What are Forks?

I bet you have come across the term “fork” as a crypto enthusiast. As a crypto newbie, I lost out on the opportunity to earn some extra cryptocurrencies because I didn’t have a clue on what forks meant. Well, this article is a breakdown of all you need to know about cryptocurrency forks.

Blockchain is the underlying technology of Bitcoin and every other cryptocurrency. As the name implies, it is a distributed ledger comprising of “blocks” of data, which forms a single chain of blocks (now, you know why it’s called blockchain).

Since blockchains are decentralized, participants in a network need to reach consensus on the direction of the network and the rules for validating transactions. A fork occurs when there is a split in the blockchain. This can either be temporary (split in consensus) or permanent (change in protocol/underlying rule).

Temporary Fork

A temporary fork occurs when different miners discover a block at the same time. This results in two split chains. However, this kind of fork is quickly rectified as soon as the next block is discovered. The chain that discovers the net block automatically become the truth, while the shorter one becomes abandoned.

Permanent Fork

A permanent fork, which is the main focus of this article happens when there is a change in the underlying rules of a blockchain’s protocol. This can be as a result of adding new features to improve the network’s functionality, or by changing the underlying rules, such as increase of block size.

A permanent fork can be broadly grouped into soft and hard forks.

Soft Forks

During a soft fork, the code or software of a blockchain can be upgraded, but the network is not split into two blockchains. Soft forks are backwards compatible with older versions, meaning that participants in the network do not have to upgrade to new software in other to validate or verify transactions. All participants, irrespective of whether they upgrade or not can still discover new blocks and maintain compatibility with the network. However, the functionality of participants who have not upgraded may be affected.

Some examples of soft fork include BIP 66, which was an update on Bitcoin’s signature validation, and P2SH, which enabled multi-signature addresses on Bitcoin’s network.

Hard Forks

During a hard fork, a network becomes split into two separate blockchains. It is a software upgrade that isn’t compatible with older versions. In order to continue using the new blockchain, participants must upgrade their software. As long as there is some form of support in both chains, they will exist concurrently.

Hard forks can either be planned or controversial.

Planned forks have already been included in the project’s roadmap and are expected at a certain point in the blockchain’s existence. Since it is planned upgrade, the entire community, as well as the core developers would move to the new change, resulting in the death of the old chain. A planned hard fork does not necessarily entail the creation of a new coin. A popular example is the Monero hard fork in January 2017 which introduced the Ring Confidential Transactions (RCT) feature for better privacy and security.

Controversial hard forks are due to disagreements within the community leading to the creation of a new chain. Popular examples in this category include Bitcoin Cash and Ethereum Classic.