The world of crypto is full of mysterious terminology, and it is easy to get confused by terms and concepts when you are just starting out. It is not uncommon for beginners to find difficulty explaining even what the blockchain is, let alone a hard fork.
However, if you are reading this, chances are you have spent enough time learning about crypto to come to the question of what a hard fork (or hardfork) is. In the next few lines, you will learn the essentials of a hardfork and how it affects you as a crypto investor.
Understanding forks in crypto
The first thing to keep in mind is the idea of a fork. Not the one you used to eat, silly. This is a metaphorical fork. Like when you made an important decision that changed your life. We call that a “fork” in your life. If you had chosen to do something different, your life would have been a lot different.
In crypto, these forks happen when there is an important change to a network’s protocol. Developers or dissatisfied members of a crypto community may initiate such changes, and depending on how it unfolds; it may be called a “hard fork” or a “soft fork” (more on that later). It is also common for forks to happen as a way to crowdsource funding for new crypto offers or new technology.
Forks can happen in any crypto technology. A few examples of crypto forks can be found in what today is known as Ethereum Classic. Ethereum Classic and Ethereum came into existence thanks to a fork in the Ethereum blockchain in the aftermath of the DAO hacker attack. Other examples are bitcoin cash and bitcoin gold; both originated from a Bitcoin fork.
Why do forks happen?
Forks do not happen out of the blue. There are a number of reasons why a network might split into two. One of the reasons for a fork to happen can be an attempt by developers to correct important security risks present in older versions of the software. Another possible reason is adding new functionality to the software.
In the Ethereum Classic example, the idea behind the fork was to reverse the hack on the Decentralized Autonomous Organization (DAO). This was, in fact, a way the Ethereum community found to reverse a transaction and return tens of millions of dollars worth of digital currency.
How exactly this happened is beyond the scope of this article, but once the fork was completed, the community managed to roll back transactions and help even DAO token holders get their funds back. But this is getting too technical. So before we get lost in more jargon, let’s see when we call it a “hard fork” and when we call it a “soft fork.”
Hard fork vs. Soft fork
There are two important concepts to keep in mind when talking about crypto forks: the protocol and the blockchain. The latter is where all the transactions that have ever happened are stored in sequential blocks (hence, blockchain), whereas the former refers to a set of rules that establish the structure of the blockchain.
Hard forks
Imagine a segment of the crypto community decides to create its own set of rules – that is, a new protocol. If they make it so that the new rules are incompatible with the old ones, we have a hard fork. Let’s say the cryptocurrency blockchain currently has generated 998 blocks so far. If the developers decide the new protocol will go live when block 999 is published, block 1000 will actually be 2 blocks.
This means the original blockchain will continue from block 1000, whereas the new block will originate a new fork. Once the members of the new fork start adding new blocks to it, both blockchains become incompatible with each other. The final incompatibility of the two blockchains is what makes a fork “hard.” The Bulletproofs+ cryptocurrency, for example, was a hard fork from the security token Monero.
Think about hard forks, and you would think about a couple in which one of the two spouses has a drinking problem. The sober one then says either the other quits drinking or they will get a divorce. Having it both ways is not an option here, and there is certainly no chance that the sober one will accept that his or her spouse will start drinking again in the future. There it is, a hard fork.
Soft forks
A soft fork, on the other hand, is like being a teenager when your parents get divorced. Supposing they do it in amicable terms, you will likely spend time with both of them, although now separately. Of course, in crypto, this gets a lot more technical, and there are important details we must mention.
It is not like a soft fork will allow blocks to go back and forth between blockchains. In order for this to happen, there needs to be a consensus in the network, and the new rules must be incorporated into the old ones. An example of a soft fork is the Segregated Witness (or SegWit), which originated from a Bitcoin fork.
What’s in it for you?
As they say in Wall Street: “Volatility obscures the future, but does not necessarily determine the future.” This saying comes in handy when you think about forks. Whenever they happen, forks can be highly volatile moments in the life of a cryptocurrency. In the short term, it presents a great opportunity for a quick profit if you know what you are doing.
However, do not get too caught up in the excitement of a sharp rise. Either you cash in quickly, or you make sure you have done solid enough research. You need a good reason to hold on to that crypto for the long run. Start by looking into the crypto with the most potential in 2022. But do not limit yourself to this. Look further. You will live a lot longer than that.
