Because the Bitcoin software and blockchain is open source, the code is available for anyone to view and utilize. Each blockchain has its own rules, which are enforced by the network of nodes and miners that validate these transactions and generate new blocks. Bitcoin, for example, has a block size rule of one megabyte of transactional data per block. But as a cryptocurrency like Bitcoin evolves, changes to the protocol, such as adding new features or adjusting a core metric (like block size), may arise.

A fork is when a subset of miners of a blockchain adopt these types of changes, creating a new blockchain.

What are the different types of forks?

Soft Forks

When the community of nodes reaches consensus on updates to the rules, a soft fork occurs. This is when the new versions of the protocol are compatible with previous versions, meaning that older versions of the blockchain will recognize new blocks. With a soft fork, all nodes will continue to recognize new blocks on the blockchain moving forward.

Hard Forks

Hard forks are when the community of nodes fail to reach a consensus, and a miner or group of miners decide to validate blocks with new rules. This is not backward compatible with older versions, so anyone running a node and mining on the blockchain who wants to validate transactions with the new rules needs to update software to recognize these new blocks. A hard fork results in a split, or fork, in the blockchain, creating a new one. Whether or not both chains continue to exist depends on whether they are both supported by nodes and miners.

Hard forks typically garner more attention than soft forks, such as the one that occurred over summer 2017 when Bitcoin forked and Bitcoin Cash emerged. In this case, the community could not reach consensus on block size, so a group of miners decided to fork into Bitcoin Cash with 8mb block sizes.

When a hard fork happens AND both chains remain supported by miners, everyone holding the original cryptocurrency usually, depending on the protocol rules, receives an equivalent amount of the new, forked cryptocurrency to the amount of the original they owned. It is up to each exchange to decide whether or not to support the new cryptocurrency and distribute it to users. In the past, crypto traders have thought of hard forks as free money, but forks are dependent on miners to believe in the new coin to keep it alive. There have been many Bitcoin forks, but the original Bitcoin blockchain still remains dominant.

Conclusion

As technological developments are implemented on a blockchain, it is upgraded through either a soft or hard fork. A soft fork occurs when a majority of the community agrees on these developments and rules and implements it together, resulting in a single altered blockchain. In contrast, a hard fork occurs when the community is unable to reach consensus and a miner, or group of miners, fork off the original blockchain into a new one.

Disclaimer:

This article was written to the best of our knowledge with the information available to us. We do not guarantee that every bit of information is completely accurate or up-to-date. Please use this information as a complement to your own research. Nothing we write in any of our articles is intended as investment advice nor as an endorsement to buy/sell/hold anything. Cryptocurrency investments are inherently risky so you should never invest more than you can afford to lose.

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