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When it comes to blockchain technology there are many complicated terms to get your head around such as ‘hard fork.’ While this might sound unusual it’s actually pretty easy to understand, so let’s take a closer look at what blockchain forks are and why they form.
Blockchain technology is based on a distributed ledger, made up of blocks of data that continue to grow, leading to the formation of a single chain, called the blockchain.
Since cryptocurrencies are based on a decentralised network, all participants in the network need to agree on a common set of rules to validate transactions so as to achieve consensus. This leads to a single chain of verified data that everyone believes or agrees to be correct. So, what happens when the chain breaks into two? It leads to the formation of a hard or a soft fork – and this can happen for many reasons.
Since the chain is based on an agreement between network members, the moment there is a disagreement, the chain breaks into two or more. For instance, in the case of bitcoin, a fork occurs when two miners discover a block at the same time, leading to a split. However, such splits are temporary as the chain that finds the next block becomes the longer chain and is therefore automatically accepted. Meanwhile, the shorter chain is abandoned by the network.
Sometimes, the developers of a cryptocurrency and its blockchain may wish to change protocol rules, by adjusting the size of the block or adding a new feature to improve the functionality of the blockchain. Such changes lead to the creation of forks that are permanent and require participants to upgrade their software to remain a part of the blockchain. These changes may lead to the formation of soft forks, hard forks or even spin-off coins.
A soft fork is a temporary divergence in the blockchain caused by nodes that haven’t been upgraded to follow new protocols or consensus rules. While blockchain participants do not necessarily need to upgrade to new software and can continue to participate in the process of validating and verifying transactions, the functionality of the non-upgraded participant may be affected. So, it is generally advisable for software to be upgraded in order to avoid any kind of functional problems. Some of the most popular examples of soft forks include a change in bitcoin’s signature validation and a change that enabled multi-signature addresses in bitcoin’s network.
These forks refer to changes in blockchain software that are not compatible with earlier versions. This makes it mandatory for all participants to upgrade to the new version if they wish to continue to participate and validate new transactions. Radical changes form a fork in the blockchain with one path following the new, updated blockchain and the other path clinging onto out-of-date protocols. Those on the old chain usually realise and make the relevant updates.
Hard forks can be both planned and unplanned. Planned forks occur when the blockchain developers have already decided to upgrade or change the protocol after a certain time. And such changes are generally aimed at improving the functioning of the blockchain and are therefore widely accepted by most of the members. In this case, the old chain will die a natural death, with the new chain going forward. Ethereum’s phase 2 upgrade is a major example of the creation of a planned hard fork.
But there are many instances when the participants of a blockchain network disagree on some features, leading to a conflict of interest and the creation of a new chain. Bitcoin Cash is a hard fork of bitcoin that was created after a portion of the community wanted to increase the block size of bitcoin from 1MB to 8MB. They wanted the number of transactions processed to increase, leading to a reduction in the fees paid by users.
Another example of a hard fork is the creation of Ethereum Classic, which was a result of the community’s efforts to reverse the effects of a hack in one of its applications. One important point here is that the original symbol goes to the majority, just as the ETH or Ethereum name was retained by the majority members who upgraded to the hard fork, while the minority got the name Ethereum Classic.
So, now we know that both soft and hard forks create a split, but the hard fork leads to the creation of two blockchains, while the soft fork is meant to result in one. Although there have been instances of scams and wrongful creation of hard forks, their presence cannot be denied or ignored. Forks provide the cryptocurrency community a chance to make changes, and come up with newer and better networks and currencies.
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