Cryptocurrency and Hard Forks

Bitcoin-meal

The blockchain technology is a consensus protocol which is decentralized. This means that no one entity has any supreme control over it. The governance is by consensus; the participants on the network must, therefore, arrive at a set of rules and protocols that must be adhered to in order to achieve harmony. However, sometimes the network has to be improved or changed and this brings about hard or soft forks.

 

What Are Forks?

 

A fork occurs when a cryptocurrency such as Bitcoin or Ethereum introduces a software upgrade to its network. The software upgrade can be backward compatible with the existing version, meaning that the participants running the older version of the network can still participate in the network without having to upgrade to the new network. This is referred to as a soft fork. A soft fork usually introduces some minor changes such as an increase in the block size. Eventually, users end up upgrading their software to the new version to enjoy the improved functionalities.

 

Sometimes, the new upgrades are not compatible with the older version of the software. This results in two fundamentally different networks existing concurrently. In some cases, both networks are strong enough to survive independently and this creates a new cryptocurrency such as is the case with Bitcoin and Bitcoin Cash. In other cases, only one network version can survive and the stronger one takes the day, with the users of the one that doesn’t survive being forced to cross over to the stronger one. This has happened with some upgrades such as Ethereum when the Byzantium upgrade was introduced.

 

Why Would a Fork Take Place?

 

Ideally, a fork is not supposed to take place. The underlying protocol should be dynamic enough to accommodate any need of any participant. However, as with any other technology, sometimes it has to be developed to cope with new changes and shifting needs. A fork can take place because of the following two reasons:

 

Accidental Consensus Dispute

This occurs when two miners discover the same block concurrently. This means that two different network participants validate the same transaction at the same time, creating two different ledgers. This situation creates two possible chains and the participant that mines the next block first is regarded as the true chain as his is longer. In the blockchain, there can never be two similar chains as the blockchain relies on the occurrence of one truth.

 

New Protocol Rules

This is initiated by the developers and is permanent, unlike the temporary forks above. This might be necessitated by different needs such as improving the current network features such as the block size to adding new features to improve the network and the user experience.

 

There Are Two Types of Hard Forks:

 

Planned Hard Fork

A planned hard fork is championed by the developers and in most cases; it is announced from the onset. This upgrade is meant to improve the network as more users adopt it or to solve an anticipated issue. In most cases, every participant is in agreement and the switch to the new software is smooth. No new cryptocurrency is created during planned hard forks.

 

Contentious Hard Fork

Unlike a planned fork which is harmonious, a contentious hard fork is the result of a disagreement on a fundamental issue within the cryptocurrency’s users. When a sizable number of participants feel the need to introduce a fundamental change to the software or the code, they present the proposal to the community and if the community is split, they might decide to form a completely new cryptocurrency which they feel will be better. A good example is Ethereum and Ethereum Classic or Bitcoin and Bitcoin Gold.

 

How is a Fork Carried Out and By Whom?

A fork is in essence just a change in the underlying code of a cryptocurrency. This means that the difference between Bitcoin and Bitcoin Cash is just the underlying network programming. The code underlying most cryptocurrencies is open source which means that it’s available to anyone. Any programmer with the skills can therefore get the original code and change it to whatever he wishes.

 

As easy as it sounds, implementing it is the challenging part. This is because even with new code, getting enough participants to abandon the original network and join the new one is a herculean task. Usually, it’s the people with great influence on the participants such as the original developers or renowned cryptographers who are able to carry out successful hard forks.

 

Successful Hard Forks

There have been some very successful hard forks that have gone on to command a great following and market capitalization. The most renowned is probably Bitcoin Cash, a fork of Bitcoin. The hard fork that resulted in Bitcoin Cash was initiated by some developers who were concerned about Bitcoin’s ability to scale and the speed of transactions. Bitcoin is still relatively slow which has made many turn to other cryptocurrencies that are much faster. Many were impressed by the new cryptocurrency which had a block size that was eight times bigger than the original network, contributing to a fast rise of Bitcoin Cash which is currently fourth in market capitalization.

 

Ethereum also had a successful hard fork which resulted in Ethereum Classic. The fork was as a result of a disagreement on the way forward after a hack on Ethereum’s Decentralized Autonomous Organization (DAO) protocol. The Ethereum developers made a hard fork which made the coins that had been stolen by the hackers worth nothing, a step that was criticized by some as against the ethos of cryptocurrencies. Those opposed to this forked into Ethereum Classic, a cryptocurrency whose protocol retained the original attributed of Ethereum.

 

In some cases, developers have adjusted the original code of a cryptocurrency but instead of a hard fork, they have created a completely new cryptocurrency. This is known as a spinoff. The new cryptocurrency is quite similar in structure but has some fundamental differences such as block sizes or scalability and is not associated in any way with the original cryptocurrency. A prime example is Litecoin, Peercoin and Dogecoin which are all spin offs of Bitcoin.

 

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