What Are Blockchain Forks? Admiral Markets
What Are Blockchain Forks?
If you’ve been keeping up to date with your Bitcoin news recently, you’ve very likely heard a lot of talk about ‘forks’. Here we’ll explain what they mean and how they can influence their respective cryptocurrency.
A Blockchain ‘fork’ generally refers to the event in a project which sees it spin off into another project, by copying the source code and modifying it for the creation of another blockchain. For example, the cryptocurrency Litecoin (LTCUSD) is a fork of Bitcoin (BTCUSD), as its developers copied Bitcoin’s code, made a number of alterations to it and launched a fresh project.
A fork of the Bitcoin software is tricky, because every user running a Bitcoin knot needs to maintain compatibility with the network, or miners may begin mining the wrong blockchain.
Why Do Blockchain Forks Happen?
The Blockchain solutions of the cryptocurrencies are typically open source, which means that the code is free and available for all to view and make use of. As the currencies evolve and switch over time, some switches need to be made to their protocols. Such switches can range from the puny addition of a fresh feature, to massive switches, such as enhancing the maximum block size. Sometimes the switches of the Blockchain are viewed differently inwards the miners community. Some accept the switch and others do not. Such splits in the network infrastructure may also result in the creation of fresh Blockchains and fresh cryptocurrencies, as we explain further.
A hard fork is a switch in the cryptocurrency protocol that is not rearwards compatible with older versions of the currency. For example, everyone running a knot in the Bitcoin network would certainly need to upgrade their software in order to recognise fresh blocks.
A hard fork is a situation where knots running the fresh software are separated from the previous version of the cryptocurrency. If half of the knots are running the fresh version and mining blocks, and the other half are running the old version and mining a different set of blocks, then you effectively have two different chains – which is where the term ‘fork’ comes in.
A soft fork is a switch in the cryptocurrency protocol, where only previously valid blocks are made invalid. This switch is backward-compatible, because older versions of the software will recognise fresh blocks.
While the hard fork requires all miners to upgrade and enforce the fresh rules, the soft fork requires only the majority of the knots to upgrade and agree on the fresh version. This means that a soft fork has less of a chaotic effect on the network, because both old and upgraded knots will keep recognising fresh blocks and maintain consensus on the blockchain.
Some Examples of Forks in Activity.
Soft forks have been the most common way to upgrade the Bitcoin’s blockchain, because allegedly they carry a lower risk of splitting the network. Some examples of successful soft forks are software upgrades, such as BIP sixty six – which dealt with signature validation, and P2SH – which switched Bitcoin’s address formatting.
The most prominent example of the hard fork is with Ethereum. This happened following the hack of the DAO (the digital Decentralised Autonomous Organisation), which was an ambitious project for the humanless venture capital rigid, built exclusively on the brainy contracts on the Ethereum platform. Soon after the record crowdfunding of $150 million, someone began siphoning money from the project and it lost around $50 million worth of Ether, which resulted in a decision to ‘hack the hacker’ – i.e. the Ethereum Foundation had to intervene and just fork the entire blockchain, resulting in splitting it into two cryptocurrencies – Ether and Ethereum Classic.
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