If you are familiar with the crypto market, you have seen similar crypto coins starting with the name bitcoin or Ethereum. you may have asked yourself;
‘’Why are there so many cryptocurrencies whose names start with Bitcoin?’’
‘’What are the differences between Bitcoin, Bitcoin Cash, Bitcoin Gold and Bitcoin SV?’’
‘’What are the differences between Ethereum and Ethereum Classic?’’
‘’Also why do they have different prices?‘’
Fork is not a unique rule for Bitcoin or Ethereum. Any protocols Can fork in other blockchains.
It is the creation of a new set of rules by copying the blockchain code and making changes to it.
Why do they need Fork?
If we simply list the reasons to modify the source code of the currency, improve some protocols or make it evolve. if you want to change the rules of a protocol such as the maximum block size, update security rules or create a new cryptocurrency from an old one, you must perform a fork to create a new branch.
So, the Forks allow a different development structure to be tested inside the platform without sacrificing the original product. Fork also allows different purchase opportunities. There are many forks that serve different purposes. When we look in general, we can talk about 2 types of forks: Soft Fork and Hard Fork.
Soft Fork: It includes changes to the protocol rather than currency changes. It is to bring a simple update, without radically changing the network. Soft fork refers to a historical change in a cryptocurrency protocol. This allows nodes that are not updated to still operate and add new blocks to the blockchain as long as they comply with the new protocol rules.
If we consider a soft fork example that reduces the block size from 3MB to 2MB, the updated nodes will still be able to perform transactions and add new blocks under 2MB. However, if this node tries to add a block larger than 2MB to the network, the updated nodes will reject this block because it contradicts the new rules. This is encouraging old nodes to update themselves according to the new protocol, otherwise, they will not work as efficiently as updated nodes.
Hard Fork: These are new versions created completely different and independent from the original version. To give an example of Bitcoin, after Hard fork, no transaction or communication takes place between Bitcoin and the new type of bitcoin. Both are different from each other and their modification is permanent. To be able to use the new version, it is necessary to update the network nodes.
If we consider an example of a protocol change that increases the block size from 2MB to 4MB, if an updated node tries to create a 3MB block and add it to the network, this will be rejected by invalid nodes that are not updated.
Depending on the situation, hard forks may be planned or disputed. In case of a planned hard fork, the participants voluntarily update the software to follow the new rules, leaving the old version behind. Those who do not update continue to dig the old block that only a few people will be using.
You can see the example below:
Let’s continue with Bitcoin
Many soft forks are used in different projects in order to constantly improve them, but sometimes cryptocurrency users aren’t satisfied with the soft fork, and new discussions may arise between them. They may not be pleased with the modifications, they can complain about the transaction speeds, they may suffer from security problems or size of blocks. In such a case, Hard Fork can be engaged. I would like to say without forgetting if you want to create a brand new cryptocurrency you can also perform your own hard fork from an existing blockchain.
Bitcoin has passed through many soft and hard forks. You can see the major hard fork list below:
Bitcoin Cash (2017-8-1): Changed increase in the theory the number of transactions per second with a higher block size.
Bitcoin SV (2018-11-15): Fork of Bitcoin Cash, it changed that higher block size than Bitcoin Cash.
Bitcoin Gold (2017-10-24): Alternative mining algorithm to allow users to mine at a cheaper price. In other words, increase the decentralization.
Bitcoin Diamond (2017-11-24): More Supply (210M), a maximal block size 8 MB, and an alternative mining algorithm.
How Can Investors Benefit from Forks?
Investors can definitely benefit from forks, and there are several ways to do this. The first is called “airdrop”. Airdrops occur when a new cryptocurrency is created from the hard fork of an existing cryptocurrency. Thus, investors can get “free” money when they have hard fork cryptocurrencies. For example, when Bitcoin Cash came out, anyone who owned Bitcoin also received an equal number of Bitcoin Cash money. When you fork Bitcoin Cash if you had 1 Bitcoin at the time of the fork you will hold 1 Bitcoin and 1 Bitcoin cash after the fork.
You can also invest in new cryptocurrencies created with hard fork. In this case, you are likely to profit from this investment.
For example, those who invested in Litecoin.
Disadvantages of Forks
Both hard fork and soft fork tend to give positive results. However, sometimes forks can create a lot of drama and cause controversy or conflict between miners and developers among certain cryptocurrencies. The best example of this is the Bitcoin Segwit2X hard fork. Segwit2X completely split the Bitcoin community into two when it came out in 2017, and caused fierce controversy between the two opposing parties within the community. The planned hard fork was canceled because no consensus was created.
In addition, the conservative people think that the name of the new hard fork cryptocurrency is similar to Bitcoin, it is like name theft. Many investors in the crypto community believe there is name theft in Bitcoin Cash, Bitcoin SV, and Bitcoin Gold. They also believe that they aim to attract investors using the name Bitcoin. Despite the tight opposition in this regard, many hard forks continue to set up in the cryptocurrency industry, especially with Bitcoin.
In the long term, these hard fork projects can be seen as threats, because after these forks, some of their market value has shifted to altcoins.
But the Evolving Crypto money industry, with the increase of new investments, people who shifted from bitcoin to altcoins did not affect the bitcoin market.
Bitcoin is still the brightest star in this market. Even if these hard forks aim to propose an improvement in technology, Bitcoin remains the king thanks to its age, its strong community, its visibility, its unequaled safety empowered by the number of miners in the world.
Consequently, whether it is hard fork or soft fork, forks are the mutations that bring innovation, contributing to the development of the blockchain, creating new protocols with innovative ideas, helping to grow the technology. This does not remove the value of other projects that propose alternatives. On the contrary, they increase diversity, allowing people to adapt to blockchain and cryptocurrencies.