Cryptocurrency forks are the changes in the protocol of the network or the conditions that transpire when two or more blocks have the same block height. In order to precisely understand cryptocurrency forks, it is essential to learn first how cryptocurrencies and the blockchain work.
In other words, Cryptocurrencies like Bitcoin, Ethereum, etc can be forked. This means that it either generates two variants of a coin or updates one version. Cryptocurrency forks are the alterations in their current code and the algorithm of blockchain transaction occurring in a new copy of the previously existing network with some alterations. The new fork may supersede its ancestor or, depending on a state, exist on a coextending record.
To accurately describe forks, some context is required. Cryptocurrencies operate on the blockchain. The blockchain is a digital ledger in which transactions conducted in bitcoin or any other cryptocurrency are written chronologically and openly. Since these operations work as decentralized systems, users of the system must recognize some set of protocols for how transactions are confirmed and appended to the blockchain ledger. This method is called consensus, and it’s what makes the real record of a blockchain.
Now, a fork happens when there is a notable separation in the consensus of users or a requirement to alter the underlying rules supervising the protocol. Changing the protocol of a blockchain needs developers to swiftly modify the code, and this method can have severe and enduring results.
Forks and Technical Disputes
Bitcoin cash is a cryptocurrency formed in August 2017, resulting from a fork of Bitcoin Classic. Bitcoin Cash boosts the size of blocks, enabling more transactions to be concocted.
Bitcoin Cash exists today due to a continued conflict about Bitcoin’s scalability dilemmas. A group of prominent developers, investors, and miners who were not satisfied with the recommended solutions chose to raise the block size of Bitcoin, thus forking an extra variant of the protocol. There are some types of forks and following are some of the more common forks and their features.
Types of Cryptocurrency Forks
There are two types of cryptocurrency forks: Hard forks and soft forks.
Hard Forks: A hard fork is a constant division from an earlier version, and any nodes operating an old version will not be allowed by the new one. In this form, a hard fork is a non-backward congenial. It describes a persistent deviation from the prevailing version of a blockchain with nodes on the new blockchain not coupling with or endorsing nodes or transactions on the old blockchain.
Hard forks reproduce abundant change and build a new blockchain with no transaction congeniality between versions. In hard forks, transactions on the former chain are not admitted on the new one, and vice versa. Nodes that remain operating on the old version of the software will notice the new transactions as illogical. To mine correct blocks on the new chain, all of the nodes in the system need to accept the new protocols.
Soft Forks: The difference between soft forks and hard forks is that in soft forks any development or change is backward agreeable. In short, instead of 1MB blocks, a new protocol might only support 500K blocks. It is assumed to be backward compatible because, in this, old transactions can be identified by new nodes.
Unlike a hard fork, old nodes will still recognize new transactions as legitimate. However, if old nodes proceed to mine blocks, the blocks they mine will be declined by the updated nodes. Therefore, soft forks require a preponderance of hash power in the network to work. When a soft fork is backed by only a minority of hash power in the network, it could shift the deficient chain.
A few days ago, few researchers said that Hard forks can destabilize a cryptocurrency’s value and that they are hazardous to the stability of digital currencies. According to them, hard forks can divide a cryptocurrency into two rival groups. They can destabilize a given cryptocurrency’s value, and inject a low confidence environment in the capacity of a cryptocurrency to survive as a dependable bridge of exchange. So, it is necessary for the cryptocurrency community to improve their governance system and limit the potential for hard forks to occur.
Researchers further explained that hard forks create a new blockchain that is discordant with its original rival—promoting two technologically irreconcilable cryptocurrencies. As such, hard forks may force governance failures that divide cryptocurrency users into two distinct groups: one that accepts a new technological change and one that rejects the status quo.
Importance of Forks
Forks will remain a relevant part of the cryptocurrency world. Forks will be a truth of the cryptocurrency system because the present protocols are still serving to address scalability and secrecy problems. Due to the forks, cryptocurrencies are adjustable. They help to refresh protocols as required and let the soundest notions win out over the long-run.