A blockchain is a decentralized open-source software that powers cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). A fork is a change to the blockchain’s underlying protocol. A blockchain fork is a change to the network that can be either radical or minor. It can be initiated by developers or community members.
The latest version of the protocol requires node operators (machines connected to the blockchain that help validate transactions on it) to upgrade. Each node in the network possesses a copy of the blockchain, and this ensures that new transactions do not conflict with the existing history.
A hard fork is a software upgrade that introduces a new set of rules to the network that can make previously valid blocks and transactions invalid. All users and validators must upgrade to the new software version to remain compatible with the network. It’s not backward-compatible. A soft fork is a software upgrade that is backward-compatible and allows validators in an older version of the chain to see the new version as valid.
A hard fork typically results in a permanent chain separation, as the old version is no longer compatible with the new version. You will get tokens on the new chain if you already have tokens on the old chain. This is because the two chains have the same history. Hard forks can happen for a number of reasons.
Understanding hard forks
In order to grasp what a hard fork is, you must first have a grasp of blockchain technology. A blockchain is a chain of data blocks that work as a digital ledger. Each new block is only valid after the previous one has been confirmed by the network validators. The data on the blockchain can be followed back to the first transaction made on the network. This is the reason we can still see the initial block on the Bitcoin blockchain.
A “hard fork” is a term used to describe a permanent divergence in the blockchain, where some nodes no longer agree with the consensus, leading to two different versions of the network running separately.
This means that there is a fork in the blockchain, where one path continues to follow the current set of rules, while the second path follows a new set of rules. A hard fork is a change to the protocol of a blockchain that is not backward compatible. This means that the old version of the blockchain will no longer see the new version as valid.
A hard fork is a type of software update that creates incompatibility between the old and new versions. This can lead to a chain split, where the network essentially splits into two separate networks, each running a different version of the software. A split between the miners who secure the network and the nodes that validate transactions makes the network less secure and more vulnerable to attacks.
A group of miners that have more than 51% of the computing power needed to secure a network can perform a 51% attack. This allows the group to alter the blockchain’s history. Although hard forks can create new networks, these networks are vulnerable to 51% attacks where bad actors can spend the same funds twice. Attackers are using their more powerful computers to change the order of the blocks, which lets them spend the same amount of money twice.
With hard forks, it’s also possible for replay attacks to happen. Replay attacks happen when somebody evil grabs a transaction from a forked network and copies it over to the other chain. If a hard fork does not have replay attack protection, both transactions will be considered valid, which means that someone can spend another user’s funds without having control over them.
Why do hard forks happen?
Hard forks can weaken a blockchain’s security, but they can also be used to update or change the rules of the blockchain. Hard forks are necessary upgrades to improve the blockchain network as technology continues to evolve. Several reasons can be behind a hard fork, and not all of them negative:
- Add functionality
- Correct security risks
- Resolve a disagreement within a cryptocurrency’s community
- Reverse transactions on the blockchain
Hard forks can also happen by accident. These incidents are usually resolved quickly and the people who were no longer in agreement with the main blockchain realize what happened and go back to following it. Additionally, hard forks that improve functionality and upgrade the network usually allow those who do not agree with the changes to join the main chain.
Accidental hard forks
The Bitcoin blockchain has had a number of accidental hard forks throughout its history. There are more of these common occurrences than people think and they are often resolved quickly so that they are not worth mentioning.
If two miners find the same block at the same time, it will result in a hard fork. When someone on the network creates a new block, both miners see it as valid and continue to mine on different chains. Another miner then adds a new block, which creates two different chains.
The next block of information dictates which chain becomes the longer one, meaning that the other is abandoned to maintain consensus. Miners continue mining on the longest chain since the abandoned one is no longer profitable for mining Bitcoin. This is because they would be mining a fork of the network.
When a mining fork happens, the miner who found the abandoned block doesn’t receive the rewards for that block. Although both blocks discovered were identical and had the same transactions, no invalidated transactions would occur.
These often happened due to a programming quirk and were usually resolved in a matter of hours Other hard forks that were not intended to happen occurred because of code issues that caused the blockchain to split into two shorter chains. These often happened because of a programming error, but were usually fixed within a few hours. In 2013, a block was mined with more total transaction inputs than seen before. This caused some nodes to not process it, leading to a split. Some nodes in the network felt that the larger block size was too big and downgraded their software to reach consensus and reject the block.
Difference between hard forks and soft forks
Hard forks are not the only way to upgrade the software behind a cryptocurrency. A soft fork is a software upgrade that is backward compatible, meaning that nodes that do not upgrade to new versions will still see the chain as valid.
A soft fork can be used to add new features and functions that do not change the rules a blockchain must follow. This type of fork only requires a majority of miners to upgrade to the new software in order to be adopted. A soft fork is a way to roll out a new feature at a programming level.
Hard forks can be thought of as an upgrade to the operating system of a mobile device or computer, while soft forks can be thought of as a less drastic update. After the upgrade, the applications on the device will still be compatible with the new version of the operating system. This would be a complete change to a new operating system and would not be compatible with the old operating system.
Notable hard fork examples
While hard forks on the Bitcoin blockchain are not uncommon, they are not the only instances of hard forks in the cryptocurrency world. There are numerous historical examples of hard forks across different cryptocurrencies. Some popular hard forks in history include: -The Ethereum hard fork in 2016 which led to the creation of Ethereum Classic -The Bitcoin Cash hard fork in 2017 -The Bitcoin SV hard fork in 2018 Each of these hard forks had a significant impact on the cryptocurrency industry, with each one leading to the creation of a new cryptocurrency.
SegWit2x and Bitcoin Cash
The SegWit2x upgrade was designed to help Bitcoin scale. SegWit is set to be implemented and the block size limit will be increased from one MB to two MB.
The controversial New York Agreement reached on May 23, 2017 decided to implement SegWit2x. The agreement reached by Bitcoin business owners and miners representing over 85% of the network’s hash rate decides the future of BTC.
A soft fork for SegWit would be implemented first, followed by a hard fork for the block size limit later on. There was controversy around the proposal because it didn’t involve anyone who works on the main codebase for Bitcoin, called Bitcoin Core. People thought this was a centralizing force, since a group of businesses would be making decisions about the network without involving the miners and nodes who would need to agree to any changes. After years of debating how to scale Bitcoin, an agreement was finally reached.
Some people argued that smaller blocks would be better for the cryptocurrency because it would be harder to host a full node, which could lead to the cryptocurrency becoming centralized. Some people believed that the blocks in BTC should be larger because if the transaction fees continued to grow, it would damage the growth of BTC and make it so that some users couldn’t afford to use it anymore.
On Bitcoin’s network, user-activated soft forks are possible. In this scenario, businesses running full nodes can move to a new version of the blockchain that will have an activation point in the future, which would force miners on the network to activate the new rules. If they don’t, the network could end up splitting.
Bitcoin users campaigned for a user-activated soft fork at the time to stop a precedent from being set, in response to the closed-door meeting dictating the future of Bitcoin. They proposed implementing the Bitcoin Improvement Proposal (BIP) 148, which would implement SegWit on the Bitcoin network. They argued that SegWit2x was a contentious hard fork that made the network vulnerable to a replay attack. It was released in March 2017 and was set to be implemented on August 1, 2017.
Some big-block supporters were worried that the SegWit2x plan wouldn’t be carried out, and since SegWit had community support, they decided to fork the Bitcoin blockchain on August 1, 2017. The result was the creation of Bitcoin Cash (BCH). They saw the split as a continuation of Satoshi Nakamoto’s vision, not the creation of a rival network.
The Bitcoin Cash blockchain originally had a block size of eight megabytes, but has since increased to 32 megabytes. Supporters of Bitcoin Cash claim that its lower transaction fees will enable it to scale and serve the unbanked, while Bitcoin will be left behind because its fees are too high.
The hard fork of Bitcoin Cash created a lot of attention surrounding the possibility of a hard fork, and soon after, many other forks of Bitcoin were created. There are other types of Bitcoin besides the original one. These include Bitcoin Gold (BTG) and Bitcoin Diamond (BTCD).
The DAO Hack
After the DAO was hacked, the Ethereum network hard forked to return the stolen funds to the investors. Whenever a set of criteria has been met, Ethereum runs a set of smart contracts, which are essentially chunks of code that automatically execute. These contracts make it possible to use money as a data input in decentralized finance applications (DApps).
At the time of its creation, the DAO raised $150 million worth of ETH in one of the earliest crowdfunding efforts in the crypto community. This was before the ICO craze of 2017. It was essentially an early iteration of the _______ governance models DeFi protocols use, wherein _______.
A few months after its launch, the DAO was hacked and 11,000 investors lost $60 million worth of ETH. At the time, 14% of all Ethereum that was circulating was invested in the DAO. The hack was a big hit to confidence in the network.
A discussion started among the Ethereum community members as they tried to figure out how to respond to the attack. At first, Ethereum founder Vitalik Buterin recommended a soft fork that would keep the attacker’s address on a blacklist and stop them from moving the money.
The attacker, or someone pretending to be the attacker, responded to the community saying that the funds had been obtained in a way that was allowed by the rules of the smart contract. They said they would take legal action against anyone who tried to take the money. The attacker said that they would prevent any soft fork attempts by paying ETH miners with the funds, causing tensions to rise.
The debate continued until someone suggested a hard fork. The organisation fork was carried out in the end and it went back the Ethereum network’s chronology to before the DAO raid occurred, reassigning the pinched money to a smart contract where contributors could reclaim their funds.
Some people were very upset by the decision to move the funds, believing that it harmed the blockchain’s ability to resist censorship and maintain a permanent record. They felt that the investors were being given special treatment. This group disagreed with the hard fork and kept using the old network, which is now called Ethereum Classic (ETC).
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