What is a Fork in Crypto?
Crypto Basics

What is a Fork in Crypto?

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If you have spent any time in crypto, then at some point you will hear about “forks” or “forked projects”. But what is a fork in crypto?

A fork is when there is a change to a cryptocurrency’s protocol that affects the operations on its blockchain. This change in blockchain operations causes the production/creation of a new blockchain that differs from its predecessor resulting in the network either accepting or possibly rejecting the new version of blockchain.

Now that you know what a fork is, you should also know that there are two basic types, hard forks, and soft forks and that each one has its pros and cons. Let’s see this in more detail.

What is a hard fork?

A hard fork is a major network upgrade that all users must accept in order to continue using the same blockchain.

A hard fork occurs when there is a change in the source code of a blockchain that makes the old version of the network incompatible with the new version. Users must choose between using the new version or continue using the previous version.

If a group of users decides not to accept the update, the network splits into two and a fork occurs; now there is not one, but two different blockchain networks.

In the case of a cryptocurrency blockchain like Bitcoin, this can also produce a new digital currency, as is the case with Bitcoin Cash.

Bitcoin Cash is an intentional hard fork of Bitcoin made with the intention of improving some aspects of the original currency, mainly the block size, going from 1 MB in Bitcoin, to the current 32 MB block size in Bitcoin Cash to increase scalability.

However, you should know that a hard fork can also occur accidentally when trying to correct an error in the software code.

What is a soft fork?

Hard forks are a drastic measure necessary in some cases, however, a blockchain can also receive improvements without interrupting the operation of the network or causing compatibility problems; this is known as a soft fork.

A soft fork is simply an update to the source code of blockchain software to add a minor change or improvement – such as adding a new function – but which allows full compatibility between the nodes that accepted the update and those that didn’t.

A soft fork doesn’t imply a division of the network. If a node is not upgraded to the new version of the program, it could continue checking blocks as usual for a time.

What is the difference between a soft fork and a hard fork?

Based on the above concepts, we can say that the main difference between the two types of forks lies in the matter of compatibility.

After a soft fork, users who haven’t accepted the update can continue making transactions and interacting with the rest of the network as usual. That is, a soft fork is backward compatible.

In the case of hard forks, users who haven’t accepted the update won’t be able to interact with the new updated blockchain; that is, a hard fork is non-backward compatible.

Also, since hard forks are more extreme, they are also much less frequent.

How do forks work?

On both types of forks, users must download the new software and run it on their respective nodes, or refrain from doing so altogether.

When it comes to a simple update or soft fork, the ideal scenario would be to reach the threshold of adoption by all nodes on the network, something that must be previously agreed upon by developers and users.

On the other hand, when the intention is to create a new cryptocurrency, for example, reaching a consensus throughout the community is not necessary, since developers only have to specify the new parameters and a starting point with respect to the old chain, either from scratch or at the height of a specific block – Ethereum Classic is an example.

In soft forks, it’s important that coders take care of compatibility with the previous software version to ensure that outdated nodes can “understand” the new format and aren’t excluded from the chain. This limits the amount and type of changes that can be made.

On the other hand, hard forks modify the protocol so that only the updated nodes can execute the transactions with the new format, but not the outdated nodes.

In this case, the new network structure may include formats that are incompatible with the old structure – for example, a file extension that was previously “ABC” is now “XYZ.”

In a successful hard fork, the nodes outdated are decoupled, having the option of letting the old chain die or continue supporting it. Upon completion of a hard fork on a cryptocurrency blockchain, one of the following scenarios may occur:

  1. One of the chains is abandoned, while the other remains active with a large number of nodes migrating to it.
  2. Both chains remain active, and the value of each cryptocurrency is determined by the market.

The last one is a very likely scenario in controversial hard forks such as Bitcoin/Bitcoin Cash. In this case, the chain that started the split is totally independent of the main chain, giving life to an altcoin whose activity doesn’t necessarily affect the old cryptocurrency.

Some coins that are from forks

Bitcoin Cash

This is a Bitcoin hard fork created in 2017 with the aim of increasing the block size to improve the scalability of the Bitcoin network. So far, Bitcoin Cash has been the most successful Bitcoin hard fork.

Bitcoin Gold

Another well-known Bitcoin hard fork implemented in 2017 that is still active today. The fundamental objective of the project is to make Bitcoin mining more accessible by allowing it to be done with common graphics cards, and not with specific hardware – such as BTC ASICs.

Bitcoin SV

This is another hard fork, but in this case on the Bitcoin Cash blockchain. The split occurred due to differences of opinion regarding the block size between two groups of developers.

While one group wanted to keep the size at 32MB, the other wanted to raise it to 128MB. This last proposal ended up being converted into Bitcoin SV.

Ethereum Classic

In June 2016, the DAO proposal on the Ethereum network had managed to raise close to $150 million in Ether, but suddenly the network was hacked, losing millions of dollars.

A group in the community decided to make a hard fork to get back to the point before the hack and thus recovering the stolen funds. Another group in the community opposed this, and the result is a split that ended in what we know today as Ethereum Classic.

MoneroV

Monero is a cryptocurrency focused on offering a high level of privacy and anonymity to its users through the use of technologies such as ring signatures and stealth addresses, but which nevertheless presents scalability problems.

Due to this, a group of developers decided to make a hard fork to solve the aforementioned scalability problem, in addition to further strengthening the security aspect.

Sushiswap

Uniswap is one of Ethereum’s most successful DeFi projects. It’s a decentralized and open-source program for token exchange. However, it has the problem in that users don’t have a say in deciding on the direction the project should take – something essential in decentralized projects.

SushiSwap is a UniSwap hard fork that retains most of its features, except for the Sushi token, which does grant voting power to users, as well as additional economic benefits.

Trezor Hard Wallet

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