Understanding Cryptocurrency Forks and Their Importance

In order to fully understand the changes occurring within the crypto industry and its underlying blockchain technology, it is important to fully comprehend the implications of network upgrades also known as forks. There are various types of forks and major differences between each that affect blockchain technology and overall network functionality. The term cryptocurrency forks refer to an upgrade in the underlying platform or, protocol, of the asset’s network that alter conditions required for the mining multiple blocks. For a thorough understanding of such upgrades, it is important to initially understand the manner in which digital assets and their associated blockchains function.


Forks exist for digital assets such as BTC, ETH, and other major currencies which results in either a new and upgraded version of a mined coin or produces two variations of a coin. The fork itself is essentially an alteration in the mining codes and blockchain algorithms resulting in a new version of the previously existing network. A fork has the potential to improve a network's coding or function alongside it.

Through the lens of a broader paradigm, digital assets function along a blockchain which acts as a digital record facilitating the transaction of associated cryptocurrencies recording and displaying transactional data. A method known as "consensus" promotes its decentralized nature by requiring users to recognize a list of protocols required to confirm transactions. A fork occurs when a distinct separation in user consensus occurs or similarly when an alteration of protocol rules is required. Such changes to blockchain protocol require a swift modification of coding which can result in major repercussions.

Technical Difficulties with Crypto Forks

During 2017, Bitcoin Classic underwent a fork to their protocol which resulted in the creation of Bitcoin cash, a derivative digital asset that improved block sizes and allowed an increased amount of transactions to take place. The cryptocurrency continues to exist as a result of an ongoing debate regarding Bitcoin’s scalability and other related issues. Together, a collaboration of investors, miners, and known developers who disagreed with suggested solutions to these issues processed a fork that created a variation of the protocol.

The Different Types of Crypto Forks

Two variations of digital asset forks exist which include Hard and Soft versions.

Understanding Hard Forks: In simple terms, a hard fork can be described as a division derived from a preexisting version which cancels out all previous nodes operating with the older version of the protocol. In other words, a hard fork acts as a non-backward congenial. Hard forks consistently deviate from existing versions of blockchains creating nodes in the upgrade that don't couple or endorse any transaction or node associated with an older version.

A hard fork is used to reproduce an abundance of variations and develop new versions of blockchains that do not link transactions with previous versions. With hard forks, old transactions are not transferred to the new update and nodes that remain functional on older versions will view updated transactions as illogical. In order to correctly mine with the new blockchain, all systems nodes must accept the new protocols successfully.

Understanding Soft Forks: One prominent difference between soft forks and hard forks is that soft upgrades maintain a link between previous versions and are backward agreeable. In other words, older transactions are recognized by newly updated nodes. These old nodes are still able to recognize upgraded transactions as legitimate processes however blocks mined by those old nodes will not be accepted by soft forked nodes.  For that reason, soft forks can only function by requiring a significant quantity of hash power within the overall network. If a soft fork is not supported by a sufficient network’s hash power, major complications could shift the chain.

Recently, researchers in the blockchain field reported that hard forks have the ability to effect a digital asset’s stability and value and can be a potential hazard to the success of a given cryptocurrency. Given the nature of hard forks, it has the potential to split a digital asset into rivaling groups resulting in lowered confidence in the coin’s ability to exist as a secure form of exchange.

Research into the matter explains that hard forks can result in the creation of a new blockchain network that disagrees with its original version. This can result in the existence of two cryptocurrencies that are technologically incompatible. In such cases, users often shift towards creating a divide between users who agree with the upgrade and those who reject it.

Why Forks are Important

Forks are important to the improvement and development of cryptocurrencies and will continue as a relevant aspect of the greater crypto industry. Current forks are continuing to serve and address issues regarding scalability and transparency the industry still suffers from. However once these issues are corrected and scalability is established, forks will continue to be a source of innovation and a method for future improvement. Forks allow cryptocurrencies and their underlying technologies to remain adjustable and help refresh protocols so that they can develop the best strategies to exist long term.

1 year ago

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