- Automated Market Maker
- Blockchain Explained
- Blockchain: Private vs Public
- Blockchain Oracle
- Cryptocurrency Trading
- Digital Assets
- Digital Banking
- Digital Currency
- Digital Securities
- Digital Wallet
- Directed Acyclic Graph
- Equity Crowdfunding
- Equity Tokens
- Hard Fork
- NFTs (Non Fungible Tokens)
- Proof of Work vs Proof of Stake
- Security Tokens
- Stablecoins Explained
- Stablecoins – How They Work
- Smart Contracts
- Token Burning
- Tokenized Securities
- Utility Tokens
- Web 3.0
Securities.io is committed to rigorous editorial standards. We may receive compensation when you click on links to products we review. Please view our affiliate disclosure. Trading involves risk which may result in the loss of capital.
Table Of Contents
The blockchain industry has brought many new concepts that its participants needed to learn and understand in order to know what to expect when trading cryptocurrencies or deciding what project to support through investments. More importantly, all blockchain-related decisions affect the future of the entire project.
Changing the way a blockchain works is done through hard forks, and it is something that is done regularly. This is why understanding what hard forks are, how they work, and what they do is highly important for developers, investors, traders, and even users of the project in question. So, today, we will talk about everything you need to know about hard forks, regardless of which role you play in the world of crypto and blockchain.
What are Hard Forks?
So, let’s start from the very beginning and answer the question of what are hard forks in the first place.
A hard fork, in the context of blockchain technology, is a major change to the network’s protocol. This can be done for a variety of reasons, either to make previously invalid transactions and blocks valid, or to make valid ones invalid. It is used for bringing updates to the blockchain network, introducing changes to the way that specific blockchain works, and more.
However, a hard fork also requires all node users to upgrade to the new version of the software. Since blockchain is decentralized and run by a community, this entire community has to use identical information regarding past transactions.
Hard forks are often initiated by developers who came up with a new feature of their project and need to conduct a hard fork in order to implement it. However, it is also not uncommon for the members of the project’s community to initiate one, if they are not satisfied with the blockchain’s functionalities, and they wish to take its development in another direction.
What do Hard Forks do?
The split in the fork is essentially made by adding a new rule to the code, simply causing one chain to follow the new path containing the new rule, and the old chain to continue on the path without the rule being implemented. It usually isn’t long before those on the old chain realize that their version of the blockchain is outdated and no longer relevant. After they do, upgrading to the new chain is a fairly simple matter – unless they wish to continue pushing the old version of the chain, as explained before.
So, a hard fork can be described as a situation where the blockchain is changed to a new version of itself, and the nodes of this new version no longer accept the older version or versions of that same blockchain. This creates a permanent divergence from the old version of the chain. However, it can sometimes happen that a portion of the community wishes to change the blockchain, while the other group does now.
If this happens, it is not uncommon for one chain to fork into two chains, where both old and new versions of the chain are kept functional, one by the portion of the community that wanted change, and the other from the other group, which liked the chain the way it was. This has happened numerous times in the past, and many new projects were born that way.
Which is the real chain after the fork?
Another thing to note is that hard forks can occur on any blockchain out there. This is not only limited to Bitcoin or Ethereum, even though their hard forks tend to be the most memorable. Bitcoin has forked many times so far, and whenever it happened, one path got to keep the name of the original project, while the other one got a similar name, but with slight changes, in order to differentiate from the other one.
Sometimes, the chain that added the new rules gets to keep the original name, while other times, it’s the old one, while the one that changed ends up becoming a separate project. In Bitcoin’s case, there have been many hard forks over the years, and the current Bitcoin has been on both sides — it added new rules while the chain that kept the old ones became a separate project, and it decided to proceed with the old rules, while the chain with changes to its code became a new, separate project.
Due to all of the forks that the project saw, apart from the current chain that we know as Bitcoin, there are also Bitcoin Cash, Bitcoin Gold, Bitcoin SV, and many others.
Why are Hard Forks Initiated?
Hard forks can be initiated for countless reasons, and whatever the reason may be, it is valid as long as the majority of the community agrees to it. Some may be initiated because developers found a flaw in the code, or they decided that they need to strengthen it in order to remove bugs. In other cases, they might even have a security risk that needs to be quickly patched.
In some situations, the developers are adding new functionality, or an entire group of new additions, which is usually quite exciting for the community. And, while blockchain is immutable, and a hacker – or even an entire group of hackers – cannot do anything to large chains that have plenty of nodes all around the world, it is still possible for the community to reverse transactions, if the majority agrees that there is a good enough reason for it.
This happens very rarely, but it is still possible. One example took place when Ethereum blockchain created a hard fork to reverse the hack on the DAO (Decentralized Autonomous Organization).
After the hack took place, the community voted in favor of reversing the transaction. The decision was almost unanimous, as the hacker(s) stole tens of millions of dollars in cryptocurrency. At the end of the day, the transaction was reversed, and the stolen funds were returned to the DAO token holders.
However, it is important to get a proper understanding of how this happened, as even the proposals that manage to get such a high amount of support cannot unwind the network’s transaction history. Instead, what actually happened was that the funds tied to the DAO were relocated to a brand new smart contract that had a single purpose of allowing the owners to withdraw their funds.
Key Differences between Hard Forks and Soft Forks
Finally, there is one more thing left to mention, and that includes the soft forks. Hard forks and soft forks are not too different, and they both do the same thing, which involves changing the platform’s existing code. The old version remains on the network while the new one is being developed.
However, they are not identical approaches to changing the code of the blockchain. When it comes to soft forks, only one blockchain will remain valid after the update is out. There is no splitting the chain into two or more projects that can survive side by side. However, when it comes to hard forks, this is something that often occurs. In other words, both new and old blockchains get to continue their existence and even continue to function, provided that they can amount enough support.
Community members who wish to switch to the new version need to update their code, while those who wish to keep running the old version of the project simply do nothing. So, simply put, both forks create a split. The difference is that hard forks can create two chains, while soft forks continue with a single one.
But, there is also another difference between the two, which is the difference in their security. Basically, hard forks are a lot more secure than soft forks, which is why almost all users and devs turn to hard forks when an update of some sort is needed. Soft forks are now rarely used, even though they can do the same job. After all, blockchain technology is all about security, so it makes sense for the developers to choose the more secure route, even though it is less convenient, and it requires a tremendous amount of processing power.
Hard forks have been a crucial component of the crypto/blockchain industry ever since the first time Bitcoin forked. Throughout the sector’s history, there have been countless forks on pretty much every blockchain out there. Most projects have long-term roadmaps that announce all kinds of new developments, additions, and features, and in order for all that to happen, hard forks are necessary.
However, there are also many unscheduled ones, caused by hacks or the discovery of large vulnerabilities in the blockchain code. Whatever the case may be, hard forks are generally a good thing. Despite being quite demanding in terms of computing power necessary to conduct them, they are bringing positive changes to the existing chain. And, sometimes, they may also cause a new project to emerge, and even become a major new contender in the crypto arena.
Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.
You may like
Top 10 Crypto Events You Should Know
What’s Ahead for Crypto This Week: BTC’s Climb Continues, SEC Warms to Grayscale, DeFi Faces Challenges
Ethereum Futures ETFs Storm the US Market, But Initial Enthusiasm Appears Muted
Top 10 Bitcoin Moments You Need to Know
Another Big Win: New Accounting Rules to Apply to Crypto Starting 2025
Drivechains: The Silver Bullet for Bitcoin’s Scalability Issues or a Pandora’s Box of New Risks?