Various cryptocurrency networks, including Bitcoin and Ethereum, have experienced hard forks as a result of a lack of consensus for contentious software updates. In addition to hard forks, blockchains also undergo soft forks. The difference between a hard fork and a soft fork is that soft forks do not result in a new blockchain.
Understanding Hard Forks
- As a result, a cryptocurrency’s underlying code is in some ways always a work of progress, open to both exploitation and improvement as technology changes.
- As there isn’t a centralized party, such as a bank or financial institution, that keeps the sole copy of the ledger, you will also hear that blockchains are known as distributed ledgers.
- They’re typically system upgrades, similar to how your laptop installs updates, and are often accepted by the majority of the community.
- On March 22, 2024, it was the seventeenth largest digital currency by market cap.
Fundamentally, both of the above types of forks serve different purposes. Contentious hard forks can divide a community, but planned ones allow the freedom to modify the software with everybody in agreement. A soft fork is a backward-compatible upgrade, meaning that the upgraded nodes can still communicate with the non-upgraded ones. What you typically see in a soft fork is the addition of a new rule that doesn’t clash with the older rules. A split in a cryptocurrency’s blockchain that results in a new offshoot cryptocurrency being created. Things change, and they often change faster and more frequently in the crypto industry than in other industries due to the fast-moving nature of blockchain innovation.
Two types of forks: Soft forks and hard forks
As a result, a cryptocurrency’s underlying code is in some ways always a work of progress, open to both exploitation and improvement as technology changes. Hard forks may be initiated by developers as part of routine progress or maintenance on a blockchain. They may also be created by a faction of the crypto community that wants to take a different direction with the blockchain. With a widely distributed open-source codebase, a fork can happen accidentally when not all nodes are replicating the same information.
The upgrade incorporates four optimizations aimed at gas efficiency and improved security.
After the attack, the Ethereum (ETH) network split into two cryptocurrencies, each on their own blockchain. An example of a hard fork was the 2017 fork that saw Bitcoin fragmented into two separate chains – the original one, Bitcoin (BTC), and a new one, Bitcoin Cash (BCH). The fork occurred after a lot of arguing over the best approach to scaling. Bitcoin Cash proponents wanted to increase the block size, while Bitcoin proponents opposed the change. Because there’s that shared history, you’ll end up with coins on both networks if you were holding them before the fork. Suppose that you had 5 BTC when a fork occurred at Block 600,000.
Despite the fact that no two cryptocurrency splits are alike, they all come about the same way. In an attempt to save the original ideas and goals of the Terra blockchain, founder Do Kwon proposed a hard fork to give the blockchain a fresh start. Now known as Terra Classic, the new hard fork has introduced a handful of changes with the promise of avoiding another catastrophe like the one in early May 2022.
- Hard forks refers to a rule change that comes with wide-ranging implications on the entire protocol of the blockchain network.
- Soft forks are generally used for smaller changes at a programming level that don’t impact the protocol of the blockchain.
- We appreciate how difficult legal issues can affect your family, your finances, your business, and your future.
- A fork in a cryptocurrency happens when a majority of the users of a blockchain cannot come to an agreement on an update.
- Forks have to do with those rules, the protocol that sets the operating parameters of a blockchain.
- Lots of people think of this as “new money” or doubling your value.
- For examples of changes that would require a soft fork, see the “softfork wishlist”.
- For instance, developers may decide improvements to the existing chain are needed, or that new functionalities should be added, or that security features must be bolstered.
- For instance, when the hack on the Decentralized Autonomous Organization (DAO) occurred, the Ethereum blockchain was forked by a nearly unanimous vote.
- It was executed on September 15, 2022, marking the complete transition of Ethereum from a PoW to a PoS consensus mechanism.
“The Ethereum community has been amazingly science-driven, open and forthright. The civilness of their response should be a shining example to other communities,” he wrote. And, like Brexit, the Ethereum economy will be gambling with its future if it collectively agrees to pursue a fork. “We just have to roll the dice and see what happens,” Gupta says.
