Blockchain Forks: Everything to Know

By  Beluga Research July 10, 2023

Image for Blockchain Forks: Everything to Know

Summary

  • A blockchain fork occurs when a crypto network splits into two separate chains
  • Forks can be categorized as hard, soft or software
  • Blockchain forks can occur for a variety of reasons, like updates to the protocol
  • When a blockchain fork occurs, network participants must decide which chain to follow

Overview

A blockchain fork occurs when a cryptocurrency network splits into two separate chains, each with its own set of rules and protocols. Forks can happen for a variety of reasons, including changes to the network's consensus mechanism, updates to the protocol and disagreements among network participants.

When a fork occurs, network participants must decide which chain to follow. This decision can have significant implications for the future of the network. A fork can impact a network's security, scalability and overall functionality. Forks can lead to the creation of entirely new cryptocurrencies - and sometimes even the demise of an existing one.

A Brief History

Forks have been a part of the blockchain ecosystem since the early days of Bitcoin. In 2010, a softwas fork occurred in the Bitcoin network, resulting in the creation of a new cryptocurrency, Namecoin. Namecoin was created to address some of the limitations of Bitcoin. For example, Bitcoin did not support decentralized domain name registration. Namecoin supported such registration.

Since 2010, there have been numerous hard forks in the Bitcoin network. The most famous fork occurred in 2017, resulting in the creation of Bitcoin Cash (BCH). This was created as a response to the scalability issues facing the Bitcoin network. The scalability issues had made it difficult for the Bitcoin network to process a large number of transactions quickly.

Other blockchain networks have also experienced forks, including Ethereum. In 2016, Ethereum underwent a hard fork after the infamous DAO hack. The event resulted in the creation of Ethereum Classic, which is still in operation today.

What is a Blockchain Fork?

A blockchain fork is a split of one blockchain into two separate chains. There are two types of forks, soft forks and hard forks. A soft fork occurs when a change is made to the network's protocol that is backward compatible with older versions of the software. Nodes that have not yet updated to the new protocol can still function on the network without issue. Soft forks are typically used to implement minor changes to the network, like bug fixes and security updates.

A hard fork is a more significant change to the network's protocol that is not backward compatible with older versions of the software. Nodes that have not updated to the new protocol will no longer be able to function on the network. Hard forks are typically used to implement major changes to the network. These include changes to the consensus mechanism or the introduction of new features.

Hard forks and soft forks impact a network's security differently. Soft forks are generally considered to be less risky than hard forks. They do not require network participants to upgrade their software immediately. Hard forks can create a split in the network. This can lead to a decrease in security if the new chain is not adequately supported.

A software fork, like Namecoin or Litecoin, is the usage of the Bitcoin Core code to create a new cryptocurrency. It it named this because a software developer is taking the code and "forking" it off of the main branch.

Getting Started

  • Create a new chain. A hard fork creates a new chain that is separate from the original chain. The two chains will continue to exist independently.
  • Continue to recognize new blocks mined under the new protocol. In a soft fork, the blockchain does not split into two separate chains. Instead, the new blocks are added to the existing chain.
  • Discover lesser-known cryptocurrencies. Many cryptocurrency networks are based on the Bitcoin code. These include Dogecoin, Litecoin and Namecoin, among others.

Unique Aspects

  • Creation of new cryptocurrencies. The new chain created after a hard fork has its own set of rules and protocols. These can result in a new currency with a separate market value. For example, when Bitcoin underwent a hard fork in 2017, the event resulted in the creation of Bitcoin Cash.
  • Forks can be contentious. Not all members of a network may agree with the changes that are being proposed. This can result in a split in the community. In some cases, the split can be so severe it leads to the creation of multiple chains. Each chain will have their own set of rules and protocols. Soft forks are generally less contentious than hard forks. They can be controversial if the community disagrees on the changes being proposed.

Advantages

  • New features. Hard forks are often used to add new features to the blockchain. This can include improvements to the consensus algorithm, increased block size and new transaction types.
  • Improved security. In some cases, a hard fork can be used to improve the security of a blockchain. For example, if a vulnerability is discovered in the code, a hard fork can be used to fix it.
  • Community-driven. Hard forks are often initiated by the community, meaning the decision to cause a hard fork is made by the people who use and support the blockchain. This can lead to a more democratic and decentralized decision-making process.
  • Backward compatibility. Soft forks are designed to be backward compatible. Users who do not upgrade their software can still participate in the network. This can lead to a smoother transition to the new rules and a lower risk of a split in the community.
  • Improved efficiency. Soft forks can be used to improve the efficiency of the network by making changes to the protocol. This can include changes to the transaction format and improvements to the consensus algorithm.
  • Lower development and maintenance costs. Soft forks are generally less expensive to develop and maintain than hard forks. They do not require the creation of a new chain.

Disadvantages

  • Split of the community. Hard forks can result in a split in the community. Some users will choose to stay on the original chain and others will move to the new chain. This can lead to a loss of network effects and a decrease in overall adoption.
  • Risk of replay attacks. When a hard fork occurs, there is a risk of replay attacks. This is when a transaction is valid on both chains. An effective attack can lead to double spending and other issues.
  • Development and maintenance costs. Hard forks can be costly to develop and maintain. They require a significant amount of resources to ensure that both chains remain stable and secure.
  • Limited changes. Soft forks are limited in the changes they can make to the network. They can only make changes that are backward compatible. They cannot make significant changes to the protocol.
  • Centralized decision-making. Soft forks are often initiated by a small group of developers or miners. The decision to fork is not as democratic as it is with hard forks. This can lead to issues with centralization and a lack of decentralization.