Digital currencies are still a relatively new development, and as such, many new concepts people don’t fully grasp. One of these subjects is blockchain forks. Nope, we’re not talking about some fancy new digital fork for crypto restaurants.
A blockchain fork is basically a split in a blockchain network that can happen whenever the community makes changes to the network’s protocol. Let’s learn together about crypto forks and why they are needed.
How do blockchain forks work?
When a fork happens, the blockchain splits into two, creating a new chain with the same history as the original blockchain but going in a different direction. Software upgrades to the blockchain’s protocol can happen for a variety of reasons:
- New functionalities need to be added
- To solve possible security issues
- To change a cryptocurrency’s direction as the result of a disagreement in the crypto community
Most often, forks are used to create new tokens and ecosystems. There are two ways to make a new cryptocurrency: creating a new one from scratch or splitting an existing blockchain. Such an example is the creation of Bitcoin Cash, which appeared due to a fork in the Bitcoin network.
Hard forks versus soft forks
There are two types of forks that can happen during a blockchain split.
Hard fork
A hard fork occurs when a radical change is made to a blockchain’s software protocol. All users must upgrade to the latest version of the blockchain protocol as the new blocks are no longer backwards-compatible with the previous ones. A hard fork results in two separate blockchains using a variant of the same software, and it creates entirely new cryptocurrencies. Both Bitcoin Cash and Bitcoin Gold evolved out of the Bitcoin network via hard forks.
Soft fork
Soft forks occur as a software upgrade for the blockchain. If all users adopt it, then the new rules of the upgraded blockchain become the standard for the digital currency. The end result is a single blockchain, so any new block is backwards-compatible with the pre-fork blocks. Soft forks have been implemented both on the Bitcoin and Ethereum blockchain with the purpose of bringing new features and functionalities.
Famous forks
We’ve already talked a bit about Bitcoin Cash and Bitcoin Gold. Let’s take a look at some of the other well-known forks in the history of cryptocurrency.
- The Ethereum hard fork - Back in 2016, the Ethereum blockchain used a hard fork to reverse the hack on The DAO. The DAO had raised $150 million in investment from users but suffered an attack that bled it out of $50 million. The network opted for a hard fork that rolled back the transactions, returning the funds to the DAO token holders. A new chain was created under the name Ethereum, while the old chain became Ethereum Classic.
- Litecoin - Litecoin appeared as a result of the first-ever Bitcoin fork in 2011. The split happened at the codebase level, not the running network, meaning a new network was created from block 0. It featured a lighter algorithm, faster block times, and a higher number of total tokens.
- Bitcoin SV - This chain was created by forking Bitcoin Cash, a so-called fork within a fork. It increased the block size limit to 128 Mb, creating the potential for bigger block sizes.
As the cryptocurrency world progresses, we can expect to see more hard and soft forks emerging to secure the network or roll out new functionality for old software. Intentional forks can solve a lot of security risks as long as the community agrees on the necessity of such a permanent divergence.
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