You might be familiar with the software update notifications that pop up in your smartphone every now and then. Constant updates are necessary for every software to fix flaws and boost performance. Such updates in the crypto world are known as ‘Forks’.
Cryptocurrencies being decentralized, nodes/ participants in the network are to follow a set of rules to work together in the same order. Such rules are known as ‘protocol’.
Some of the most common rules in the protocol includes the size of a block on a blockchain, the reward given to miners for mining a new block, and more.
Presently, two types of forks exist in the crypto world – soft forks and hard forks. However, both soft and hard fork impact how the protocol works.
A soft fork is a change in the cryptocurrency protocol except for the fact that it is backward-compatible. This simply means that the nodes even when not updated will be able to process transactions and push new blocks to blockchains until and unless they violate the new protocol rules.
For instance, imagine that a soft fork establishes a new rule stating that the block size shouldn’t exceed 2MB. Nodes in the network will still possess the ability to make transactions and push new blocks that are 2MB or less. On the other hand, if an old node makes an effort to push a block greater than 2MB, the new nodes will together reject the block as it breaks the new rules.
This feature of soft fork indirectly encourages the older nodes to update itself whenever a new protocol gets established.
On the other hand, hard forks are cryptocurrency protocols which are incompatible with the previous versions. Therefore, if the nodes don’t update themselves, they won’t be able to process transactions or push new blocks to the blockchain. Hard forks can be used for a wide array of functions including changing or improving an existing protocol, creating a new protocol/ blockchain etc.
Now, let’s understand hard forks using an example.
Consider a scenario where a protocol is established stating the block size should be 4MB. Thus, even when an updated node tries to push 3 MB node, the older non-updated nodes will reject the block seeing that it is invalid.
Based on the situation, hard forks can be both planned and controversial.
When a fork is planned, all the participants will voluntarily upgrade their software to be compatible with the new rules. In case a node isn’t updated, it will be left mining on the old chain which will be used by only a few people.
Whereas, controversial forks happen when there is a disagreement in the community which leads to a protocol being forked into 2 incompatible blockchains – 2 different cryptocurrencies. In such cases, both blockchains will get to have their own community and the developers will have the right to progress it in whatever way they like.
As forks are based on the original blockchain, it will hold all the transaction from the original blockchain.
For instance, if there are 250 crypto coins called Coin A, after a hard fork creates a new cryptocurrency called Coin B, it will also hold 250 coins of Coin B.
Thanks to the open-source nature of cryptocurrency, an ever-increasing number of individuals and organizations are entering the crypto space. In such a scenario, we can only expect to see forks becoming an integral part of cryptocurrency development.