There’s more than one way a hard fork can be defined. One definition of the technical perspective is that a hard fork is a lasting amendment in the rules of the blockchain digital currency.
Once that happens, the new chain does not follow the old chain rules. For example, the new chain would reject any blocks extracted via the old law. Therefore, a hard fork is called the change in the protocol of the digital currency.
A fork is a fairly prevalent word in computer science. In computing parlance, you can refer to a hard fork as a split from the initial blockchain. If there is a debate as to whether a new set of laws should be implemented or not, this could result in a hard fork.
Literarily, it is comparable to splitting an item into two to resolve a dispute, each in favor of the two parties involved.
In more technical terms, a fork is a change of code on an application. In blockchains, a soft fork is an insignificant transformation of the software that does not require making an update to all points (executing computer applications).
With SegWit, for instance, both SegWit points enabled and no-SegWit points are allowed to utilize a similar Bitcoin network. This is because SegWit was intended to have reverse compatibility.
On the other hand, a hard fork is a word that defines a significant shift in the blockchain protocol that can essentially alter the operation of a crypto network, perform transaction rollback, as well as alter the way mining works. With major changes to the blockchain, this can be used to keep the same coin or to renew a coin.
A hard fork requires all points and computers to connect to the network of the cryptocurrency in order to perform a software update. This is also required if they intend to utilize the new coin or blockchain, stay with the active protocol, or to execute two different software versions.
The outcome of the “forking off” coin forming a blockchain or currency can be distinguished through two distinct coins, two distinct ledgers, two distinct code sets, all from the same platform and blockchain.
In cases such as Segwit, the new software is ideally updated by everyone, but even if the system doesn’t work yet; Bitcoin remains as it is and it is optional to perform the updates.
How Forks are Created?
A consensus is a requirement. Generally speaking, an agreement between the stakeholders must be reached before the software update is performed. It needs majority assistance/support from coin owners (more technically “nodes”) linked to the coin’s network to create a fork that updates the new software that everybody will use.
The updates must be agreed upon by the nodes and the software must be replaced adequately. This consensus may come from miners as well as mining pools first and foremost, instead of a general population of consumers because they tend to regulate many nodes.
With the above, forks only need consensus on an update being taken. In terms of just coming up with a hard or softfork, anybody can copy and paste and change the code of a coin, thereby generating a hard or soft fork.
In other words, any programmer with the necessary skills might decide to fork Bitcoin or develop a new Bitcoin copy. That’s how easy it can be. The difficulty is getting assistance from miners, exchanges, users who not only need to copy and set a wallet up, but also utilize and exchange the coin.
Just go to GitHub, grab a coin’s code and then perform the development work required to upgrade the system. However, no one can get sufficient miners to min the newly developed coin, sufficient software users to upgrade or download coin wallets and/or sufficient exchanges to list them.
Then, and if they can, it is an uphill battle to get anything near to the same value as the original coin. So “yes, anybody can fork a coin in theory but in practice, there are many obstacles. In reality, forks of any kind need to be well-organized in creating some type of agreement.
Even efficient ones tend to be less valued than the initial coin. Probably one of the notable exceptions is that of Ethereum and Ethereum Classic where the later was challenging strongly with a dominant force.
There is no functioning blockchain if the miners and users do not give their support. Therefore, the term “User Activated Fork” existed. With no exchange support, the new token is likely to have little or no value.
Thus, a single digital currency with only one blockchain like Bitcoin got involved in the “hard fork where the code is changed and the outcome is embraced by miners, customers, and exchanges to make it a feasible and functional alternative.
But after a hard fork, what’s the true blockchain? Usually, most users shift to a new blockchain, meaning the old one disappears slowly, but that’s not always the case. Sometimes both variants have enough community assistance that implies they’re going to coexist.
There are several prospective outcomes when a hard fork occurs. For example, if consumers decide to support both the new and the existing blockchains, it enables a network to be separated into two.
Users would always prefer one blockchain over the other, despite having both adopted. One of these blockchains is dominant in this situation, dominating the support and resources of the community. Nevertheless, there is still support for the new blockchain but not as the other.
Reasons for Making a Hard Fork
A hard fork happens for several reasons, such as the execution of the technical upgrades. Nonetheless, the majority approval of digital currency mining devices is required in order to execute hard fork, and the degree of the majority needed may vary depending on the cryptocurrency concerned.
A fork could occur when innovation is needed as in the Bitcoin Cash situation; restore hacking damage, in the case of Ether, or simply to avoid a soft fork consensus (as in the Bitcoin Cash hard fork and SegWit 2x).
Notable Hard Forks
The Ethereum Hard Fork
There are plenty of hard forks execution to look up to, with half of it results in chain splits while another half do not. The Ethereum hard fork is an example that occurred in July 2016 faced by the Ethereum blockchain. The outcome, the Decentralized Autonomous Organization (DAO) raised about US$ 150 million worth of ether at the time.
The DAO was a decentralized investment fund. The funding providers, mostly the investors, would be transparent about where the money went from the fund.
Companies were able to submit funding proposals, and once approved, investors from the DAO will place a vote about the idea. A minimum of 20 percent of votes is needed in order for the funding to be sent to the contractor’s wallet that floated the business idea.
While this concept generated extensive interest and significant financing, a hacker exploited the code, leading to a cash loss from the DAO. The Ethereum community ultimately performed a hard fork to solve this issue that reversed all donations received by the DAO. This is to ensure that the investors receive their cash.
A handful of people in the cryptocurrency community are against this Ethereum fork. They opted for the older Ethereum protocol to maintain mining blocks. They called this blockchain Ethereum Classic.
The Bitcoin Hard Fork
Another hard fork was the one that made some money for Bitcoin which lead to the formation of Bitcoin Cash. The Bitcoin blockchain divided into two on that day at block #478559.
This digital currency came into being when developers changed the existing code of Bitcoin to create a new protocol in August 2017. Instead of the more traditional 1 MB blocks of Bitcoin, the new protocol had 8 MB blocks, which allowed the network of Bitcoin cash to handle a much greater transaction load.
Not too long from this first Bitcoin fork, another Bitcoin fork occurred leading to the creation of a new coin, Bitcoin Gold. The purpose of the Bitcoin hard fork was to unfold an issue in the blockchain or enhance innovation for better performance of the network.
Bitcoin Cash Hard Fork
Dated back on November 15, 2018, is when the blockchain was separated into halves resulting in the creation of Bitcoin SV and Bitcoin Cash ABC. The Bitcoin Cash fork happened, owing to the rivalry between two groups, the Bitcoin Cash Group and the Bitcoin SV group.
The split was narrated as a competition between both camps. The camp that supported the software called Bitcoin ABC (Adjustable Blocksize Cap) was backed by Jihan Wu from Bitmain and an entrepreneur, Roger Ver.
The other camp spearheaded by billionaire Calvin Ayre and Craig Steven Wright was on the competing end with the Bitcoin SV (Satoshi Vision) software version. Both outcomes exist today after the Bitcoin cash fork period was over.
Litecoin Hard Fork
Litecoin Cash case is another similar event that occurred. It is a digital currency that came into being on 18 February 2018. It started through hard forking the Litecoin blockchain.
The laws of Litecoin Cash are similar to that of Litecoin. Nevertheless, the hashing algorithm used in the new cryptocurrency resulting in the reusing of the outdated hardware. Besides, Litecoin Cash utilizes a DarkGravity V3 algorithm to automatically re-adjust each block’s mining difficulty.
The Blockchain That Is Supported the Most From a Hard Fork
Sometimes after a difficult fork, only one chain survives’ while the other stops working. By using the Bitcoin hard forking method, both cryptos have sufficient user and stakeholders’ support to coexist; you’ll find both Bitcoin and Bitcoin Cash doing very well on the market.
This is due to the nodes and miners. When most miners decide to embrace and work with the new set of regulations in the recently mined blocks, there are high chances of survival.
The next step is to get these blocks to recognize the nodes. But while miners and nodes represent nearly all of the network’s computing power, this doesn’t imply that their vote is conclusive.
One should not underestimate the function of exchanges, brokers, and customers. Keep in mind that miners shoulder a lot of costs and have to pay them with the profits made on the blocks they’ve mined and the transaction fees in a block.
But if no one is prepared to buy the coins and make a payment for the transaction fees, miners will not be able to pay for their expenses. This, in turn, implies they will not be willing to play their part in supporting the blockchain that is newly developed.
Why Forks Produce Free Coins?
A blockchain is a transaction ledger where coin ownership is registered. Therefore, anyone holding coins before a fork and during the fork will own some coins in both chains after the forking is executed.
There is generally a snapshot date with the creation of new assets and some captured snapshots of the ledger. Capture event takes place at a block number, the number of the block is crucial to forks, while the calendar date is only crucial to understand when the number of the block occurred.
So, generally speaking, if you want to “join the fork,” and thus get “free coins,” you need to add your transaction to the ledger before the “snapshot block” is captured. After the snapshot has taken place, it is not that important to keep the initial coin.
If you acquired Bitcoin before its hard fork occurred, the same amount will also become yours automatically after the fork. This is more like the bonus offer by the contemporary stock market inducement.
During the execution of the Bitcoin hard fork, the new blockchain copies all private keys of the coins that come with them. So if you purchased Bitcoin before the splitting and you’ve got the private keys, you’re going to get the same quantity of Bitcoin cash.
After the fork, each coin would have its value depending on the market supply and demand. Before they occur, the majority of the hard forks are announced a sufficient time before the period. Some exchanges, well before the fork took place, react to this by providing customers the ability to obtain the new coin.
It also depends on your wallet supplier whether you can claim your share if another related coin is created through a hard fork.
The type of wallet that you use doesn’t matter; it’s always essential to check with the designers of the product or software to see how they’ll handle the situation. This is even more essential when you hold your coins with an exchange.
It is advised for you to check for how the exchange will cope with the fork on its website. Many exchanges will do all they can to satisfy their users, you may not worry much.
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