When Bitcoin (BTC) appeared in 2009, it was the first cryptocurrency in the world with its totally new blockchain technology that introduced a revolutionary approach to financial transactions. BTC was the first decentralized digital currency, created as a possible alternative to fiat money. Over the years, Bitcoin gained massive popularity and a rise in value. Nowadays, millions of crypto enthusiasts, traders, startups, developer teams, and companies use BTC to facilitate transfers, payments, and investments.
In the meantime, thousands of new altcoins appeared, becoming more or less popular, such as Ripple (XRP), Bitcoin Cash (BCH), Ethereum (ETH), Litecoin (LTC), Ethereum Classic (ETC), and others. These new digital assets are the results of something called forks in the crypto world. To put it simply, forks are changes in the protocol of a blockchain network that a software uses in order to decide if a transfer that is going through the network is valid or not. Nearly every change in the blockchain might be considered as a fork.
We are now going to take a detailed look at what crypto forks are and how forking works.
What Are Blockchain Forks?
Blockchain forks are all events that create a modification on the main chain by duplicating the blockchain, along with certain changes within the network. When we say changes, we mean changes in the blockchain’s network protocol. When a fork occurs, the blockchain has two different paths: the original one and the new, modified version of the chain. Forks can often happen because of a new rule agreed upon by the community of a certain blockchain like BTC, or if a developer team wants to create a new crypto asset based upon the blockchain technology of an existing currency.
Forks are also used as a sort of software update to existing blockchains in order to improve user experience and the functionality of a blockchain. Developer teams often create network forks to fix possible system bugs, thus improving security or adapting the blockchain by bringing older versions of the software that powers the network up to date.
Essentially, forks happen when the community or the developer team of a certain crypto asset decides that some key changes are necessary in order for the blockchain of that asset to continue working. Cryptocurrencies aren’t perfect and their networks need constant improvements and adjustments. This is where the community can have a huge impact on the future of a crypto because, without people who are using a crypto like Ether, the Ethereum blockchain wouldn’t exist. It is these people, everyday crypto enthusiasts that give valuable feedback to developer teams in order to improve key aspects of the blockchain.
Sometimes, the community and the developer team may fundamentally disagree on the necessary improvements, and a new cryptocurrency can end up being developed as a result of a fork, like in the case of Bitcoin and Bitcoin Cash, where a new crypto emerged based on the BTC blockchain.
In any case, not all forks are made the same. Let’s take a look at the different types of forks.
Soft blockchain forks are software changes on a crypto’s network that are backwards compatible and reversible. Every time a new fork occurs, the system nodes (miners) continue registering new transfers of funds as valid transactions if it is a soft fork, but newly mined blocks won’t be recognized by the updated system nodes with the latest version of the software.
In order for a soft fork to be successful, most of the community of the specific cryptocurrency needs to agree with the changes, as a soft fork requires a majority of the network hashing power. If only a minority of miners agree to accept the new software change in the network, then there won’t be a sufficient amount of hashing power and a hard fork might occur. In other words, the hashing power is important for a soft fork because these forks are often miner-activated updates, meaning they can only take place if enough hash power is provided so that the new protocol can be adopted throughout the whole network.
When a successful soft fork happens, the software updates to the blockchain enable a more smooth and secure experience on the new version of the blockchain, but the majority of the community has to agree to the new rules. If the aim of a blockchain upgrade is to create a new coin based upon the original network (with some improvements), then the new coin will fork off the old blockchain, starting from the block where the update took place. The new coin will then have a separate public ledger, but it will be based on the original cryptocurrency’s blockchain.
Hard forks are software changes to a blockchain that break backwards compatibility and aren’t reversible, meaning that the changes fundamentally alter the open-source code of the blockchain, creating something entirely new. Unlike soft forks, when a hard fork happens, system nodes that are using the old software from before the update will see all new transactions as invalid and won’t be able to validate them since their software components aren’t backwards compatible.
However, not all new currencies are the result of disagreements regarding updates. It is common that people just want to use the qualities of a well-established blockchain like Bitcoin or Ethereum to build a new coin or token based on their network with a different vision of what the currency should be used for, i.e. with a different purpose in mind.
In any case, when a hard fork happens, if network nodes want to continue mining cryptos and validating transactions based on the new chain, they need to accept the new rules and leave the old rules connected to the old version of the blockchain behind. For a hard fork to effectively take place, most of the coin holders that are connected to the old chain need to agree with the updates. When this happens, people who accepted the updates will be able to fully participate in the new blockchain, but in case the majority doesn’t want to shift to the new rules, a break in the blockchain can happen that can even create two completely separate chains.
Bitcoin Forks Like Bitcoin Cash
Crypto forks happen all the time, resulting in either small but important improvements to blockchains of certain cryptos or to the creation of newly-minted coins.
There are lots of cryptocurrencies that are based on the source code of the Bitcoin network, which is widely regarded as one the best blockchains. That comes as no surprise since it is the most popular and most valuable digital currency on the market. One well-known crypto that started as a Bitcoin fork is Bitcoin Cash (BCH), which was a result of longtime disputes and disagreements in the BTC community between developers and crypto enthusiasts with different visions for the currency. In the end, the discussion ended with a hard fork that created BCH.
Currencies like Litecoin (LTC) and Dash (DASH) are also the results of Bitcoin forks. It is worth noting that these altcoins don’t have the same transaction history as BTC, even though they are built on the same source code, as they aren’t derived from the original Bitcoin blockchain. The blockchains of some fork cryptocurrencies only have similarities to the BTC blockchain regarding the basic network protocol, which then gets heavily modified by programmers from developer teams.
A Few Words Before You Go…
There are more than 4,000 cryptocurrencies on the market and a large number of these cryptos started as blockchain forks from famous, well-established blockchains. A good blockchain is a great basis for creating modifications to the network in order to improve security, network capabilities, or even create new coins with different visions of their use in the world of cryptocurrencies.