Blockchain Forks

What is blockchain technology?

A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called blocks, that are securely linked together using cryptography. The distributed database is managed by multiple participants and transactions are recorded only once. Virtually anything can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved. All network participants can access the digital ledger and its immutable record of transactions.

The concept of blockchain technology first emerged in 1991, with a paper explaining the use of a continuous chain of timestamps to record information securely, and now forms the bedrock of cryptocurrencies and open-source, decentralized networks such as Bitcoin and Ethereum.

There are many important developments in the world of blockchain and digital currencies, including upgrades such as Segwit and Taproot, smart contracts and dApps, as well as blockchain forks. In this article, we'll explore the different types of blockchain forks, how they function, and their impact on the crypto ecosystem.

What is a Blockchain Fork?

A blockchain fork occurs when the software of a blockchain protocol is upgraded or changed, resulting in a new version of the software that is not backward-compatible with the previous version. This can lead to a divergence in the blockchain network, creating a new blockchain that is separate from the old chain.

It should be noted that forks can be either accidental or intentional. An accidental fork happens when multiple miners mine a new block at nearly the same time. The entire network may not agree on the new block, leading to a different chain of blocks from that point onward. These temporary forks resolve themselves when one of the chains is orphaned because a majority of the full nodes chose the other chain to add new blocks to.

An intentional fork involves intentionally modifying the software code to change the rules of the blockchain. This can result in two different types of forks, which depend on whether the updated blockchain protocol is backward-compatible and the timing of when a new block is mined.

Blockchain forks can be hard forks or soft forks. Let's take a closer look at each of these.

Hard Forks

A hard fork occurs when there is a permanent divergence in the blockchain network, resulting in the creation of a new blockchain that is incompatible with the old version.

This can happen when the software upgrade introduces new rules that are not compatible with the previous version of the blockchain. This type of fork requires all nodes in the blockchain network to upgrade to the new version of the software, or risk being left behind on the old chain.

Soft Forks

A soft fork, on the other hand, is a divergence in the blockchain network that is backward-compatible with the older version.

This type of fork occurs when the software update introduces new rules that ensure compatibility with the old version, allowing nodes that have not upgraded to continue functioning on the old version of the software.

Impact of blockchain forks

Blockchain forks can have a significant impact on the ecosystem of digital currencies. A hard fork can result in the creation of a new blockchain with new features, functionality, and a new cryptocurrency. This can create competition for the old chain and result in a split in the blockchain network.

For users, the impact of a hard fork can be significant. If they hold the original cryptocurrency, they may receive a corresponding amount of the new cryptocurrency. However, they may also have to upgrade their software, transfer their assets to the new chain, or risk losing their funds.

Examples of blockchain forks

Bitcoin Cash

One of the most notable Bitcoin Forks is the chain split in the Bitcoin blockchain (BTC) in 2017, resulting in the creation of Bitcoin Cash (BCH). This hard fork was created due to a disagreement about the block size and led to the creation of a new cryptocurrency with a larger block size and different validation rules. Shortly after, other hard forks such as Bitcoin Gold (BTG) and Bitcoin Diamond (BTCD) also occurred. 

Ethereum Classic

Another example of a hard fork is the Ethereum blockchain split in 2016, which resulted in the creation of Ethereum Classic (ETC). This split occurred after a hack on The DAO, which was built on the Ethereum blockchain. The hard fork was created to restore the funds lost in the hack, while the old version of the blockchain continued to function, creating a new cryptocurrency with old rules.

Ethereum Merge: Casper

Casper is a hard fork of Ethereum that aims to tackle some of the main obstacles standing between the blockchain protocol and mass adoption. Casper is the switch of Ethereum from a Proof of Work consensus algorithm to a Proof of Stake consensus, also called the Ethereum Merge or Ethereum 2.0. Under Proof of Stake (PoS), miners are replaced with validators, who must take turns proposing and voting on new blocks. The weight of each validator's vote depends on the size of the validator's stake (ETH tokens).

SegWit and Taproot

An example of a soft fork is the implementation of SegWit on the Bitcoin blockchain. SegWit introduced a new way of storing transaction data, without requiring all nodes to upgrade to the new version of the software.

The Taproot upgrade is also a soft fork upgrade to the Bitcoin network that aims to improve the network's privacy, security, and functionality.

The Bottom Line

Blockchain forks are a natural part of the evolution of blockchain technology. While they can cause temporary divergence in the blockchain network, they also allow for innovation, software upgrades, and the introduction of new features and functionality.

As an example, Bitcoin Ordinals were made possible by the Bitcoin Taproot upgrade. On January 21st 2023, software engineer Casey Rodarmor launched the ordinals protocol. By finding a way to inscribe 4MB of data on a Bitcoin block, Casey Rodarmor has unlocked a plethora of possibilities for the Bitcoin network. In short, Ordinals Bitcoin NFTs you can mint directly on the Bitcoin blockchain, without the need for a sidechain or separate token. All of the data lives on-chain, making them true digital artifacts. The future lies ahead!