What is a fork of a cryptocurrency?

What is a fork of a cryptocurrency?

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In order to understand what a fork is and what the essence of this phenomenon is, it is necessary to begin with understanding of how the cryptocurrency works.

In order to understand what a fork is and what the essence of this phenomenon is, it is necessary to begin with understanding of how the cryptocurrency works.

The technological basis of any cryptocurrency is a mechanism called blockchain. Now, that you have understood, how blockchain works, we can start discuss about what a fork is.

 

What is a fork?


A chain of transactions is continuous and linear. It means that usually it does not fork.   This refers to a phenomenon in the system, whereby one large chain forks into two chains, and after separation they continue to work independently.

 

How does the system work thereafter?


After a fork (bifurcation) occurs, one cryptocurrency is divided in two currencies, because there are two chains of transactions from this time forth. In 2017, this happened to the world’s largest cryptocurrency, bitcoin. The chain was linear, but at the beginning of the year, it became forked. This does not mean that the Bitcoin itself does not exist now. It continues to work independently of anyone, according to the same rules as before. But now there is another independent cryptocurrency called ‘Bitcoin Cash’. Thus, the word ‘fork’ does very well characterize the essence of this phenomenon.

 

Types of forks.


There are two main types of forks: soft forks and hard forks. The first type can be called a ‘soft’ modification of the source code, the second type can be called a ‘hard’ modification.

 

What is a soft fork?


In the case of soft fork, the change of rules does not require front end (software) upgrade for execution of new rules. If some nodes in the network will not accept new rules, such nodes will still be able to communicate with the nodes that use the new rules.

For better understanding, you can draw an analogy with languages: if before the fork all nodes were speaking American English, and the new rules require transition to the British variant, the nodes that will continue to use the American version will be still able to understand the British version. At the same time, the nodes that use British English will easily understand the American version.

Thus, a soft fork is a reversible modification that does not violate the consensus as related to the protocol.

 

What is a hard fork?


In the case of hard fork, the new rules contradict with the old rules so that the nodes that have not accepted them do not acquire information from the nodes that accepted new rules. If you follow the same analogy with languages, old nodes speak English and new nodes speak Chinese. Hard fork involves changing the mechanism of consensus, and in this case the entire network is divided into two parts that will never be able to communicate. This is because blocks that  are recognized as valid in one part will not be considered as such in the other part.

 

How does it work in cryptocurrencies?


In the case of cryptocurrencies, a fork can be considered to be change of operation rules related to the need to make changes in the protocol. In other words, sometimes, it is necessary to use a type of fork in order to make the bitcoin better and safer. Although in some cases the issue of forks is a security matter.

 

The difference between soft fork and hard fork.


In order to better understand this difference, let us return to the example of Bitcoin. The situation that occurred in 2017, is called hard fork. This implies that after the chain division, a new fully independent cryptocurrency appeared that had completely separated from its ‘parent’. Bitcoin and its fork have absolutely different courses, different technical parameters and different developer teams. In addition, this currency has different clients and wallets, which fact is fundamentally important in crypto industry.

If we talk about soft fork, division is softer in this case, and its goal is generally to correct operation of the system. Cryptocurrency technology is in progress, and developers sometimes decide to upgrade their system. For this purpose, they intentionally create a fork that is a more perfect clone of their currency. In this case, the user does not need to install a new client, and the system does not change the basic principles of its operation. It is just a technical upgrading of the Network.

 

The reasons for the fork.


You will not understand what a fork is and what is it needed for, if you do not know the nature of the Network operation. The main cause of both soft and hard forks is certainly the development of technologies. Generally, branches are more improved from the technical point of view now. They have a larger block size, a higher bandwidth, and a lower commission. In some cases, however, a conflict arises between developers. Some developers believe that the system should remain unchanged, other developers insist on technical transformation. This happened with the second world’s most popular cryptocurrency, Ethereum.


Many developers and Network users were dissatisfied with the new features of the system after its renovation in 2016. Fork of the cryptocurrency became more convenient for smart contracts and crowdfunding projects, but it lost some benefits, which it had theretofore.

The new Ethereum was very successful and increased rapidly in its course. However, the developers have decided to perform a hard fork to please all users and leave the old system without any changes. Thus, Ethereum Classic currency appeared. The Bitcoin’s fork appeared for the same reason, but the essence of the change was that the new currency got an extended block size and a larger bandwidth.

 

What does this mean for miners?


In fact, success of a new fork to a very great extent depends on miners. They decide whether they support the new cryptocurrency or not. Bitcoin Cash started quite successfully, and many miners used their capacities to support its work. However, nowadays its perspective is a moot point.

This situation is representative for all currencies, although the new Bitcoin obtained a larger block size, it also obtained more Network complexity, which means extra costs for miners. Thus, in future they will only support the currency, which will bring revenue. And nobody knows, how the fork will help in this case, until sale of tokens begins and the course is fixed.

Conclusion

Cryptocurrencies gain pace very rapidly, so now is just the time to begin to explore this area. At first it all seems technically very complicated and confusing. It is difficult to understand, what a fork in mining is and how blockchain works, but over time it becomes clear that this is indeed an innovative technology designed to simplify our life.