Quick look: A fork happens whenever a cryptocurrency community makes a decision to change the blockchain’s protocol, which is the basic set of rules used to enable crypto transactions on the network.
High-level breakdown
As cryptocurrency is decentralised with no central governing authority to control it, the blockchain depends on its community (a peer-to-peer network of users) to develop and maintain its open-source code.
A fork in the blockchain happens when the community decides to make a small or significant change to the blockchain’s protocols – the basic set of rules it adheres to in maintaining its security and standard. With a soft or hard fork in the blockchain, the chain of recorded data splits into two, both sharing all the transaction history from the original chain – except, one of the two chains includes improvements to the protocol.
Much like software needs upgrades and improvements over time, blockchains are also updated by its development teams for changes and improvements to the network. Some common reasons include:
- Improvements to security and to address risks
- Additional functionality on the blockchain
- Resolve disagreements in the community
People used gold and silver bars before agreeing on coins, and used coins before accepting paper-based money; the global community agreed to this change by adapting to newer technologies for reasons that were more sustainable and efficient. In the same way, cryptocurrency communities agree and make decisions to benefit and improve the blockchain.
How it impacts the network?
As well as making blockchains more secure with additional functionality, forks can also be used to create entirely new cryptocurrencies and blockchain ecosystems.
Soft fork
A soft fork is a like a software upgrade to the blockchain, typically at the programming level, to bring new features and additional functionality to the blockchain. This type of fork is adopted by all users on the blockchain, and any changes are backward-compatible with the blocks of data prior to the fork – meaning the blockchain remains a single chain of data and is not split.
Hard fork
A hard fork is when any changes are not backward-compatible with earlier blocks, and the blockchain has to be split into two – one continuing as it is, and the other with improvements in the protocols. The new version of the blockchain follows a new set of roles, creating an entirely new cryptocurrency and blockchain ecosystem. Cryptocurrencies like Ethereum Classic, Bitcoin Cash, and Bitcoin Gold are some examples that have previously gone through a hard fork.
Our favourite example is the Ethereum project, which has evolved since its inception from Ethereum, Ethereum Classic, to Ethereum 2.0 as a fully scalable, multi-functional, global, decentralised blockchain.
