A lot of cryptocurrencies have “forked-off” from well-known original coins – usually from Bitcoin, less often from Ether, and even less often from other altcoins. The goals are different: sometimes someone wants to improve the cryptocurrency infrastructure, or speed up transactions, sometimes someone just wants to get rich. In this article, Freewallet explains what a fork is, how a soft fork differs from a hard fork, and the main reasons for forks.

What is fork in the blockchain

A fork is an event in a project that implies that part of the project will be separated into another project, copying the source code but modifying it to create another blockchain. For example, the Litecoin cryptocurrency is a “fork” of Bitcoin, because its developers copied the Bitcoin code, made a number of changes and launched a new project.

Why do forks happen on the blockchain

Cryptocurrency blockchains are usually open source, which means that the code is free and accessible to everyone; both for viewing and for use. There are two reasons why a fork may happen:

As currencies evolve and change over time, sometimes changes need to be made to their protocols. Such changes can range from the addition of a new function to mass changes, such as increasing the maximum block size.

Sometimes, within a community of miners, blockchain changes can be viewed in different ways. Some accept changes, while others do not. Such divisions in the network infrastructure can also lead to the creation of new blockchains and new cryptocurrencies.

What is a Hard Fork?

Hard fork is a software update that embeds a new rule in the network that is incompatible with the old software. Hard forks are significant changes that lead to the creation of a new blockchain making transactions incompatible between the different versions. Nodes that continue to use the old version of the software will consider new transactions invalid. To mine the existing blocks in the new blockchain, all nodes of this network must be updated to the new rules.

What is a Soft Fork?

In contrast, a soft fork is considered to be compatible with the existing blockchain in the sense that old transactions will be recognized by new nodes. Unlike a hard fork, non-updated nodes will still consider new transactions valid. However, if non-updated nodes continue mining blocks, then such blocks will be rejected by the updated nodes. Therefore, soft forks require a majority network hash power in order to succeed. If a soft fork is supported only by a minority of hash power, it can become the shortest chain and lose protection from the network.

What happens after a fork?

After a fork, the owners of the original cryptocurrency are credited with new coins in different ratios: for example, 1: 1 like Bitcoin Cash and Bitcoin SV. Old coins also remain in wallets.

If Freewallet supports the fork, new coins will be automatically deposited to the wallets of holders of the original coin.

Before a fork, the price of a coin usually rises – cryptocurrency enthusiasts buy the coin to get as many new free forked coins as possible. To get new coins, you need to have the cryptocurrency in a wallet that supports the fork.

Why do we need forks?

Forks can be planned and managed by the core team, or they can be initiated by a group of developers who are unhappy with any part of the project. In the second case, a hard fork is usually preceded by lively disputes related, for example, to the proposed solutions to the scaling problem and how to implement them correctly.

The cryptocurrency community has different attitudes towards forks. Some people consider them a red flag for a cryptocurrency and get rid of their coins. Others believe that forks improve networks, and buy even more of the asset in the fork run-up.

When developers hold a fork they usually have one of these aims:

Improvement of technology
Forks tend to be done to solve specific coin problems such as slow transactions, low bandwidth, high commissions, poor mining features and so on. Forks can fix bugs, increase the speed of transactions, etc. For example, Bitcoin Cash was designed to solve bandwidth and slow transaction problems on the Bitcoin network. The newest iteration of Ethereum, developed in large part due to all the hacking that has occured on the network, has resulted in a more reliable blockchain.

Increasing interest in the coin
Forks draw investors’ attention to old and new coins, help to attract new funds for its development, and raise the price.

Earnings on a new coin
A forked coin has a huge advantage over coins created from scratch, including a big user base that can receive the forked coin for free. The initial free distribution of coins gives them much coveted popularity, as people tend not to want to buy unknown coins.

The biggest Ethereum hard fork happened in 2016, and resulted in two different chains – Ethereum (ETH) and Ethereum Classic (ETC).

The story of the Ethereum hard fork starts when a hacker managed to steal cryptocurrency in from a Dao smart contract.

Then a significant number of Ethereum network users decided to “roll back” problematic transactions so that the hacker could not use the stolen funds. They created a fork.

Opponents of this decision remained in the minority, but continued to support the old chain, which was called Ethereum Classic. The new chain retained the name of the cryptocurrency, and the original acquired a new one – Ethereum Classic.

Quite a lot of forks and hard forks arose from Bitcoin: Bitcoin Cash, Bitcoin Gold, Bitcoin Classic, Bitcoin XT, B2X, Bitcoin Unlimited and Bitcoin Private. There are very few who know – Bitcoin Diamond, Bitcoin Gold, Bitcoin Hot, Super Bitcoin, UnitedBitcoin and BitcoinX. There are also a few forks with strange names: Bitcoin Uranium, Bitcoin Atom, Bitcoin Pizza, they are not remarkable for anything other than their names.

It will be a discovery for some, but Litecoin is actually a fork of Bitcoin. Developers copied the code of BTC and modified it to solve a number of well-known problems existing with the original: low transaction speed, poor scalability, etc.


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