If you’re interested in cryptocurrencies, you’ve probably heard of something called
a fork.
We’ve seen a few hard forks already, but what are they exactly?
Before we can take a look at what a hard fork is, you must understand how a blockchain works.
You can watch this video here for a simple explanation.
In this video I will use Bitcoin as the primary example, but all these concepts apply to other
cryptocurrencies as well.
As you probably know, Bitcoin is a digital currency and that means that it is implemented
with a lot of software.
This software is called the Bitcoin protocol and it establishes the rules to which everyone
should agree if they want to use Bitcoin.
This includes how large a block is, what rewards miners get, how fees are calculated, etc…
But just like any software project, development on Bitcoin will never be finished.
There is always room for improvement.
The Bitcoin developers regularly push out updates to fix issue’s or to increase performance.
Some of these improvements are small but others fundamentally change the way Bitcoin works.
So sometimes it happens that a group of developers disagree with the direction that Bitcoin is
taking.
The miners can also disagree because updates to the Bitcoin protocol could reduce their
profits.
If a group of people are so dissatisfied they can choose to go their own way and create
their own version of the protocol and fork the blockchain.
So what happens if they do this?
Well Bitcoin consists out of two big pieces: the Bitcoin protocol and the blockchain which
stores all the transactions that have happened.
If they decide to create their own fork, they start by copying the Bitcoin protocol code
and start making their changes.
They can do this because Bitcoin is completely open source.
After they have implemented their desired changes, they define a point in time at which
there fork will become active.
This is done by specifying a block number.
For example: you can say that your fork will go live when block number 480,000 is published
to the blockchain.
When that block number is reached the community splits in two.
Some people decide to support the original protocol while others want to support the
fork.
Each group then starts adding new blocks to the fork that they want to support.
At this point, both blockchains are incompatible with each other.
Because a fork is based on the original blockchain, all transactions that happened on the original
blockchain, also happened on the fork.
And that means that if you had a certain amount of coins before the fork, you will also get
the same amount of the new currency.
Some people call this free money, but it all depends on whether or not the fork can attract
actual value.
We’ve already seen quite a few hard forks.
It happened to Bitcoin on August 1st 2017 when Bitcoin Cash was born for instance.
In this case, the developers couldn’t agree on what the new size for a block should be.
Some wanted it to go from 1mb to 2mb, but others wanted it to increase even further.
When matters couldn’t be settled, both groups decided to go their own way.
Bitcoin has had a few hard forks already, some forks becoming more successful then others.
But it’s not the only one.
Also Ethereum had a hard fork when it split into Ethereum and Ethereum classic.
So that is essentially what a hard fork is.
But there is also something called a “soft fork”, so what’s the difference?
A hard fork occurs when someone forks Bitcoin and makes it incompatible with the original.
If you however fork Bitcoin and make your changes compatible, then we call it a soft
fork.
A subtle difference.
So now you know what a hard fork is and why they happen.
Because cryptocurrencies are becoming more and more popular it’s safe to say that disagreements
will pop up more often and more forks will be created.
So that was it for this video, thanks a lot for watching and I’ll see you in the next
one.