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What Is a Cryptocurrency Fork?

I have been fascinated by crypto for a long time now, and I enjoy sharing what I have learned about it on ToughNickel.

A fork in the blockchain of a cryptocurrency is sort of like a fork in a road.

A fork in the blockchain of a cryptocurrency is sort of like a fork in a road.

A fork is a piece of cutlery typically used as a tool to eat a meal in a civilised manner. But forks also play an essential role in the world of cryptocurrencies. In the crypto world, a fork is either the change of an existing cryptocurrency or the creation of a new version of an existing crypto project.

When Do Forks Happen in Crypto?

When a blockchain has become too large, it is almost impossible to make changes to the protocol. If Satoshi, the founder of Bitcoin, were to come up with a change to the protocol, he couldn't simply update the blockchain on his own because there are countless miners and nodes that run the network.

To make a change on Bitcoin, you would have to make a separate version of the blockchain—a new version of the protocol with new, updated rules. This results in a a split of the original blockchain. There are then two versions of the blockchain. The new blockchain that resulted from the split is called a fork because it is like a fork in the road. There are soft forks, which still work with the old blockchain, and there are hard forks, which permanently create a new blockchain.

A soft fork allows an old protocol and a new protocol to be followed simultaneously.

A soft fork allows an old protocol and a new protocol to be followed simultaneously.

What Is a Soft Fork?

A soft fork is when a new version of the blockchain merges with the original blockchain. After creating the new blockchain, some miners and their nodes work in the "old" version and some other miners and their nodes work in the "new" version. They all still make blocks at the same time, but the protocol that they use is different. Eventually, all of the nodes slowly switch to the new protocol.

The reason this is done is that every system needs maintenance every now and then. There are blockchains whose creators want to update the protocol, but that is often not possible if a blockchain is too large because too many different miners and nodes run the network. The founders can instead use a soft fork to update the protocol.

Here is an example—imagine if a blockchain gives its miners a reward of one coin per mined block, and the creator of the network wants to change that reward to two coins per mined block. They would have to make a new version of the blockchain in which miners get two coins as a reward. Some of the nodes would then be switched to the new part, while others would stay in the old part. Both blockchains would continue to produce blocks together. Eventually, more and more nodes would change to the new protocol, and at some point, the entire network would adapt to the change, and there would only be one protocol in the blockchain.

In a hard fork, a new and fully separate form of a cryptocurrency is created.

In a hard fork, a new and fully separate form of a cryptocurrency is created.

What Is a Hard Fork?

With a soft fork, every node that follows the new protocol still works together with nodes that follow the old protocol. With a hard fork, this doesn't happen. The nodes cannot or will not adapt to the new protocol. When they see other nodes following a different protocol, they do not interact with them. They neither allow nor deny their blocks. The new blockchain does not merge with the old one.

A hard fork can be planned in the case of a major update, but it can also be the result of a disagreement within a cryptocurrency's community. When a hard fork is planned, existing nodes are given the option to update their software with the new protocol. If they choose not to do this, they stay behind in the old blockchain. Usually, the old blockchain dies out over time because most nodes leave for the new one.

In other cases, some people want to change the protocol, and others don't want that change. The party that wants the change can make a fork and create their own new protocol. Miners and their nodes can then choose the new protocol. If enough nodes stay in the old protocol and enough switch to the new one, it will lead to two separate cryptocurrencies.

In 2017, a hard fork split BTC into Bitcoin and Bitcoin Cash.

In 2017, a hard fork split BTC into Bitcoin and Bitcoin Cash.

Hard Fork Example 1: Bitcoin and Bitcoin Cash

In 2017, Bitcoin split into Bitcoin and Bitcoin Cash. The reason for this split was that many users didn't like that Bitcoin transactions required a very long time to be processed. Many people felt and still feel that Bitcoin isn't convenient for everyday transactions. Just imagine paying for your groceries with Bitcoin and having to wait 10+ minutes for the transaction to be confirmed. Because of this, there were many proposals offered to make transactions faster. One proposal eventually led to a hard fork of Bitcoin, which resulted in the separate cryptocurrency called Bitcoin Cash.

Hard Fork Example 2: Ethereum and Ethereum Classic

During the infamous DAO hack, $55 million worth of ETH was stolen. This caused widespread outrage amongst Ethereum users, which in turn caused an argument that split the entire community. One group wanted to reverse the hack by modifying all of the blocks from the past, while the other group was strongly against that because they felt that this would go against all of the principles of crypto. In the end, the group that was against changing past blocks refused to change to the new protocol, which resulted in Etherium splitting into two separate cryptocurrencies: Ethereum and Ethereum Classic.

Now You Know

Forks are an essential part of the crypto world. They can be used to update a blockchain if enough users agree to the update, and they can also allow users to create a new cryptocurrency if there is a disagreement within the community.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

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