When a bunch of peers in the network use a forked bitcoin with different rules, thus creating a new blockchain, it becomes a new type of cryptocurrency. This is called an alt coin. For example, some of the best known alt coins written with bitcoin’s original code is dogecoin and litecoin.
Instead of developing a forked version, the developer may also create new cryptocurrency from scratch while borrowing elements of other cryptocurrency, thus, creating a new code. These coins can be alt-coins too. For example, Ethereum.
What are Meta-Coins?
When the developer wishes to provide specific services to a consumer or enterprise that could benefit from the blockchain, they can create protocols that co-exist with the current cryptocurrency.
For example, Counterparty protocol on bitcoin’s blockchain. The protocol layer enables users to create new variations of the protocol’s scarce token for their own uses. For example, a user could use Counterparty to create tickets to an event and sell them online as tokens. Then, only those who have the tokens can access the event. This sounds extremely simple, but when users realize all this is done without any centralized entity, they realize it is not.
Basically, even bitcoin can be used as a way to represent the tickets for the event. These meta fork crypto coins are also usually referred to as ‘colored coins’ since they are similar to the real world coins. The meta fork are painted red and have more than just a nominal value. However, since the altered meta fork crypto bitcoin travels all across the blockchain, the bitcoin protocol adds a bit of a hassle when it comes to adding verifiable notes or rights to it. However, the blockchain protocol does something perfectly: it transmits value as well as unmarked meta fork bitcoins. Back to the ticketing example, if the ticket seller wanted, they could choose to have the ticket to be transferable only once or by authorized resellers only, in order to prevent scalping problems from the meta fork crypto. Or, the ticket seller could also make the ticket scarce or recallable in case the holder tries to commit a fraud. However, this would be a poor solution to the problem. Fundamentally, these colored tokens are called meta fork crypto tokens.
Developers do not require a meta platform to create the tools. The majority of the alt coins such as ethereum already have these features in them. However, many argue are that building on bitcoin is always going to be a safe option.
To create the meta fork tokens, the developers allow bitcoin users to obtain it by destroying or burning some bitcoin. This process is referred to as ‘proof of burn’. This enables a fair distribution of the meta fork tokens. It also helps in avoiding a situation where the developers can use this process for their own benefit, even before the platform becomes a success.
Technologists believe that the proof of burn process is superior to the generic model of the alt-coin. This is because, in previous types of alt-coin offerings, the developers could create a massive profit for themselves when scarce digital assets are unveiled and sold to the highest bidders. This negatively impacts the buyers if the platform fails and the value of the tokens become negligible. With the proof of burn system, quick profits for the developers are eliminated and everyone is compensated for fairly.
Many believe that the destruction of bitcoins could lead to users misusing or abusing the coin and eventually create deflation. One should note, that if the platform fails to materialize, all the investors and users can lose their entire holds despite the proof of burn process.
What are Sidechains?
Sidechains are another form of alt-coins. They are a different type of blockchain which keep track of batches of scarce tokens. The only difference is that it has a fixed exchange rate with bitcoin. When a user wishes to use a sidechain, they have to send their bitcoin cryptocurrency to a special address on the bitcoin blockchain. Then, the bitcoin becomes immobilized. The sidechain token gets released to a sidechain address after that to the same user and vice versa. The conversion can take place without any intermediaries as it has mathematic statements as a base. For example: x bitcoins can be sent to y address, x sidechain tokens are released from the y address. This method is called the simple payment verification proofs which function on both the bitcoin and sidechain networks. Since the conversion rate is fixed, the sidechains are essentially new blockchains. The user can use a sidechain to transfer bitcoins in and out as they please.