A fork is a split in a blockchain network. It can be accidental or intentional. An accidental fork happens when two or more miners find a block at the same time.
When subsequent blocks are added, one chain becomes longer than the other. The system will ignore blocks on the shorter chain, and this resolves the fork. The abandoned blocks are known as ‘orphaned blocks’.
Intentional forks happen when someone purposefully modifies the blockchain’s rules. Blockchain software is open source. So anyone can access it and make changes.
Intentional forks can be soft or hard.
Soft forks happen when some network nodes are upgraded while others aren’t, but the upgrade is compatible with the old rules. In this case, the upgraded and non-upgraded nodes can still communicate with each other.
By contrast, in a hard fork, the upgrade isn’t compatible with the old rules, so upgraded and non-upgraded nodes can no longer communicate. As a result, the blockchain splits into two separate networks: one that follows the old rules and one that follows the new rules.
When a blockchain splits, the two chains will share the same history up to the time of the split. But, from the moment the split happens, each blockchain will take on a life of its own, creating its own history.
Needless to say, hard forks have wide-ranging — indeed, divisive — implications, whereas soft forks tend to have mainly cosmetic effects. That said, the only way to reverse the effects of a soft fork is a hard fork.
- Most forks are short-lived. Typically, they’re used to add new features or fix bugs. P2SH (pay-to-script-hash), for example, was added to Bitcoin in 2012 to enable users to send Bitcoins without having to worry about how the recipient would gain access to them.
- Bitcoin XT is one of the first known hard forks. Its aim was to increase the number of allowable transactions from seven per second to 24 per second. Sadly, interest waned quickly. And while Bitcoin XT is technically still available, it’s fallen into disuse.
- Bitcoin Cash, a 2017 hard fork also on the Bitcoin network, was far more successful. It currently has a market cap of $4.6 billion. This fork was a result of disagreements in the Bitcoin community on the best way to scale.
Want to know more?
This article and accompanying video on Binance Academy walks you through the different types of forks and the rationale behind them. It also offers a fascinating insight into the politics of cryptocurrency decision-making.
If you want a better grasp of how common disagreements are in the crypto community, this post lists every hard fork there’s been on every cryptocurrency network.
The METACO view
“As much as disagreements are healthy and change can be for the better, forks, whether hard or soft, can have significant implications on crypto asset holdings. It’s critical to have strong frameworks and governance in place, as this will help ensure any divergence is handled smoothly.”