Introducing forks with a look at hard and soft forksdeltafx writer 1 July 2021
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This article on cryptocurrency forks can provide you with a way to increase the capital of your wallet. As you know, many popular cryptocurrencies were born as a result of a split or fork from the other base cryptocurrencies, such as Bitcoin. This article tries to make you more familiar with the concept of “fork”, its types, and the reasons for using this type of cryptocurrency technology.
What does Fork mean?
If you have ever been in the cryptocurrency market, you are familiar with basic concepts such as blockchain, and you know that these categories have their own rules and protocols that are set by programmers and cannot be changed. For example, the time and speed of each transaction is a certain amount for each block. As long as users accept these protocols, they cannot be prevented from working.
This question may arise for you that what if someone disagrees with a certain cryptocurrency law? In this case, the developers take action and try to create another fork of that cryptocurrency.
As the name implies, to better understand the subject, consider a fork that has a trunk and several branches. What happens, in reality, is similar to this concept.
The reasons for creation of forks in cryptocurrencies
One of the reasons mentioned earlier was the disagreement of some people with some of the rules and blockchain protocols of a specific cryptocurrency. But is this the only reason for a fork to be created? It should be noted that some big problems or disputes about a cryptocurrency may lead to a fork. This could be due to information hacking, such as what happened to Ethereum, or disagreements within the developer community, such as what happened to Bitcoin and Bitcoin Cache.
In general, there are two main reasons for the creation of forks:
- Some people disagree with the rules and protocols of a specific cryptocurrency
- Security reasons such as hacking cause global disruption to the blockchain of a cryptocurrency.
Different types of forks
Generally, 2 types of forks may occur in a cryptocurrency; soft fork and hard fork. In the following we will talk about each one in details. Before that, you should know that almost all of the cryptocurrencies are made of two main sections:
- Protocols – which include terms and conditions;
- Blockchain – records all of the past activities.
What is a hard fork?
To make a hard fork, a group of programmers first copy the original protocol code and then apply the intended changes. It should also be noted that all these steps will be done if the intended cryptocurrency is entirely open-source. After making the changes, this group considers a point or block to activate the new branch. For example, based on the following image, the new protocol will be activated after the release of 12/200 block in the blockchain. This type of change is called a hard fork.
What is a soft fork?
The Soft Fork is the opposite of the Hard Fork and involves minor changes, as the name implies. Let’s start with a simple example. Imagine there is a change in your working hours and you have to be at work between 7 and 7:45. Whereas before, you had to go to work between 7:30 and 8:15. If any of your co-workers used to go to work at 7:35, they wouldn’t be in trouble right now; otherwise, they should start a little earlier given the new schedule.
So, in soft work, instead of changing the final product, it brings a change in the protocol, and the big difference with a hard fork is that it is compatible with older versions. This means that the new protocol is in line with the previous nodes of the system, and therefore no new product is introduced to the market.
The effect of hard work on the cryptocurrency price
Perhaps the best example could be related to the bitcoin hard fork. In 2017, the fork that separated the bitcoin cash from the bitcoin network dropped the price of this cryptocurrency from 2,800$ to 2,700$. At first glance, the value of people’s assets decreased, but on the other hand, they received Bitcoin Cash as a new currency that compensated for this loss.
Therefore, the effect of a hard fork on the cryptocurrency price can be expressed in this way:
- Boosting the network speed: making a fork in a cryptocurrency will increase the speed of its network. This feature made it possible for many organizations to build a secure network.
- The value of the cryptocurrency will increase: Another important effect of using hard forks is the significant increase in the value of the cryptocurrency. Due to this boost of value, a fork attracts the attention of investors in the world of cryptocurrencies.
Increasing security and making changes due to disagreements can be considered a good motivation to create a new fork from open-source cryptocurrencies, despite the complexities and disadvantages of hard forks, such as lack of coordination with past nodes in the system. But speeding up the network and increasing the value of cryptocurrencies has made this technology an attractive option. However, various aspects such as trading plan and review of goals should be considered when using this technology.