Cryptocurrencies are networks that work by consensus, i.e. everyone has to agree on changes that effect the running of the network. When that doesn't happen forks can occur. In this guide we'll explore why they fork, the different types of forks and famous examples.
Why does a cryptocurrency fork?
Most cryptocurrencies are open-source, which means there isn’t one person or group who controls how the currency should evolve.
That can make things tricky, for a number of reasons.
- 🔧Deciding on what problems to fix or solve first
- 😕What to do if miners solve a block at the same time
- 👨💻What happens if the network the currency is built on is hacked
This leads to a fork: or a change in the underlying rules of how the blockchain works.
But not all forks are created equally.
Soft forks are what happens when the software the blockchain is built on is upgraded.
What’s unique about soft forks is they allow users on the platform to upgrade over time. They’re effectively backwards compatible.
In summary, most things remain the same, bar a few tweaks, and the community is on board.
Hard forks meanwhile, are changes to the blockchain that are not backwards compatible, and it forces everyone on the network to upgrade to the newest software in order to keep participating.
Those who don’t upgrade, don’t get to participate. If there are enough members left in the previous version of the blockchain, two versions now exist.
Some of those forks can be planned, and are referred to has Planned Hard Forks, where as sometimes there is no plan in place, and they fall into the Contentious/Unplanned Hard Fork category.
Planned Hard Fork
When the community agrees on a new direction for the blockchain they’re a part of, a hard fork is planned.
That means everyone agrees to upgrade the software, create a new blockchain, and leave behind the old blockchain.
One of the most famous planned hard forks was on Ethereum. Called Byzantium, it was a hard planned fork that took place in October 2017 to help improve Ethereum’s scalability.
Contentious Hard Fork
Unplanned or Contentious Hard Forks are normally the result of disagreements in the community. These lead to a split in the blockchain with two separate blockchains emerging as a result.
The community effectively splits in two and agrees to work and mine on their favoured blockchains separately.
This has lead to the creation of new currencies.
Several cryptocurrencies have emerged as a result of a hard forks. Because currencies like Bitcoin are open source, anyone can take the code, make some changes, and produce a new version.
- 💸Bitcoin Cash - A new currency that emerged out of Bitcoin in 2017.
- 🌫️Ethereum Classic - Ethereum’s community had a hard fork that saw the creation of Ethereum Classic, after the network was hacked in 2015.
Clones not forks
Some cryptocurrencies copy the open source software of one currency, make tweaks to that code, and create a new cryptocurrency as a result.
Some famous clones include:
- 💸 Litecoin - was an upgraded version of Bitcoin
- 👋 Peercoin - shares a lot of the original source code from Bitcoin
- 🏃 Dash - is a privacy focused Bitcoin clone
- 🐕 Dogecoin - a meme-based comedy take on Bitcoin
Because of the nature of the blockchain, we’re likely to see a lot more hard forks, soft forks and clones in the future. In the past year alone, Bitcoin has hard forked three times, leading to the creation of Bitcoin Private, Bitcoin Coin and Bitcoin Gold.
With that in mind, it’s safe to say the future is fork shaped.