If you're familiar with open-source software development, you may have heard of something called a fork. However, this concept has a more specialized meaning in the crypto space:
A fork in cryptocurrency is a change to a blockchain's consensus protocol. It's an alteration where nodes begin confirming blocks in a chain that separates from the original chain.
How Does a Fork Work?
Imagine developers list a piece of code on a platform like GitHub, which is open to the public. This is called open source.
This means users can create copies of the original code for their own use. They might do this to compile the software themselves or add features that the original author might not have included (or may have rejected).
Taking this original code and building it independently is called forking. It's a cornerstone of open-source vitality.
What Is a Fork in Crypto?
The nuance of crypto software lies in consensus—the primary attribute of a properly functioning blockchain protocol. Every node running on the network must use the same software as all others; otherwise, it risks penalties and exclusion.
If you want to fork existing crypto software, you'd need to fork the entire blockchain due to this consensus requirement. Unless you can convince most existing nodes to replace their software with yours—which isn't always easy!
Why Do Forks Happen?
Forks occur for various reasons:
- Software updates
- Disagreements in consensus protocols
- Attacks on a given network
- Miners competing to produce longer chains
- Network rollbacks due to poor design
Types of Forks
There are two main types of forks in crypto where consensus rules are changed. Both result in different outcomes regarding participation from older nodes.
Hard Fork
A hard fork occurs when consensus rules are loosened to accommodate certain changes to the network. These changes add functionality to block confirmation behavior but aren't backward-compatible with nodes running older software, creating a new branch in the original blockchain.
When broader functionality changes occur in a network's assets, their economic properties also change. These changes might include:
- Increased block space
- Methods to reduce transaction times
- Reward emission restructuring
For example: If a node expecting a 1MB block receives a 2MB block, the larger block would be invalid under the old network's rules. The 2MB block must be sent on a separate network.
Soft Fork
A soft fork happens when consensus rules tighten to accommodate network changes. This alteration creates functionality in block confirmation or consensus behavior while remaining backward-compatible with older software.
Using our earlier example: If a node requires a 1MB block but receives a 0.8MB block, the smaller block would still be accepted as valid.
Notable Hard and Soft Forks
Let's examine some real-world examples of these forks from two of the most popular crypto networks.
Bitcoin (BTC) and Bitcoin Cash (BCH) » A Fork in the Road
In the mid-to-late 2010s, Bitcoin faced scalability issues, leading to a debate between two factions of users.
One proposal suggested implementing Segregated Witness (SegWit) in Bitcoin's software. SegWit was designed as an optional change to Bitcoin's transaction architecture, storing signature data as a tree appended to transactions without counting it in the transaction ID. This would be an example of a soft fork.
Bitcoin addresses reflect this: Those starting with "1" use traditional transaction structures, while those starting with "bc1" or "3" use native or nested SegWit, respectively.
Traders debated whether to reduce transaction data to fit more transactions into 1MB blocks or increase block sizes to 8MB. Rejecting SegWit for larger blocks required a hard fork, leading to the creation of Bitcoin Cash in August 2017.
👉 Discover how Bitcoin Cash differs from Bitcoin
Ethereum (ETH) and Ethereum Classic (ETC)
In June 2016, hackers breached "The DAO"—a large treasury designed to fund projects on Ethereum. The attackers stole about $55 million.
Before the hack, The DAO's treasury held roughly $250 million. Here's how it worked:
- Members deposited ETH into the treasury.
- They received DAO tokens for voting on investment proposals.
- If approved, ETH would automatically transfer to a project's smart contract.
However, a vulnerability in the smart contract allowed the attacker to make unlimited withdrawals until the treasury was drained.
To mitigate the attack, a hard fork was proposed, rolling back the blockchain to before the hack—creating today's Ethereum (ETH). Those who opposed this move remained on the original chain, now called Ethereum Classic (ETC).
👉 Explore Ethereum's evolution
FAQs
Is a Fork a Good Thing?
Forks are typically implemented to improve protocols. Whether the change is beneficial depends on the community making it.
Does a Hard Fork Increase Price?
Since forked networks have different technical and economic properties, they're fundamentally different assets. These factors determine whether their value increases.
Which Cryptocurrency Is Best for Forking?
There's no "best" crypto to fork—any open-source project can be forked.
Is Ethereum 2.0 a Hard Fork?
If users adopt the proof-of-stake model in the software upgrade, Ethereum 2.0 isn't considered a hard fork. The proof-of-work version would create a new blockchain.
Why Does Bitcoin Hard Fork?
Bitcoin typically implements hard forks to address scalability issues, often related to transactions per second and block size.
Has Cardano Had a Hard Fork?
Vasil was Cardano's hard fork.