You must have heard about Bitcoin Cash and Bitcoin Gold. Probably, you wondered how these coins relate to BTC, the first cryptocurrency. To explain this relation, we have to answer questions like “What is a blockchain fork?” and “How it occurs?”
In this article, we will explain the forking process and offer some examples of it.
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A Blockchain Fork Definition
Let’s start with the blockchain fork definition and basics. A fork is a split in a blockchain network that may occur under different circumstances. Here are some facts you should know in advance:
- There are soft and hard forks;
- Forks mean introducing changes to the blockchain protocol software;
- A hard fork is a radical change, which means a permanent divergence from the network’s previous version;
- A soft fork is more like an upgrade of the existing software;
- Any cryptocurrency allows forking.
The main principles outlined, let’s see how they translate into practice.
What Is a Blockchain Fork
If you know how a blockchain network functions, you are aware that any such network runs on open-source software. It means its code is available to view and anyone can suggest improvements to it. This fundamental principle makes it possible to create forks.
A hard fork occurs when the nodes disagree on the changes. Some may prefer to use the previous version, others vote for the upgrade. In some cases, it may lead to the creation of a new currency, like Bitcoin Cash.
How It Works
There are two ways to create a new coin. You can start them from scratch, on a brand-new blockchain. Or you can fork a blockchain that already exists and has been tested by a lot of people.
Normally, the developers prefer the first way: most new tokens are created on the base of their own blockchain. Then, the team offers them through an ICO to the public. The difficult part is to convince investors that the new crypto is worth buying.
If you choose the forking method, you just make some changes to the blockchain that already exists. For instance, to the Bitcoin Core. This is the way Bitcoin Cash appeared: the community diverged in their views of the BTC’s future and the network split.
Blockchain Hard Fork Explained
As we mentioned earlier, a hard fork implies a radical change in a blockchain protocol.
It is a result of disagreement within the network community. When two groups have different views on how the blockchain should develop, they form two opposite camps.
The group seeking to change the original protocol goes its own way (i.e. forms a hard fork). The members of this group upgrade their software to use the new version of blockchain and abandon the previous one. If you are a node running the original version, the new version does not accept you and vice versa. Actually, we get two competing blockchains here.
When a Blockchain Hard Fork Occurs
There are different reasons why developers may disagree on the future of the network. Common stumbling blocks are scalability issues. Sometimes, the new group wants to fix the existing security gaps or to add new features. Or they may want to reverse the transactions that already took place.
Below are some famous examples.
Bitcoin Cash (BCH) vs Bitcoin (BTC)
Bitcoin Cash (August 2017), was an effort to solve the problem of scalability in the BTC network. This new currency runs on its own modified blockchain, not compatible with the BTC network.
The main distinctive feature of the BCH blockchain is the increased block size (8 MB instead of 1 MB). It allows verifying transactions much faster, making waiting time shorter. Also, BCH features smaller processing fees.
Despite all these benefits, Bitcoin remains the most popular crypto in the world.
Bitcoin Gold (BTG) vs Bitcoin (BTC)
Bitcoin Gold hard fork (October 2017) closely followed Bitcoin Cash. Its developers sought to help GPU-miners regain their power in the network. The problem was that at some point GPU-miners could not compete with their colleagues using special mining hardware (ASICs). The people who initiated Bitcoin Gold were concerned that mining was becoming ‘too specialized’, not available to anyone as before.
Both the original and new blockchain are rather similar, but BTG uses a modified Proof-of-Work protocol. Also, this hard fork features the so-called ‘post-mining’. Right after the fork was launched, the developers mined 100,000 BTG for themselves. The plan is to use this amount for improving and financing the ecosystem.
Litecoin (LTC) vs Bitcoin (BTC)
Litecoin, a brain-child of Charlie Lee, was a hard fork of Bitcoin Core, too. Lee launched it in October 2011. The aim was to create a coin with faster and cheaper transactions. Charlie himself saw Litecoin as ‘silver’ and BTC as ‘gold’. According to him, the two coins were to complement each other for the benefit of the crypto community. While the heavier BTC was perfect for investments and moving big amounts of value, the lighter LTC was better for daily purchases and small payments.
Litecoin features smaller processing fees, increased speed of transaction processing and larger maximum supply. Its mining algorithm is slightly different, too.
Ethereum (ETH) vs Ethereum Classic (ETC)
The Ethereum network created a hard fork to correct the consequences of the famous DAO hack. During this event, the Ethereum community lost $50 worth of crypto due to a serious flaw in the original blockchain version. As a result, most users agreed to rewind the history to let holders recover their tokens.
Most, but not all. Some people argued that this solution was going against the basic principle of blockchain saying that no transaction can be changed or canceled. Finally, we have two versions of the same blockchain – Ethereum Classic (‘old-school’ network) and Ethereum (a hard fork). To know the details of this story and understand the difference between the two coins, read this article.
Blockchain Soft Fork: What It Is
A soft fork, as the name suggests, is a less radical change. If a hard fork demands all the nodes to agree to the new version of the blockchain, a soft fork just wants the majority of miners to upgrade their software. A soft fork makes the blocks, previous to the change, invalid but still recognizes them. Both versions are backward compatible and not competing.
Thus, you may compare a soft fork to changing a speed limit on the same highway. The rules are more or less the same but enhanced.
Blockchain Soft Fork: SegWit
One of the best-known examples of a soft fork is the SegWit adoption by the BTC network. We have already talked about scalability, that was the major challenge for the Bitcoin blockchain. BTC transactions were slow to verify, and the community started to think about the ways to solve this problem.
The obvious solution was to squeeze more transactions into a block. For it, it was necessary to make room for them. The community suggested to remove the public key and digital signature from a block and send then separately, through another channel. As this info used to take more than half of any transaction size, the idea seemed logical. Due to it, you could double the number of transactions in a block and thus to reduce the delay.
The solution is known as Segregated Witness (SegWit). ‘Witness’ stands for digital signature and ‘segregated’ means ‘separate’. This protocol modification was a BTC soft fork. It tightened up the rules (increased the ‘speed limit’). At the same time, it didn’t cease to recognize and process the old-school blocks. That’s what ‘backward compatible’ means.
Hard Forks vs. Soft Forks
Now, let’s juxtapose both types of forks to see in what ways they are similar and different.
As for similarity, it’s apparent: both of them create a split in the network.
But there are important differences in how this split works:
- A soft fork features downward compatibility (recognizes and sometimes keeps processing the old version blocks).
To use a hard fork, you have to get the new version of the software. It will not be compatible with the original blockchain.
- Therefore, a soft fork does not require all the users to upgrade at the same time. You can run a node with an older software version, and still be able to accept new blocks.
A hard fork wants everyone to update simultaneously. If you fail to do it, the new network will reject you.
- When a fork seeks to solve some security problems, the users often prefer it to be hard.
A good example is the situation with the DAO hack. When it happened, a soft fork was designed to prevent the hacker from cashing in the taken Ethers. It came close to being implemented, but finally, the developers decided in favor of a hard fork. It was a more radical change that canceled the incident and returned the funds to their owners.
Who can create forks
To create a fork, it’s enough to be a developer with adequate skills.
The first stage is simple: you go to GitHub (the leading software development platform) to get the source code of BTC or any other coin you want to fork. You modify this code as you wish.
The harder part is to ensure community support. For it, you have to reach out to the users and miners and convince them the change is necessary. If they don’t agree, you wasted your time and effort.
Creating a fork is an easier way to start a new crypto. As a developer, you don’t need to design a brand-new platform. You just modify the existing code for your needs. Another advantage of forking is that you don’t have to form a new community around your coin.
That is why the trend is likely to stay. Sure, we will see more forks of the popular currencies in the nearest future.