What are cryptocurrency forks
There are two types of cryptocurrency forks: hard forks and soft forks.
Hard fork is a discrepancy with the current version of the blockchain with nodes on the new blockchain that do not interact with the old chain and do not recognize its nodes or transactions. Hard forks are significant changes leading to the creation of a new blockchain when transactions are incompatible between versions. That is, the transactions of the old blockchain are not recognized as new, and vice versa. Nodes that continue to use the old version of the software will consider new transactions invalid. To mine the existing blocks in the new blockchain, all nodes of this network must be updated to the new rules.
In contrast, soft fork is considered “backward compatible” in the sense that old transactions can be recognized by new nodes. Unlike a hard fork, non-updated nodes will still consider new transactions valid. However, if non-updated nodes continue mining blocks, then such blocks will be rejected by the updated nodes. Therefore, soft forks require most network hash power in order to succeed. If soft fork is supported only by a minority of hash power, it can become the shortest chain and lose protection from the network (“orphan”).
How do forks arise
Forks can be planned and managed by the core team, or they can be initiated by a group of developers who are unhappy with any part of the project. In the second case, the hard fork is usually preceded by lively disputes related, for example, to the proposed solutions to the scaling problem and how to implement them correctly. For a fork to succeed, developers need to believe in a new approach and recognize it. Thus, forks are characterized by open source code and democracy. Forks are offered and implemented quite often, and they are usually accepted as a normal component of the cryptocurrency ecosystem. This approach allows the community to evaluate and decide which ideas are the most promising. It also means that no group has absolute control over the fate of the cryptocurrency project.
Recent major forks
The last major hard fork planned was Byzantium at Ethereum in October 2017. This was the first part of a two-stage planned upgrade of the Ethereum network, designed to address the issues of scalability and implementation of private transactions. Another recent planned hard fork occurred at Monero to implement the RingCT protocol, which allows sending private transactions.
Two recent controversial hard forks are Bitcoin Cash and Ethereum Classic. Bitcoin Cash was proposed to increase the bitcoin block size from 1 MB to 8 MB, which should have helped to cope with the problems of scaling. Hard fork caused controversy due to the decrease in the competitive capabilities of small miners and increased influence of large ones. Ethereum Classic was committed in response to a hack. Most of the community (including the core development team) chose hard fork to reverse its effects. However, the minority then advocated maintaining the blockchain. The smaller group made hard fork, and the old chain (including the hacked part) became Ethereum Classic, while the main development team and most of the community canceled the influence of hacking and retained the name “Ethereum”, partially rolling back the blockchain.
Forks can also occur in the form of budding coins, which have key differences from parent ones. However, for the most part they use the same technology. They do not separate from the existing block, but start as “fresh coins” in the new network and in the new blockchain. Litecoin is one of the most famous budding coins, which was created in 2011 as an alternative to bitcoin. Lightcoin has a shorter block processing time and a large amount of coins compared to bitcoin, which is designed to solve the scalability problem.
Forks will continue to be an important part of the cryptocurrency landscape. They will remain the reality of the cryptocurrency ecosystem in the foreseeable future, as the teams of many existing projects are busy with scaling and privacy issues. Forks allow cryptocurrencies to be flexible and update protocols as necessary, which in the long run ensures the promotion of best ideas.