Fork in cryptocurrency

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There are two types of forks: soft forks and hard forks. What is a soft fork? One such example was the implementation of an improvement called Segwit on Bitcoin. This change optimised transactions without violating the rules that limited the maximum size of each block in the blockchain. What is a hard fork? A hard fork, on the other hand, introduces changes that are incompatible with the previous version. It happens when agreement cannot be reached to implement a change or when a bug has been discovered that necessitates it - Ethereum is a good example..

This effectively splits one network into two, like a fork in the road. What happens next depends on the community and on why the hard fork happened in the first place. Scenario 1: planned improvement with full agreement The entire community is on board with the changes and updates their software.

The old network dies out; end of story. This scenario is likely to play out when the change fixes critical bugs, or when the improvement is considered beneficial to most of the community. One such example is a planned upgrade by the EOS protocol in But not all forks happen so smoothly. Scenario 2: disagreement and contentious break The community is divided and unable to agree on a change or improvement proposal, If there is enough momentum and enough people on each side , then the network splits at the moment the change is implemented.

This is exactly what happened in when Bitcoin split, leading to the birth of Bitcoin Cash. At the time, with Bitcoin experiencing major transaction congestion, the community was torn about how to solve the problem. This heated debate raged for months, leading to a break in the community into two factions. Human tribalism at its earnest. Unhappy with the majority solution proposed by the Bitcoin Core team, one faction which included several miners and notable community members simply forked the code with their own change - and a new currency was born.

The rift effectively cloned the amount of bitcoin in circulation into the new network on a ratio, This means that if you had 10 bitcoin before the split, you would still have the same 10 bitcoin BTC plus 10 bitcoin cash BCH. Even though the initial value of one bitcoin cash was only a fraction of that of a bitcoin, the combined price of one BTC and one BCH was greater than the previous price of the original.

Inspired by this, a myriad other projects have since followed this path - to varying degrees of success. Scenario 3: planned divergence Sometimes the fork is planned from the start to become an entirely new cryptocurrency.

Like an amicable divorce, each cryptocurrency goes their separate way and, from then on, evolve in a completely independent manner - with different features, goals or ideals. Here are some examples of Bitcoin forks that, for one reason or another, have been stagnated, or never even launched. And so, starting in , new cryptocurrencies began popping up. As of today, Litecoin sits outside the top 20 coins in terms of market capitalisation for all cryptocurrencies, gradually declining in significance having been 3rd behind Bitcoin and Ethereum.

But forks can cut both ways. The current article aims to explore the basis on blockchain forks. What is a Cryptocurrency Fork? When we speak of forks, we always consider the open source projects. This is because their code is available for both reading and modifying, which means that everybody can change it and reuse it. Ultimately, blockchain forks are either changes in the rules of the initial consensus or a blockchain split.

Types of Blockchain Forks As mentioned earlier, there are two types of cryptocurrency forks and one of them has its own classification. Let me present you a small schema of how exactly they are split: Consensus Split Q: Why and how a consensus chain might actually get split? Q: How do we define which chain is the right one? Q: Is there another reason for splitting? This results with the creation of completely new coin.

Protocol Rules Change Q: How does it happen? A: Developers might change the code permanently by changing the codebase itself. This would mean that all the participant should upgrade their software with the newest changes in order to continue using the client. Q: What might be the reason to occur?