Hey there, crypto enthusiasts! Ever heard the term “crypto fork” and wondered what on earth it means? The world of cryptocurrency is packed with jargon, and “fork” is one of those buzzwords that pops up a lot. But don’t worry — it’s not as complicated as it sounds. In the wild world of cryptocurrencies, a fork is when a blockchain splits in two, creating a new version alongside the original. It’s like when your favorite TV show gets a spin-off – same basic idea, but with its own twists. Let’s dive into what crypto forks are all about and why they matter.

What Is a Crypto Fork?

A fork refers to the modification of the source code of a digital currency and the alteration of its operating principles. As a result of a fork, a new cryptocurrency is created, differing in certain parameters from the original. Meanwhile, the original blockchain continues to exist independently.

It is believed that the first forks appeared based on Bitcoin, the most popular cryptocurrency. Developers dissatisfied with some of its features began to create modified versions with improved functionality. Although Bitcoin is considered the first cryptocurrency, forks can be launched based on any digital currency with open-source code.

How Do Forks Work?

Forks happen when changes are made to a blockchain’s software protocol, often leading to the creation of new tokens. There are two main ways to create new cryptocurrencies: from scratch or by forking an existing blockchain.

Creating from Scratch: This is the most common method. It involves copying and pasting existing code, then tweaking it to create a new token. You also need to build a network from the ground up and get people to start using your new crypto. For example, Litecoin began as a clone of Bitcoin. The founders made some changes to the code, convinced people it was worth using, and now it’s a popular cryptocurrency.

Forking an Existing Blockchain: Instead of starting fresh, this method makes changes to an existing blockchain. This results in two versions of the blockchain as the network splits. A good example of this is Bitcoin Cash. Different views on Bitcoin’s future led to the creation of Bitcoin Cash from the original Bitcoin.

Why is a Fork Needed?

Main goals for creating blockchain forks:

• Eliminating the shortcomings of the original coin (e.g., slow network performance, high fees, weak anonymity);
• Implementing a new concept (changing the consensus algorithm, modifying issuance);
• Restoring system functionality after hacker attacks;
• Launching a new project using an existing codebase.

Another reason for conducting a fork may be a conflict within the community regarding the project’s further development.

As a rule, forks are made to improve the technical characteristics of a cryptocurrency or to introduce fundamentally new functionality. Sometimes launching branches is necessary for experiments that are too risky for the main blockchain.

Thus, a fork is an opportunity to improve crypto projects without disrupting the main network. Thanks to forks, new promising coins emerge, and the technical boundaries of the blockchain expand.

Types of Forks in Crypto

When it comes to cryptocurrency forks, there are two big types you should know about:

• Soft Fork
• Hard Fork

These two mainly differ in how big the changes are and how they affect the network.

Soft Fork

A soft fork is like a small update to the blockchain’s software. Most of the system stays the same.

Usually, soft forks happen to:

• Fix minor bugs
• Improve certain blockchain functions
• Slightly tweak existing settings

The cool thing about soft forks is they don’t require everyone to update to the new version. Some users can stick with the old rules, allowing for gradual improvements without messing up the whole blockchain. No new coins are created, and the community remains pretty much the same.

Hard Fork

A hard fork, on the other hand, is a big update to the cryptocurrency protocol that creates a modified version. This involves major changes to the system’s operations.

These changes can include:

• Changing the consensus algorithm
• Modifying how tokens are issued and distributed
• Altering network interaction mechanisms
• Other critical updates

For a hard fork to work, everyone needs to agree on the changes and switch to the new blockchain. If not, the network splits into two separate blockchains, effectively creating a new cryptocurrency.

Main scenarios for hard forks:

• Full approval: The whole network moves to the new version.
• Partial approval: Only part of the network switches, leading to the creation of a new cryptocurrency.

So, hard forks can be used to upgrade existing blockchains or to start brand new crypto projects.

Bitcoin Forks: Examples

One of the most successful Bitcoin soft forks was Segregated Witness (SegWit). Launched in 2017, it aimed to tackle the network’s scalability issue. By separating signatures, it allowed more transactions to fit in a block without changing its size.

In the same year, a hard fork resulted in a new cryptocurrency called Bitcoin Cash. Not everyone was thrilled with the SegWit solution. Some developers thought SegWit’s increase in block capacity was still too small, so they created their own solution. However, this new update wasn’t compatible with the original system. Thus, Bitcoin Cash was born, and those holding Bitcoin received an equivalent amount of Bitcoin Cash coins.

Another great update is the Lightning Network, launched in 2018. This off-chain solution significantly speeds up Bitcoin transactions and cuts costs. Payments are processed through a separate channel and then recorded on the blockchain later.

Pros and Cons of Blockchain Forks

Cryptocurrency forks come with their own set of upsides and downsides.

Pros of Forks:

• Launching improved versions of blockchains by fixing bugs.
• Giving miners new opportunities with lower network difficulty.
• Boosting market competition and encouraging protocol improvements.
• Airdrops give holders of old tokens “free” new coins.
• Expanding blockchain functionality and applications.
• Undoing bad changes made by previous soft forks.

Cons of Forks:

• Creating pointless clones just for developer profit.
• Temporary price drops of the main token when a fork happens.
• Risk of splitting the community and network due to disagreements.
• Hard to implement because everyone needs to adopt the new rules.
• Possible incompatibility with the old chain and existing applications.

Even with the risks, the benefits usually outweigh them.

The Success of a Fork

Whether a new fork will be successful really depends on how miners react to it. Take Bitcoin Cash, for example. It became successful because miners backed it with their computational power. However, its future success is still up in the air. Bitcoin Cash has larger block sizes, which means extra costs for miners. If it stays profitable, miners will keep supporting it.

You can only judge a fork’s success after the tokens hit the market and their value is set. Predicting this in advance is tough.

So, as you can see, forks aren’t that hard to grasp. Even though blockchain tech and cryptocurrencies might seem complicated, their main goal is to make life easier.