In the realm of digital currencies, a fork denotes a
strategic mechanism employed for the enhancement, alteration, or advancement of
the blockchain protocol. Conceptually, it represents a divergence wherein
developers diverge from the original blockchain framework, effectuating
modifications to the project's source code, thereby engendering the creation of
a distinct blockchain entity. The impetus behind forks varies, ranging from the
integration of novel functionalities and mitigation of security vulnerabilities
to the resolution of ideological discord among community stakeholders.Generally,
forks are divided into two categories: Soft Fork and Hard Fork, which we will
delve into in this article, addressing the question of how a fork impacts the
fate of a digital currency.
What is a Fork?
If you are familiar with blockchain technology, you know that changing recorded data in the blockchain is impossible. The blockchain follows protocols implemented by programmers, which are immutable. This lack of changeability is not favorable for those who oppose existing laws. In such situations, the only available solution is to update or create a new blockchain.
Digital currencies have been introduced to the market based on sets of software codes. These codes are open source, allowing developers to continually offer improved versions. Similar to any other software, digital currencies also need updates and improvements. The changes made to the source codes for the improvement and update of these currencies lead to a divergence in the network.This update or creation of a new blockchain is called a fork.
These changes can include altering the rules of the blockchain network and even adding new features to its previous version. In some forks, these changes and updates lead to the obsolescence of older versions.
Types of Forks
The updates made to different types of blockchains can be partial or complete. Based on this, forks are divided into two types:
Soft Fork:
A soft fork, which is a backward-compatible method, creates a partial update in the software. If participants in the network do not implement this update, they can still participate in validating network transactions. However, a problem arises for registering blocks by a miner who has not implemented this update, and the network rejects their block. In essence, a soft fork is a temporary type of divergence, and the new fork remains compatible with the previous version.
Soft Forks are generally divided into two categories:
Miner Activated Soft Fork (MASF): In this type of soft fork, miners and users have the choice to not accept the new update and continue with their previous path.
User Activated Soft Fork (UASF): In this type of soft fork, changes are made at a specific time and date, and users are also obliged not to validate blocks and transactions that do not comply with the new rules.
Hard Fork:
It is possible that there may be significant disagreements among network members regarding network security, the distribution of currency, transaction speed, and similar issues. These disagreements can lead to the creation of a hard fork. This hard fork must occur to ensure that the differences do not affect the future of the desired digital currency.
Therefore, in a hard fork, fundamental changes are made to the software in a way that is no longer compatible with previous versions. If a participant does not implement this update, they will be permanently disconnected from the network. In fact, a hard fork creates a permanent divergence from the blockchain.
An important point regarding hard forks is that the transaction history is calculated from the fork point, and transactions made before the hard fork will not be valid in the new chain.
Perhaps this question also arises for you, what happens to currencies after a hard fork? In fact, a significant concern for traders during a hard fork is the potential loss of value for that currency. However, it should be noted that the previous currency remains valid and is not removed from the blockchain network.
Types of Hard Forks:
Hard forks in blockchain come in two types, each with different characteristics. Below, we explain the types of hard forks.
Planned Hard Fork: In the event that most community members agree on the changes and the fork faces little resistance, the hard fork that occurs on the blockchain is planned. This type of hard fork has two goals, namely:
As a result, the old chain is eliminated with a Planned Hard Fork, and a new chain develops. In most cases, the name of the new chain is derived from the name of the old chain. A good example of this type of fork is the Byzantium hard fork for Ethereum, which aimed to enable faster transactions and greater security in the blockchain.
Contentious Hard Forks: In cases where there is significant disagreement among members of a community regarding the direction and path of the project, a planned hard fork is proposed as a solution. However, unlike a planned hard fork, the old chain is not eliminated, and two separate blockchains are created, both of which will continue to operate as long as they receive support. The most famous example of this type of fork is Ethereum Classic, which emerged after the DAO hack, resulting in two new chains named Ethereum and Ethereum Classic.
Impacts of Fork Creation:
Forks can have various effects on the status of digital currencies or generally change their trajectory. These impacts include:
Recovery of Lost Trust and Capital: Some cryptocurrencies may become targets of cyberattacks, leading to the loss of capital for traders. Similar to what happened to Ethereum in 2016 after the DAO hack. After hackers attacked the Ethereum cryptocurrency, a significant amount of capital was lost, causing Ethereum's value to plummet. Eventually, the hard fork on the Ethereum network led to the creation of a new currency called Ethereum Classic, which restored lost trust among users.
Bug Fixes and Network Improvement: As mentioned earlier, cryptocurrencies, like any software created through code, require updates and improvements. This update undoubtedly leads to stabilizing the desired cryptocurrency network and resolving previous issues.
Security, perhaps the most important concern for investors, is also strengthened in new updates. In fact, a hard fork leads to increased security in the blockchain network.
Conclusion:
Forks are an integral part of the digital currency ecosystem, aiding innovation and compatibility while maintaining blockchain integrity. Understanding the different types of forks and their potential impacts is crucial for anyone active in the crypto world.
Key Points:
A fork refers to a divergence in the blockchain, resulting in the creation of two separate chains.
There are two main types of forks: soft forks and hard forks.
Soft forks are compatible with previous versions, whereas hard forks are not.
Planned hard forks are conducted to update and upgrade the network.
Contentious hard forks arise in response to disagreements within the community.
Forks can influence the value and utility of digital currencies.
