part
Transactions recorded on a blockchain are permanent, but the underlying rules that keep the network running are different. Sometimes, for various reasons, network users change these default rules, resulting in forks. There are different types of forks that have varying levels of severity and have different impacts on the blockchain network and its users. The two most popular blockchains, Bitcoin and Ethereum, have experienced forks in the past.
Cryptocurrencies such as Bitcoin and Ethereum are based on decentralized open source software called blockchain. Due to the open source nature of blockchains, developers or community members sometimes make changes that change the way the underlying software protocol works, in a process known as a fork. There are different types of forks and they occur for a variety of reasons. Some are major changes, others are more minor. Moving forward, we will unpack the most important things you need to know about blockchain forks, explain how they work, and provide some examples of forks in practice.
Explaining the concept of fork in blockchain
In cryptocurrency terminology, the term “fork” is borrowed from software engineering. In this context, a fork is when a developer uses existing source code as the basis for new, separate software that is distinct from the original.
A blockchain fork occurs when the community makes changes that change the way the protocol works in some way. When this happens, the second blockchain becomes separated from the original, similar to a type of fork eating together. A forked blockchain shares the same history as the original “fork,” but goes its own way from the moment the split occurs. Some forks eventually rejoin the original blockchain, while others remain permanently separate.
A blockchain is maintained and secured by network participants (or “nodes”) who adhere to a shared set of rules, known as a protocol. Blockchain protocols govern how the network operates, including everything from the size of each block to the amount miners pay for each new block of transactions they mine. The functioning of a blockchain depends on nodes agreeing on a protocol and acting according to rules called consensus. However, sometimes nodes do not agree on the direction of the cryptocurrency and start making changes, causing the blockchain to split. Forks also occur for less contentious reasons, such as adding new features or solving security issues.
Types of Blockchain Forks
There are two types of blockchain forks: “soft” forks and “hard” forks, the main difference being the scale of changes made to the blockchain protocol.
hard fork This occurs when the underlying code of a blockchain has changed significantly, making the latest version incompatible with older blocks. This is when a blockchain splits, creating a fork of the original that follows a modified set of rules, while the original continues to maintain the established protocol. When this happens, an entirely new cryptocurrency is created. Several hard forks have created popular cryptocurrencies with strong ecosystems and large communities, such as Bitcoin Cash (BCH) and Litecoin (LTC). Because of the split, hard forks are considered much more risky than soft forks and can weaken network security and make it more vulnerable to theft by hackers or other malicious actors.
soft fork This is more of a software upgrade than a major change that separates the blockchain. Soft forks are initiated by community members of a blockchain to add new features or functionality, usually at a programming level. A soft fork can be implemented on an existing blockchain and maintain backward compatibility with previous transactions, as long as the majority of nodes agree on the new rules, because the new blockchain is not separated from the original. A well-known example of a soft fork is the Segregated Witness (SegWit) upgrade of the Bitcoin blockchain, which improved network capacity by allowing more transactions per block.
Key Differences Between Hard Fork and Soft Fork
A hard fork occurs when changes to a blockchain’s protocol are so significant that they create a separate blockchain or, sometimes, an entirely new cryptocurrency. When a hard fork occurs, network validators must update to the latest version of the protocol, and transactions on the newly split blockchain will not be backwards compatible with the original. When a hard fork occurs, token holders on the old chain receive tokens on the new chain.
Soft forks are much less confusing. Only a majority of nodes are needed to support proposed changes before they can be seamlessly integrated into an existing blockchain. A soft fork does not split the blockchain or create a new cryptocurrency.
A common way to explain the difference between a soft fork and a hard fork is to think of it like a computer or mobile device operating system. A soft fork is similar to getting a new version of an operating system with which all programs are compatible. A hard fork, on the other hand, is like switching to a completely new operating system with which your old programs are now incompatible.
Notable real-life examples of blockchain forks
There have been many notable hard and soft forks over the lifespan of cryptocurrencies and blockchain networks. Next, we will look at some of these and discuss their impact on the world of digital assets.
Separated Witness (SegWit)
Fork Type: soft
Blockchains affected: bitcoin
Fork Date: August 23, 2017
Segregated Witness (SegWit) was a soft fork upgrade to the Bitcoin protocol launched in August 2017. SegWit separated transaction data from digital signatures, allowing each block to contain more transactions, which allowed changes to be made without actually increasing the signatures. Block limit size. The result is increased network capacity, improving transaction speeds and reducing user fees.
SegWit2x and Bitcoin Cash
Fork Type: Stiff
Blockchains affected: bitcoin
Fork Date: August 1, 2017
At the time of SegWit implementation, a group of Bitcoin network participants wanted to increase the transaction block limit size, believing it was more in line with Satoshi Nakamoto’s original vision. As a result, the Bitcoin blockchain forked, creating the Bitcoin Cash blockchain and cryptocurrency. Initially, the BCH block size was 8MB (compared to 1MB on the original Bitcoin blockchain), but has since been increased to 32MB.
Ethereum Classic and the 2016 DAO Hack
Fork Type: Stiff
Blockchains affected: Ethereum
Fork Date: July 2016
One of the most controversial forks in blockchain history began with the 2016 Decentralized Autonomous Organization (DAO) hack of Ethereum. The DAO raised $150 million worth of ETH through a token sale, but hackers took advantage of a vulnerability in its codebase to steal $60 million worth of ETH from thousands of investors. At the time, the stolen funds represented nearly 14% of all Ethereum in circulation. Ethereum founder Vitalik Buterin initially proposed a soft fork that would blacklist hackers’ wallet addresses and make it impossible to move ill-gotten funds. However, someone claiming to be a hacker would bribe ETH miners to prevent the soft fork from occurring, he said. Eventually, a hard fork was implemented that rolled back the transaction history of the Ethereum network to before the funds were stolen. The stolen funds were converted into smart contracts, allowing 11,000 investors who lost their funds to become whole. The hard fork was very controversial and was rejected by some Ethereum users who support the original, non-rolled version of the network, now known as Ethereum Classic (ETC).
A wrap-up on blockchain
Blockchain forks are fairly rare and are not always caused by disagreements between network users. Many are actively encouraged by members of the blockchain community because they address fundamental flaws or weaknesses in the network. The outcome of forks, especially hard forks, can be unpredictable. The rules that govern blockchain networks are not easily changed, which is one of the reasons why fork events are important. For a fork to occur, one of two things must happen: Either a majority of the network’s nodes must agree that it is necessary, or a group of users opposes the way the cryptocurrency works so strongly that they go on strike of their own.