What is a hard fork in cryptocurrency?

Cryptocurrencies have always been on the cutting edge of technological advancement. However, even these advanced projects still need regular updates and improvements, which keep them up with the times. Forks are the most notable examples of such improvements. Moreover, we have seen a great number of historical forks during recent years, some of which have the potential to change the entire structure of the cryptocurrency universe (the Merge organized by Ethereum being the most prominent of the lot). Hence, it is time to learn what does a hard fork mean in crypto and what all the fuss is about.

Blockchain hard fork: What is it?

A fork is a radical transformation of the existing network protocols that changes the validity of blocks. Blockchain developers must reach a consensus to provide transactions and maintain all the governing functions of the network. When forks happen the entire blockchain splits, creating two independent systems. The first system works by the same old rules, whereas the new network functions according to the recently implemented changes. A hard fork is an insanely complicated process that requires coordinated actions of multiple developers. However, from the users’ standpoint, it looks deceptively simple: you get an opportunity to select which set of rules suits you most and decide whether the change is indeed necessary. Forks are exceptionally important for the development of blockchains. After all, blockchains are all about decentralization. Because of that, there is no central entity capable of deciding how and when to add new changes to the protocols. The flow of time renders even the most advanced strategies obsolete. Hence, the only way to keep up is to introduce changes, moving towards higher efficiency.

Soft and hard forks in blockchain network

There are two types of blockchain forks:

• Soft forks;
• Hard forks.

Admittedly, these processes are quite similar. Although soft forks are much simpler, in the majority of cases users call for a hard fork: the latter indeed requires a mind-blowing amount of computational power, yet the advanced privacy gained as a result of such a fork easily outweighs the cons. Hard forks:

1. Require a stronger consensus to implement the changes. All the users have to agree to swap the protocols, otherwise, the fork will not happen.
2. Create two independent chains with distinctive rules.
3. Hard forks are not backward compatible. This also means that theoretically hard forks may be organized by hackers with the majority of votes.

On the other hand, soft forks:

1. Provide higher flexibility: only those users that plan to use the proposed changes have to agree on them and update the existing protocols. Even small groups of developers may add small changes on the network level.
2. Soft forks do not require splitting the chain. Even after a series of updates the original chain just moves on.
3. Soft forks are backward-compatible. Hence, attackers may manipulate the nodes, reinstating old protocols according to their needs.

What is a hard fork in crypto: notable examples

Hard forks happen for many reasons. In most cases, forks are driven by the necessity to keep up with innovative security procedures, the need to resolve false transactions, add new functionalities, or deal with existing disagreements within the network. Furthermore, hard forks may happen accidentally. For instance, two miners working on the same block may provide two different sets of data. As a result, the blockchains split in two due to the lack of consensus. Hence, let us look closer at the most notable examples of hard forks, which have affected billions in assets.

Bitcoin Improvement Proposal 91 (BIP 91)

This hard fork happened because of a scalability problem left in Bitcoin by its creator Satoshi Nakamoto. The 1-megabyte cap significantly slowed down transactions, limiting their number and increasing fees. However, the famous SegWit (which stands for “segregated witness”) patch resolved this problem in 2017. It was originally designed to deal with the so-called “Transaction Malleability” — a flaw in code, which made it possible to change the digital signature of the receiver before the confirmation of the said transaction. Furthermore, this patch significantly increased the cap for Bitcoin blocks. However, several nods did not agree with the new set of rules. As a result, what was intended as a soft fork quickly became a hard fork: despite numerous attempts, both sides simply could not reach an agreement. Thus, Bitcoin Cash was born. The creation of BCH (Bitcoin Cash) clearly illustrates the key principles of hard forks. The changes were implemented, some nodes decided to disagree, the chain divided, and a new digital currency spawned out of thin air. However, the original blockchain did not suffer any grave consequences, apart from some users migrating to the new chain. You can check it for yourself on Exolix or any other trustworthy cryptocurrency exchange platform: both cryptocurrencies manage to coexist, despite originating from the very same source.

Ethereum Classic

Ethereum Classic appeared because of a hack, which targeted funds of the Decentralized Autonomous Organization. On June 17, 2016, a group of hackers effectively stole 3.6 million out of 12.7 million Ethereum coins raised by the Decentralized Autonomous Organization. The network was quite new at the time, and the situation was desperate. Therefore, Buterin himself decided to interfere and introduce a piece of code, which would block the stolen funds. However, the anonymous hacker threatened lawsuits against anyone attempting to prevent the funds from moving. In addition, they offered rewards for those miners who would reject any soft forks, capable of separating them from the stolen goods. The situation escalated more and more until the Ethereum community agreed on a hard fork to restore the stolen coins to the original investors. Since some nodes did not comply, the blockchain was divided, creating two new branches: Ethereum and Ethereum Classic. Once again, you can check both coins on Exolix and compare their strengths and witnesses.