We’re not talking about cutlery today, instead, we’re talking about what some crypto projects decide to do in the face of disaster or when attempting to upgrade.
Let us explain…
What Is a Fork?
Whenever you make a big decision in life, be it choosing a university to attend or marrying your partner, there’s a fork in the road. You’re choosing between two (or more) options that will change the course of your life. Go one way and one thing will happen, go the other, and something else will happen.
This is the same philosophy that forks in crypto subscribe to.
A fork in crypto happens when a project’s community decides to make a change to the blockchain’s protocol. This will often split the chain, creating two blockchains — the original (often called “classic”) and the new blockchain.
Why Would a Crypto Fork?
Forks mostly occur when a blockchain needs to upgrade its network. This could be in many different forms, such as:
- Increase scalability,
- Address security concerns,
- Take the project in a different direction,
- Create a simple foundation for new project,
- Reverse transaction(s),
- And, more!
There are two ways a crypto could fork; soft fork and hard fork.
What Is a Soft Fork?
Soft forks don’t create a separate blockchain; instead, they simply update the original network. It introduces a new rule set to the blockchain (e.g. bigger block size), but doesn’t make any drastic changes to the network. The majority of nodes must enforce the new rules for the blockchain to upgrade.
This type of fork is backwards compatible, meaning that old nodes will recognize newly created blocks as valid. Although old nodes are able to process new transactions, some previously valid transactions will now be invalid, as they must adhere to the new rule set. This means that nodes don’t need to upgrade to process transactions.
Nodes are what secure the blockchain — learn more about consensus mechanisms here. This means the more nodes that accept the new rules, the more secure the blockchain will be after the fork. As soft forks are backwards compatible, this is rarely an issue.
Not all nodes will update to the new rule set straight away, but the updated nodes will reject any blocks that break the new rule set. This encourages old nodes to update their rule set to take part in the ecosystem.
Issues could arise if some nodes enforce the new soft fork rule set, but the majority regress to the pre-soft fork rule set — meaning, you have your community split across two different rule sets (pre-soft fork and post-soft fork). The divide in your community may result in the network failing to reach consensus.
What Is a Hard Fork?
A hard fork will create a separate blockchain, leaving the original blockchain (often rebranded as “classic”) behind the newly formed blockchain (either going by the same name or adding 2.0 to the end).
You would opt to create a hard fork (over a soft fork) if drastic changes need to be made to the blockchain’s code, or if the network struggles to reach consensus on an update — more on that later.
As this is a more hardline update to the blockchain, it requires all nodes to upgrade their protocol software to the latest version — it’s not backwards compatible. This creates a permanent separation from the previous network.
Some people will continue to support the original blockchain. However, historically, we’ve often seen original blockchains be abandoned by users, as they realize that the new chain is superior.
As the new chain is an exact copy of the original blockchain, any transactions that happened prior to the hard fork also happened on the new chain. Meaning, both networks will have the same balance. Free money, right? Well, not exactly.
With the split, one of the chains is bound to either fall in value, or not reach the price of the original blockchain. This means that although you may have the same balance on two chains that you can sell separately, your balance on one chain may quickly become worthless.
It’s also important to note that not every fork will result in this “free token” system, some will use other methods to airdrop tokens to people joining the new chain.
There are two types of hard forks: planned and controversial.
Planned Hard Fork
A planned hard fork is when the network plans to create a hard fork to upgrade the network. This requires a large majority of nodes, developers, and users to agree that this is the best move for the project.
Nodes will voluntarily upgrade their software to follow the hard fork rules. Those who don’t upgrade will continue working on the old chain, which will become a ghost chain.
Controversial Hard Fork
Sometimes, not everyone agrees with the direction that a project must go. This is when a controversial hard fork happens.
In this case, two blockchains are created but neither is left behind. Instead, the disagreeing groups continue developing on the chain they feel is going in the right direction — creating separate, possibly thriving, ecosystems.
Soft Fork vs Hard Fork
Here is a quick recap on the differences between a soft and hard fork:
- Smaller changes to the network
- Backwards compatible
- Updates already existing blockchain
- Nodes don’t have to update software
- Bigger changes to the network
- Is not backwards compatible
- Creates two separate blockchains
- Nodes must update software
What Was the First Crypto Hard Fork?
The first fork in crypto history was back in 2014 with Bitcoin XT. The Guardian called it a Bitcoin “civil war” at the time, which actually isn’t an awful way to explain controversial hard forks.
Bitcoin XT was proposed as a way to upgrade the transactions per second that the network could process. At the time, Bitcoin allowed up to seven transactions per second, Bitcoin XT aimed for 24 per second. How would they do it? Increase the network’s block size from one megabyte to eight megabytes.
Bitcoin XT peaked at over 1,000 nodes running its fork, but that peak was short-lived. Only a few months later, the project was abandoned by users and was no longer available. It may have been the first, but it definitely wasn’t the most successful.
This is probably the most famous (or infamous) fork in crypto history.
Back in 2016, a venture capital fund, called The DAO (which held around 14% of total ETH), was hacked, resulting in over 50 million USD being stolen. This is one of the biggest hacks in cryptocurrency history.
We’ve covered The DAO and DAO technology more extensively in this article here.
As a result of this hack, Vitalik Buterin, the creator of Ethereum, created a hard fork to restore the funds lost by The DAO hack. This was extremely controversial at the time and he continues to get hate for it to this day.
Twitter user Dan Held said, “[The DAO hard fork] violated the entire reason why we have a blockchain”.
When questioned why another fork wasn’t created after a hack in 2017, Vitalik gave three reasons:
- Ecosystem was less mature then (during The DAO hack)
- More at stake then as % of all ETH (The DAO held 14% of all the ETH in circulation at the time)
3 Most importantly, today’s attackers can just move funds, so a hard fork is impossible
Litecoin is an example of developers copying the code of another project, as the starting point for their new project.
The main changes that the Litecoin developers made was multiplying the total supply of coins by four, increasing block size, and decreasing the blocktime. Making Litecoin’s transaction throughput roughly four times faster than Bitcoin’s.
This is one of the most successful hard forks in cryptocurrency history with the project still inside the top 20 projects at the time of writing.
SegWit Bitcoin Update
An example of a successful soft fork is the Segregated Witness (SegWit) Bitcoin update of 2015.
This update saw the effective block size increase from one megabyte to four megabytes — a more conservative change than the Bitcoin XT hard fork.
This was done by removing (or segregating) the signature data from the transactional data on every block to free up space for more transaction throughput per block.
Will ETH 2.0 Be a Hard Fork?
At the time of writing this, no. ETH 2.0 will be a seamless update to the network. Users won’t have to worry about a separate blockchain being created, nor will they need to migrate their tokens. Therefore, ETH 2.0 should be considered a soft fork.
However, there’s a chance it could become a hard fork. This would only happen if there is a failure implementing the update and the community disagrees on the future of the project, resulting in a controversial hard fork.
What Is a Genesis Chain? And, Why Isn’t It a Fork?
Terra’s recent “fork” actually wasn’t a fork, instead it was a genesis chain. But what’s the difference?
The main difference between a hard fork and a genesis chain is that genesis chains don’t share transactional history with the previous blockchain. This means that your balance won’t remain the same on both blockchains — you’ll start with zero tokens on the new chain.
However, not everyone was buying into this terminology. Axios crypto reporter, Brady Dale, said, “How the hell is Luna 2.0 not a fork? Why is Terraform Labs being annoying about that language.[…] God, I hate spin.”
Forks have been and will continue to be a big part of the cryptocurrency space. They can be used to update a network, protect users from catastrophic hacks, solve disagreements in communities, and more.
As blockchain technology grows and more people enter the space, it becomes increasingly likely that projects will have to soft fork in order to keep up with the demand of a growing ecosystem. Or that communities will opt to hard fork a project to take it in a different direction.
One thing is for sure, forks are here to stay.
This article is a part of the Hashnode Web3 blog, where a team of curated writers are bringing out new resources to help you discover the universe of web3. Check us out for more on NFTs, DAOs, blockchains, and the decentralized future.