Cryptocurrencies came into existence in two ways; writing a new code from ground zero or manipulating the existing code (forking – also known as hard fork).
When a fork ensues, the parent cryptocurrency splits into two giving birth to a new alternative asset with slight differences from the main one. A consensus has to be established for any cryptocurrency ecosystem to go ahead with producing another fork.
Due to one reason or another, a good proportion of the top altcoins have forked. As always, Bitcoin was the first and then other blockchains decided to follow suit. Let’s have a look at several forks and what they were created to solve.
What is a Hard Fork?
A hard fork is a process in which a blockchain network gets divided into two (splits). This split would be created due to a lack of consensus on how to continue with the network. Hard forks tend to take place when the community discusses how to move forward with the network.
A part of the community would prefer to stay with the network as it is, while another part of the community would want to change something from the network. This lack of consensus ends up creating a situation in which the chain splits into two and the community gets divided into groups that support one or the other implementation of the network.
At the end of the day, the network that wins is the one that receives the largest support from the community. This can be seen in two different things: network activity and price. Usually, the coin that gathers the largest support from the network will also have the highest price and activity.
This does not mean, however, that the other blockchain network will disappear. It might continue to be a traded digital currency or functioning blockchain network, but it will not have the full support of the community. At the same time, the price of this coin will be lower (market capitalization) and the on-chain activity might also be lower, though not always.
Bitcoin hard forks
The first ever block to be mined on the. Bitcoin platform happened in January 2009, and during those days, there were several miners and that meant stability. As time passed, issues of scalability, high transaction costs and long waiting periods meant the software needed upgrades. This was the beginning of the history of forks.
Bitcoin XT was the first fork to happen on BTC blockchain and took place in 2015. Its goal was to increase the network’s block size to 8MB which would see the number of transactions improve from 7 blocks per second to 24. The project kicked off well but the frenzy surrounding it died down in 2016 when most miners withdrew.
But the Bitcoin network has also experienced other forks through time. Perhaps, the most popular one was related to Bitcoin Cash, we will get into the details later in the post.
A hard fork refers to complete divergence of a blockchain software where all the previous nodes without the upgrade are denied access to the newly formed blockchain. This radical transformation of a software usually renders previous valid blocks utterly invalid. Both the new and old blockchains become independent.
During this type of fork, one blockchain will continue with the existing path for generating new blocks while the new one usually takes an entirely different path. Miners who wish to be a part of the brand new section must install the upgrades while those that still value the legacy chain will keep their nodes as they were.
No individual can propose and pass a hard fork motion. The idea has to be supported by over 90% of the miners for the change to be implemented. An example of a fork that never got backing from a majority of the members includes Segwit2x also known as NO2x which aimed at improving Bitcoin scalability problems by increasing the block size to 2MB. Bitcoin Gold and Bitcoin Cash are known examples of hard forks.
Bitcoin Classic (BCC)
Even after the death of Bitcoin XT, Bitcoin miners never gave up the desire to increase the block size. They went ahead and created Bitcoin Classic fork which gave rise to Bitcoin Classic cryptocurrency. The currency seems to be doing well and has already achieved several milestones in its five-year development strategy.
Bitcoin Cash (BCH)
Most forks come with a reason which is usually to implement a feature that will lead to improved functioning. Bitcoin Cash, on the other hand, was created by miners who felt that Segwit (or segregated witness) was a threat to the Bitcoin network and thus moved away.
Bitcoin Cash received support from influential individuals like Roger Ver and was quickly adopted by Kraken right after its creation. At the moment, it’s the fourth largest cryptocurrency by market cap. Other forks that Bitcoin went through include Bitcoin Gold, Bitcoin Gold Status, Bitcore, Bitcoin Diamond, Bitcoin Faith, Bitcoin Lite and many more.
There are also forks lining up and they include Lightning Bitcoin, Bitcoin God (believe it or not), Bitcoin Silver, Bitcoin Atom etc.
The Bitcoin Cash community supported Bitcoin scaling with on-chain solutions rather than using off-chain and second-layer scaling alternatives such as the Lightning Network (LN). This created a situation in which there was a part of the Bitcoin community that supported Bitcoin Cash (BCH), while the other part supported Bitcoin (BTC).
Over the course of the years, we have seen Bitcoin Cash losing value compared to Bitcoin. As you can see in the chart below, Bitcoin Cash dropped from 0.40 BTC to 0.00592 BTC as of today. Hence, we can say that Bitcoin Cash was not able to become the main network after the hard fork. The community supported a Bitcoin network that scaled with second-layer solutions.
Bitcoin Cash (BCH) and Bitcoin SV (BSV)
There have also been other hard forks that had a strong impact on the market. One of these hard forks included the Bitcoin Cash and Bitcoin SV (BSV) hard fork that took place in December 2018, which marked the bottom of the bear market after Bitcoin’s high of $20,000 in 2017.
Bitcoin Cash (BCH), an already existing hard fork of the Bitcoin network, experienced a new contentious fork in December 2018. Part of the community (especially the community that was in favour and supported Craigh Wright), proposed a hard fork to represent Bitcoin’s original features (larger blocks and enterprise adoption of Bitcoin).
Therefore, when the hard fork took place, the market tanked. Bitcoin dropped to the lowest point in over a year and the bear market reached a bottom at $3,180 per BTC. This was a good moment for long-term Bitcoin investors to add BTC to their stack.
But what happened after the Bitcoin Cash and Bitcoin SV hard fork? Bitcoin Cash remained the main blockchain network compared to Bitcoin Satoshi Bitcoin, which is now the 53rd largest virtual currency in the market. The market considered that Bitcoin Cash (BCH) was better than Bitcoin SV (BSV).
Ethereum (ETH) and Ethereum Classic (ETC)
Albeit looking perfect to most of its investors, the Ethereum blockchain had and still has issues that necessitated forking. The most notable fork on this network was Ethereum Classic that occurred in July 2016 after the DAO hack that saw $50 million in ether lost. After this incident, some people voted to have the platform forked and all the losses recovered while a smaller section disagreed with this sighting that blockchains should never be altered.
Nevertheless, the fork happened and the smaller group went with the newly formed Ethereum Classic while the core developers that undid the hack retained the old name- Ethereum. Other forks emanating from the ether blockchain include EtherGold, EtherZero, Ethereum Modification and EthereumFog.
Ethereum Classic continues to be a valuable digital currency for investors in the crypto industry. Hence, it didn’t disappear as other Bitcoin forks that were not even able to appear in the market.
Ethereum Proof of Work (ETHW) vs Ethereum Proof of Stake (ETHS)
When it comes to Ethereum, we should also mention that there is a possibility for this virtual currency to experience a new hard fork in the near future. Why? Because Ethereum is transitioning from a Proof of Work blockchain network to a Proof of Stake consensus algorithm.
This could create some problems for the community, as some miners have already mentioned that they would like to continue to protect the Ethereum Proof of Work blockchain network rather than moving to a Proof of Stake blockchain.
We should also think about what could happen in the future and whether there will be a hard fork or not. This will take place on September 15, 2022, and we cannot predict whether there will be network disruptions in the future. Hence, it is just a matter of time to see whether there is going to be a new hard fork on the Ethereum blockchain network.
Vitalik Buterin and Ethereum Proof of Stake supporters claim that those that want to continue supporting a Proof of Work Ethereum blockchain should move to Ethereum Classic, which is already one of the largest cryptocurrencies in the market. It will be very important what the Ethereum community will decide and how the next network implementation will look like.
Monero (XMR)
Even the best, privacy-centric cryptocurrencies like Monero still have issues that could be resolved through forking. In mid-march, Monero was scheduled to fork at block 1529810 leading to the birth of Monero V (XMV).
As it is with other crypto coins, the fork is intended to solve scaling problems by introducing new protocols. Though the fork is created to solve issues – users consider the fork a ‘scam’ as the team in charge of Monero V doesn’t seem to be professional at all and tend to do things only for their own interest.
Monero is a different cryptocurrency. However, the community has been rather united when it comes to this digital asset. Despite the idea to promote a new Monero digital asset, the community has been always in favour of maintaining consensus and making it possible for the market to support a reliable XMR digital currency. Until today, XMR is among the most stable cryptocurrencies when it comes to its community.
In the future, there might be some issues with Monero as governments are trying to fight against money laundering in the crypto industry. Considering that Monero is a privacy-focused digital currency, it might be possible for it to experience a hard fork that would make it compatible with government regulations. Nevertheless, it might be difficult to find Monero supporters that would accept this type of imposition from governments.
Litecoin (LTC) and Litecoin Cash (LCC)
Litecoin is among the oldest virtual currencies in the world. Despite the fact that this digital currency did not experience one strong hard fork, there were some attempts to create some Litecoin alternatives.
Litecoin forked off to produce Litecoin Cash (LCC) making the latter a fork of a fork since Litecoin split from Bitcoin in 2011. LCC did not receive much love from crypto enthusiasts probably due to lack of a proper roadmap.
In this particular case, Litecoin added Private Transactions through Extension Blocks (implementing MimbleWimble). Thanks to this implementation, it is now possible to remain private while receiving and sending LTC transactions through this blockchain network. These are just some of the possibilities that we currently find in the market on how to move forward with a soft fork and avoid having issues through a hard fork.
What is a Soft fork?
Now, there are two kinds of forks that can happen in the cryptocurrency ecosystem. Let me explain the differences.
As stated before, a fork simply means divergence in a blockchain software. The changes can either be temporary or permanent and this situation leads to two groups of forks, i.e. hard and soft. Let’s define what these terms stand for.
When a fork happens and two cryptocurrencies are formed on the same legacy chain, this is called a soft fork. In these forks, even older transactions can still be validated by upgraded nodes. This scenario is termed as backward compatible. However, if nodes without an upgrade continue to mine new blocks, the upgraded ones will fail to recognize them.
A soft fork is a type of network change that does not require the network to split into two to process changes. While a hard fork required the network to split into two, a soft fork would only update the software of the network. Soft forks are the best way to improve a blockchain network without creating a difficult and stressful situation for the whole community.
Soft forks require the whole software to be updated. This can happen if nodes take the responsibility to upgrade to the latest implementation. Hence, it is possible to make a blockchain network more reliable and useful without the need of implementing a costly and stressful hard fork.
For example, Bitcoin added Taproot in November 2021 and the upgrade included the activation of different Bitcoin Improvement Proposals (BIPs) such as BIP340, BIP341, and BIP342, among others.
Other soft forks included Segregated Witness for Bitcoin, which made transactions faster and cheaper for the whole community. Hence, it was a great opportunity to show that it was possible to add unique improvements and noticeable things to the network without having to be worried about creating a contentious hard fork.
Other blockchain networks such as Ethereum or Cardano (ADA) tend to have many other soft forks in order to update their networks on a regular basis. Bitcoin soft forks are less common than on other blockchain networks, but a soft fork is a great option for those networks that want to deliver constant updates and improvements.
The bottom line
Hard forks are risky and can have negative repercussions on a blockchain if not conducted properly. Nevertheless, they are always carefully planned by core developers and other individuals with an aim of rectifying a problem so the network can work smoothly.
There are many ways in order to promote a blockchain change. It can be done through a soft fork (the least contentious option) or using a hard fork (which could create problems and network issues). Hard forks that have high consensus rates (over 95%) create smooth transitions towards new blockchain networks that are more advanced and reliable.
But if a blockchain network wants to implement fast and reliable solutions without changing most of the network design of a specific blockchain, then a soft fork would be a great option. It is up to the community and developers to decide what’s the best way to update a network and how to make it more reliable for users that want to get access to it.
Especially for Bitcoin, a hard fork would require several years of preparations and an extremely large consensus in order for this hard fork to be approved by the network. Otherwise, there is a large risk for Bitcoin to be affected by community issues that could then be used by regulatory agencies and governments to attack Bitcoin’s reliability.
As we head into the future, let’s hope that forks will do more than just address scaling and privacy problems.
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