We often encounter the term “fork” in the world of cryptocurrencies. It’s thanks to this phenomenon that many digital coins have emerged. This article is going to reveal what a fork is and what impact it has on the cryptocurrency market.
A cryptocurrency fork is a bitcoin split into two separate chains. Once split, both chains act as two independent cryptocurrencies. Cryptocurrency forks can be hard (hard fork) and soft (soft fork).
A soft fork is a fork that leaves a new chain compatible with the legacy software. Conversely, a hard fork results in some software updates that set new rules in the network. They’re no longer compatible with the legacy software.
Cryptocurrency forks result from technological development and improvement that makes new chains more successful and technically convenient.
Altcoins—also known as alternative cryptocurrencies—emerged in 2011. Many of them were forked out of bitcoin. The source code of the main cryptocurrency was modified, while new branches started working independently.
Forks change the block validation rules in blockchain systems. This means that we get some new conditions where the block can be considered to be authentic. By downloading the new software, the netizens actually accept the new rules.
In case of a soft fork, you don’t need to download any new software. By modifying the original code in a soft way, the developers often improve their cryptocurrency.
A hard fork leads to a complete change in the entire system. The network gets split, the changes are irreversible, and the two new cryptocurrencies can no longer interact. One well-known hard fork is the splitting of Ethereum into two forks: Ethereum and Ethereum Classic.
As technology advances, we need the forks. Sometimes it’s essential to make changes to the protocol rules, and sometimes it’s necessary to boost the cryptocurrency security.
For example, updating the cryptocurrency code can speed up the transactions, thus improving the digital currency. The changes make the block size bigger, increase the bandwidth and cut the fees.
It isn’t uncommon for a fork to be created thanks to the disagreements in the development team, as was the case with the Ethereum’s hard fork.
Consequently, the forks occur when it’s necessary to:
In 2017, we saw a bitcoin fork that split the chain into two branches. This formed a new cryptocurrency—Bitcoin Cash. Litecoin's fork resulted in a new digital coin—Dogecoin. Expanse emerged thanks to the Ethereum’s fork. In addition, the Ripple’s fork gave rise to Stellar.
With the help of forks, you can actually create new cryptocurrencies by cloning. All of them, one way or another, include the code of the main digital coin, i.e., bitcoin.
Whether a new fork takes root or not depends on how it’s perceived by the miners. For example, Bitcoin Cash became successful thanks to the favor of the miners who supported it with their computing power. However, the matter of how successful this project will be is still open. Bitcoin Cash has a big block, so this makes the miners spend more. If the coin is profitable for them, they’ll continue supporting it.
We can talk about the success of this or that fork only after the tokens are released, and their market value is formed. It’s impossible to predict such things.
As you can see, a fork isn’t that difficult to understand. While blockchain technologies and cryptocurrencies seem complex to most people, they’re primarily aimed at simplifying our life.