Do you know what a fork in cryptocurrency is? Read on to know what is a fork in cryptocurrency and how it can impact the cryptocurrencies? In the world of cryptocurrencies, forking is a rare occurrence. Some of the forks are planned, while some are the outcomes of extreme situations. When planned, users voluntarily upgrade the software to pursue new rules while leaving behind the old version.
The software needs continuous updates to improve performance as well as to fix some issues. In the realm of cryptocurrency, such software updates are called ‘Forks.’ Simply put, the process of forking refers to divergence in the blockchain, which can be either temporary or permanent.
Whenever a blockchain divides into two separate branches, forks are produced. Sometimes, forks can be the result of some changes in the consensus algorithm or can happen due to software changes.
In cryptocurrency, a fork is a form of software update resulting from changes in the protocol of blockchain. Of note, forking can be either backward-compatible (Soft Fork) or non-backward compatible (Hard Fork).
Forks are the alternative version of blockchain that ends up in two separate blockchains. These forks run on different parts of the network simultaneously.
Types of Forks
There are two critical types of hard-fork and soft fork based on the nature of change in forks. In the cryptocurrency world, a soft fork is also known as backward compatible, whereas hard fork is non-backward compatible.
● Hard Fork
In the crypto world, when a change occurs in blockchain protocol or a system is upgraded in such a way that makes the previous rules obsolete and uses a new code base, it generates a hard fork.
A hard fork is permanent and requires all users and nodes to update the latest software protocol or wallets. It is the entirely new version of cryptocurrency which inherits all the historical transactions, but now it will have its transaction history. Due to this reason, this fork is also termed as non-backward compatible.
When a cryptocurrency splits into a hard fork, it incorporates entirely new features and rules that include new blocksize, change in proof-of-work functions.
For instance, Bitcoin Cash is the fork of Bitcoin that changed its protocol. This contentious update replaced all its old rules with new ones. Of note, when a cryptocurrency is hard-forked, all of the transactions should be copied into new forks. For instance, if a person has 100 coins of Bitcoin, you will get 100 coins of Bitcoin cash after its forking.
● Soft Fork
Unlike hard forks, soft forks do not make previous rules obsolete. Moreover, the soft fork does not require a universal update of software and nodes. However, if miners want to enforce the change, they will be needed to upgrade their nodes. Since the soft fork is also called ‘backward compatible,’ users that have not updated their nodes can still process transactions in previous coins unless they comply with the new rules of cryptocurrency protocol.
For instance, SegWit (Segregated Witness) is a kind of soft fork that is a scaling solution of Bitcoin protocol. Simply put, it refers to the process that separates the signatures of witnesses from the cryptocurrency transactions.
Why are Forks created?
You might be wondering why forks are created and why it is necessary to update the already established protocol. Well, there are some specific underlying reasons to do so.
1. Security Risks
Forks are created by updating protocols to fix the security issues that existed in older versions of blockchain and cryptocurrency.
2. Improve Functionality
Blockchain is open-source, so developers strive to bring improvement in its functions from all over the world.
3. Reverse Transactions
Cryptocurrency protocols are updated or changed to create forks to prevent security breaches.
Forks in cryptocurrency will continue to become an integral part of cryptocurrency development. In short, the creation of forks aimed at improving its functions so that users can leverage from its benefits. If you feel like you should invest in cryptocurrency, visit Coinbase website and start buying.