Behind cryptocurrencies like Bitcoin and Ethereum is a decentralized, open-source software called blockchain, which anyone can contribute to. This software is named blockchain because it literally consists of blocks of data, comparable to an incredibly long train. The blockchain can be traced back to the very first transaction in the network. As open-source software, its maintenance and development are in the hands of its communities.
Forks occur whenever a community makes a change to the blockchain protocol, essentially the rule set of the blockchain. In this case, the chain of data blocks splits, creating a second blockchain with an identical history up to the fork point but diverging in a new direction.
Why is this important?
For most digital currencies, an independent development team is responsible for making changes and improvements to the network, similar to how internet protocols are updated over time to improve the browsing experience. A fork can sometimes enhance the security of a cryptocurrency or add new features.
Additionally, developers of new cryptocurrencies can use forks to create entirely new coins and ecosystems.
Soft Fork: Think of a soft fork as a software upgrade for the blockchain. If all users accept the upgrade, the new version replaces the previous rules of the currency. Soft forks have been used in Bitcoin and Ethereum to introduce new features, usually at the programming level. Since the end result is a single blockchain, the changes are backward-compatible with previous blocks created before the fork.
Hard Fork: A hard fork occurs when the code is modified so significantly that the new version is not backward-compatible with previous blocks. This splits the blockchain into two: the original and a new version with a different rule set. This results in a completely new cryptocurrency. Many well-known coins have been created this way. Cryptocurrencies like Bitcoin Cash and Bitcoin Gold originated from the original Bitcoin blockchain through a hard fork.
What is a Fork and Why Do Forks Happen?
Just like any software needs updates, blockchains are updated for various reasons:
To add features
To eliminate security risks
To resolve community disagreements over the direction of a cryptocurrency
How Do Forks Continually Change the Crypto Landscape?
The Ethereum blockchain allows for the execution of "smart contracts," which are pieces of code that automatically execute a sequence of predefined actions when certain conditions are met. The range of smart contract applications includes games, logistics tools, and DeFi DApps.
The Ethereum blockchain serves as the platform for all these applications, akin to a computer's operating system. In this analogy, the various forks of Ethereum (Ethereum, Ethereum Classic, Ethereum 2.0) are like newer versions of an operating system, offering additional features or efficiency improvements that earlier versions may have lacked.
An older fork might continue as a stable and proven platform, while a newer fork could provide developers with entirely new possibilities for interaction. (Older and newer versions might eventually merge or continue to evolve separately.)
Think of a "Soft Fork" as a software upgrade (similar to your mobile phone prompting you to install the latest OS update) and a "Hard Fork" as a completely new operating system (like how Linux and Mac OS are modern versions of the 50-year-old UNIX platform).
