If you've been keeping up to date with your Bitcoin news recently, you've probably heard a lot of talk about 'forks'. Here we'll explain what they mean and how they can influence their respective cryptocurrency.
What Is a Blockchain Fork?
A Blockchain 'fork' generally refers to the event in a project which sees it spin off into another project, by copying the source code and modifying it for the creation of another blockchain. For example, the cryptocurrency Litecoin (LTCUSD) is a fork of Bitcoin (BTCUSD), as its developers copied Bitcoin's code, made a number of alterations to it and launched a new project.
A fork of the Bitcoin software is tricky, because every user running a Bitcoin node needs to maintain compatibility with the network, or miners may begin mining the wrong blockchain.
Why Do Blockchain Forks Happen?
The Blockchain solutions of the cryptocurrencies are typically open source, which means that the code is free and available for all to view and make use of. As the currencies evolve and change over time, some changes need to be made to their protocols. Such changes can range from the small addition of a new feature, to massive changes, such as increasing the maximum block size. Sometimes the changes of the Blockchain are viewed differently inside the miners community. Some accept the change and others do not. Such splits in the network infrastructure may also result in the creation of new Blockchains and new cryptocurrencies, as we explain further.
What Is a Hard Fork?
A hard fork is a change in the cryptocurrency protocol that is not backwards compatible with older versions of the currency. For example, everyone running a node in the Bitcoin network would definitely need to upgrade their software in order to recognise new blocks.
A hard fork is a situation where nodes running the new software are separated from the previous version of the cryptocurrency. If half of the nodes are running the new version and mining blocks, and the other half are running the old version and mining a different set of blocks, then you effectively have two different chains - which is where the term 'fork' comes in.
What Is a Soft Fork?
A soft fork is a change in the cryptocurrency protocol, where only previously valid blocks are made invalid. This change is backward-compatible, because older versions of the software will recognise new blocks.
While the hard fork requires all miners to upgrade and enforce the new rules, the soft fork requires only the majority of the nodes to upgrade and agree on the new version. This means that a soft fork has less of a chaotic effect on the network, because both old and upgraded nodes will keep recognising new blocks and maintain consensus on the blockchain.
Some Examples of Forks in Action...
Soft forks have been the most common way to upgrade the Bitcoin's blockchain, because allegedly they carry a lower risk of splitting the network. Some examples of successful soft forks are software upgrades, such as BIP 66 - which dealt with signature validation, and P2SH - which changed Bitcoin's address formatting.
The most prominent example of the hard fork is with Ethereum. This happened following the hack of the DAO (the digital Decentralised Autonomous Organisation), which was an ambitious project for the humanless venture capital firm, built exclusively on the smart contracts on the Ethereum platform. Soon after the record crowdfunding of $150 million, someone started siphoning money from the project and it lost around $50 million worth of Ether, which resulted in a decision to 'hack the hacker' - i.e. the Ethereum Foundation had to intervene and just fork the entire blockchain, resulting in splitting it into two cryptocurrencies - Ether and Ethereum Classic.
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