When you trade in crypto, chances are highv you have come across the term ‘hard fork’. There are several cryptocurrencies that are hard fork. To be able to trade even better in these cryptocurrencies, it is good to know what a hard fork actually is. That’s why in this article we tell you what it is and how a hard fork works, including examples of well-known hard forks!
What is a fork?
No, by ‘fork’ we don’t mean the fork you use for eating. It originally comes from software development. There is so-called open source software. Software, in turn, consists of code that a developer has programmed. Unlike priority software, the open source code is free for anyone to copy, use, modify, and rewrite. This is even expressly desired and part of the concept. Because if different people or programmers further develop the software, it can only get better in terms of stability, security or speed. And in the end everyone benefits. These programmers then ‘forked’ the software. Also, the developers can add completely new functions.
Next, there are two different types of forks. Each type has its own properties, of course, and determines how the software will look like. These are the hard fork and the soft fork .
What is a hard fork?
The name says it a bit. With a hard fork, you no longer go back to the original version of the software. So it means that a new cryptocurrency is being created with certain similarities, but nevertheless “insurmountable” hurdles from a software perspective. There is therefore always a difference between the original version and the new version of the software. It’s not that the new version is always better. It often just depends on what your point of view is.
An example of a hard fork is Bitcoin Cash (BCH). Launched in August 2017, this cryptocurrency stands out with the advantages of faster transaction speeds and less decentralized. All Bitcoin holders received as much BCH as they had BTC in their wallets on the cut-off date.
The Bitcoin Cash fork arose because there was disagreement about the future of the Bitcoin currency. A group then decided to generate a hard fork of the original Bitcoin cryptocurrency.
The opposite of a hard fork is the soft fork
Opposite the hard fork is the soft fork. So this is the other kind of fork that we know in the world of blockchain and cryptocurrencies. Simply put, a soft fork is a temporary split of the original blockchain. The entire network does not have to participate in a soft fork; the consensus is not broken.
A soft fork narrows the set of rules. Something that used to be allowed is no longer allowed. This is why a soft fork is backward compatible, as the soft forkers can still participate in the ‘old system’. This is useful for when a blockchain wants to perform an update. A temporary soft fork is created in which the update is rolled out. Then the two blockchains come together again, and everyone will switch to the new version of the blockchain.
How is a hard fork created?
A hard fork can arise in different ways. One of these ways is how Bitcoin Cash came to be. Blockchain developers are always discussing the future of the blockchain with each other. This is of course not without a struggle, because it can happen that they do not agree with each other.
The future of a blockchain is often voted on. Participants receive tokens, and can then vote on what should happen to the future of the blockchain. Even after voting, disagreements can still arise. A group could then decide to start a hard fork, and run their idea on its own version of the original blockchain. That’s when the roads parted.
But there is also another way in which a hard fork could arise. And that’s from a soft fork. With a soft fork, there is a temporary separation, so that developers can perform an update. The intention is that nodes will all transfer to the new version of the blockchain after performing the update. However, things can also go a little differently.
It is possible that not everyone will transfer to the new version. At that moment, two versions of the blockchain remain, and a new hard fork has arisen, while this was not actually the intention.
What happens to your crypto coins when you switch to the hard fork?
Suppose you have Bitcoin, and a new hard fork is created from the Bitcoin blockchain. What happens to your Bitcoin coins that you own? In most cases you can then exchange the coins to the new crypto currency. However, it is possible that the value in that case is a lot lower than it was before. For example, there may be much less demand for the new cryptocurrency than the original cryptocurrency.
That is also the reason that secretions often do less well than the original coin. It may be that the technology is better, although the value is often a lot less. Many people are afraid to switch to the new crypto currency, because there is a good chance that the value of the crypto coins will fall.
Sometimes it can also happen that a hard fork flops and comes to nothing. This is the case when there are few people who transfer with them, as a result of which the network does not have enough support and can therefore not function properly. In that case, the blockchain cannot work optimally, and there is a good chance that the value of the coin will fall quickly.
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com