November 19, 2020

Hard Forks in Cryptocurrency

Hard Forks in Cryptocurrency

Hard forks are still a relevant subject, because not too many people know what they are or that these things shape the crypto market as nothing else does. In short, when the way crypto operates changes so much that you can’t use the previous version as it was anymore, the new coin is created, and it’s called a fork.

There have been several hard forks in the past, and they usually occur when the currency is still in creation, and the developers haven’t yet figures out what they want their creation to be.

Let’s describe the features of hard forks, and why they are created.

What is Hard Fork?

It’s usually a very big deal – as a consequence of some very deep change, the old crypto is split into two. The newly created version often acts as a crypto in its own right, but in order to be completely independent from its parent coin, the protocol needs to be updated. Only then the fork will be able to execute transactions of its own, and the previous protocol is deemed as outdated.

The users might agree with the new development and accept the fork as just a new refurbished version of an old crypto, which they then abandon.

But keep in mind that the fork implies the breaking of the old code, and some active users might not be so accepting of this new order. In such situations, the new version and the old version can be used simultaneously as two separate cryptocurrencies.

So, hard forks are not simple updates, because:

  1. You can’t use the older version if hard forking happened
  2. Often the new cryptocurrency is created instead of the old one
  3. If you want to enjoy the new fork, you’ll have to adjust your software to it

A real example of a hard fork

The biggest ever hard fork is naturally the Bitcoin Cash, created on 11.15.2018. Despite being an icon, BCH won’t tell you everything you’ll need to know about forks, sadly.

To fully realize what a hard fork is, you need to know what a soft fork is by comparison. They are completely different things, and yet the only real distinction is that you can use the older version of a soft fork if you’d like. Let’s see how it works on an example.

Imagine a country with a speed limit for drivers. They can only go on a car with a speed of 25 – 40 mi per hour. Imagine that the law allows for 45 mi per hour speed. For drivers who went 35 mi per hour, this law doesn’t change anything. However, drivers who went with 25 mi per hour speed need to drive faster.

We can say that the government created a soft fork because some drivers don’t have to change their speed, but if they want to use the new version of a protocol, they need to update the software.

With hard fork, it isn’t a simple speed change. This is a parallel reality with their roads, speeds, cities, etc. The driver from the second reality can’t go to McDonald’s because they physically can’t do it. The Blockchain is divided into two not dependent on each other chains as a result of hard forking.

They can’t exchange information between them. Every chain doesn’t have any information about other chains. Usually, all users forget about one of them but there are exceptions.

Well-known hard forks

There are a lot of hard forks:

  1. Bitcoin Cash
  2. Litecoin
  3. DAO
  4. Peercoin
  5. and others.

You might wonder how Bitcoin still exists if Bitcoin Cash has been hard forked from it. Well, it’s one of the exceptions from the rule. Bitcoin, you see, is an open sourced, meaning anyone can experiment with its structure if they want.

That’s exactly what happened when a group of disgruntled BTC users decided to change Bitcoin to better suit their needs and created a new cryptocurrency with the new rules in 2017. Because it was the first ever massive fork on Bitcoin, it gained popularity immediately.

DAO

Almost every popular cryptocurrency has its own black days in history. For example, this black day for Bitcoin is falling Mt. Gox. Ethereum also had an event of such an awful scale. However, problems were not with the exchange but with the DAO smart contract.

First, this project was created as a foundation with certain parts of every member. It was able to collect 12.7 million ETH. It was a very good result. Sometime later, a hacker was able to steal more than 3.6 ETH. The hard fork could return money to the owners.

What can we do when a hard fork occurs?

The scenario of how hard forks occur is standard. Actually, this is a new world that lives its life autonomously. Let’s describe a situation when every cryptocurrency lives after the hard fork.

Imagine a person whose name is John. He lives in New York and he has a BMW. To ride in this car, he needs a key. There is one more reality in the space with a city called New York Cash. He can drive this car with the same key if he is able to travel between spaces. Yet, this type of traveling is impossible. This is a very interesting comparison that reflects the hard forks very close.

Conclusion

So, what’s a hard fork? It’s a new version of an old cryptocurrency that is so different from its parent that the compatibility between them is no longer an option. It’s often a product of experimentation and improving of past versions of crypto. Sometimes these experiments can be unstable, as a result.