Technologies behind cryptocurrencies are open-source by nature. That means anyone can see the codes used, modify them, or completely clone them and add alterations to create an entirely new cryptocurrency. The open-source nature of cryptos makes it possible for important updates, developments, and breakthroughs in the cryptosphere.
Now, hard forks are among the most commonly-used terms in cryptocurrencies. They are associated with the open-source codes and programs used to develop cryptocurrencies. What are hard forks exactly and why is it significant to the cryptocurrency world? We’ll explain the basics of hard forks in this short article.
Before we delve specifically into hard forks, let’s learn about forks in general first.
A fork is a blockchain protocol change that impacts the way crypto software decides whether transactions are valid or not. Almost any changes or divisions in the blockchain protocol can be considered as a fork.
Nodes participating in a crypto network must adhere to a set of protocols for the network to operate properly. Forks act as constant updates that can be deployed to remove bugs, fix other issues, or improve the network’s performance. All nodes run forks for these reasons.
However, there may be times when nodes do not reach a consensus regarding an update or blockchain change. Changes brought about by a fork may not be mutually agreeable for all the nodes on a certain network. What they do is to fork the crypto’s protocol into two separate and incompatible blockchains. Hence, forks can give rise to new cryptocurrencies based on an earlier one.
Types of Forks
Forks are classified into two types: Hard Forks and Soft Forks.
Let’s look at soft forks first. Soft forks are protocol changes that are compatible with both updated and non-updated nodes. Another term to describe soft forks is backward-compatible.
Soft forks allow older nodes to push through transactions and add blocks as long as they don’t violate the new protocols. Older nodes become less efficient but still functional otherwise. Newer nodes will reject transactions not following the new rules to encourage the old nodes to update.
Hard Forks Explained
Now, we’ll delve into what hard forks are.
Hard forks are protocol changes in the blockchain, just like soft forks. However, hard forks are incompatible with older node versions. Hence, this means that old nodes cannot continue adding blocks or pushing transactions through the network with a hard fork in place. All nodes in the network are required to update to comply with the hard fork and continue operating the network properly.
That may seem easy enough to understand, but hard forks impact cryptocurrency networks in more ways. The reason behind hard fork can either be one of the following:
- Alter and make improvements to an existing protocol
- Forge new protocols giving rise to a completely new blockchain and cryptocurrency
Hard forks could be planned or controversial. This is often determined by the network’s willingness to upgrade and accept blockchain changes imposed by the hard fork.
When a hard fork is planned, an update is sent to all network participants. They adhere by voluntarily upgrading their systems to accommodate the hard fork. The blockchain’s old version is often left behind. Any participant who fails to upgrade ends up mining on the non-updated old chain, which could well be abandoned by the majority of network nodes.
Meanwhile, controversial hard forks arise because of two possible circumstances:
1. Community Disagreement
There is a massive disagreement within the community regarding the changes brought about by the hard fork. The protocol will then be forked into two blockchains that are distinct and incompatible with one another. This gives rise to two distinct cryptocurrencies.
Such events paved the way for Bitcoin (BTC) and Bitcoin Cash (BCH) to materialize. Another example is Bitcoin SV (BSV), a hard fork that came from competing proposals in Bitcoin Cash scheduled upgrades in November 2018.
2. Hacking Aftermath
Hard forks can also be a result of hacking. The most famous example is the split of the Ethereum network due to a successful hacker attack. A coding error led to a hacker stealing around $79 million of Ethereum funds. Hence, the Ethereum network attempted to rectify the attack by splitting into two versions: Ethereum (ETH) and Ethereum Classic (ETC).
Summing It Up
Hard forks are significant changes made to a network’s blockchain. They can disrupt the crypto network by either creating an entirely new blockchain or abandoning a previous blockchain, making it completely obsolete. Either way, hard forks are essential in keeping up with crypto developments and made possible by the open-source nature of cryptos.