One of the most revolutionary concepts that cryptocurrency brought to the table was the democratization of governance – specifically, the idea that changes to the protocol should be decided by consensus among all users, rather than by a central authority. This philosophy of “decentralized consensus” is what has propelled the evolution and growth of crypto, taking it from a niche interest on the internet to the vibrant industry it is today.
However, as the industry has matured, the diverse interests of different stakeholders have often clashed, leading to debates and disagreements over the best way to move forward. When these disagreements cannot be resolved through discussion and negotiation, they sometimes result in a “fork” in the blockchain. A crypto fork, like a fork in the road, is essentially when a single blockchain splits into two separate projects.
This article will explain the concept of forks in crypto and explore the different types of forks that have occurred in the history of cryptocurrency.
Hard Forks vs. Soft Forks
Crypto forks can occur for a variety of reasons, whether it’s a dispute among developers about how to improve the protocol, or to make tweaks and upgrades which change how a blockchain operates.
For example, one team of developers may want to increase the block size in order to improve blockchain throughput, while another team may believe that this would be too risky and prefer to keep the block size unchanged. If the two sides cannot come to an agreement, then a fork can occur.
There are two types of forks: hard forks and soft forks. Hard forks represent a radical change to the protocol that is not backwards compatible, meaning that all users must upgrade to the new software in order to continue using the network. Soft forks, on the other hand, represent a change to the protocol that is backwards compatible, meaning that users can continue to use the old software if they choose.
The majority of forks that have occurred in the history of cryptocurrency have been hard forks. However, there have been a few notable soft forks as well:
- Bitcoin’s “Pony Express” fork in 2010 introduced faster transaction times
- Ethereum’s “London” upgrade introduced EIP-1559, a burning mechanism that reduces ETH from supply with each transaction on the network
- Ethereum’s “Paris” upgrade changed its consensus mechanism from Proof of Work to Proof of Stake
What Warrants a Crypto Fork?
As a crypto project matures and grows, different stakeholders will have different ideas about what changes should be made to continue scaling and growing the network.
In a centralized organization, such as a traditional bank or corporation, these decisions would typically be made by a small team of executives or shareholders. However, in a decentralized project like cryptocurrency, these decisions must be made by consensus among all users. This can often lead to gridlock, as different stakeholders fight for their preferred changes to be implemented.
As mentioned, crypto forks can also be implemented in order to introduce new updates to the blockchain, such as Ethereum’s London and Paris forks.
Finally, forks can also occur due to security concerns. For example, if a critical vulnerability is found in the protocol, a fork may be necessary in order to patch the hole and protect users’ funds. These fixes can be either hard or soft forks, depending on how significant the change is.
The Importance of Crypto Forking
Crypto forks may seem like a negative thing, as they often result in infighting and disagreements within the community. However, it is important to remember that forks are a natural part of any decentralized project, and they should be seen as a positive sign of growth.
Forks occur when the community is unable to come to a consensus about how to move forward. This is often because the project is growing and evolving, and different stakeholders have different ideas about what changes should be made.
While forks can be disruptive in the short term, they are usually resolved over time as the resulting projects pursue their own separate agendas. In the end, forks often lead to a more robust and resilient ecosystem, as different projects experiment with different approaches and ideas.
High Profile Cryptocurrency Forks
Over the course of its history, there have been a number of high-profile cryptocurrency forks. Some of the most notable examples include:
Just recently, in September 2022, Ethereum underwent a highly anticipated hard fork, known as the Merge, that changed the blockchain’s consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS).
This update enables greater scalability for Ethereum while also significantly reducing its environmental footprint since consensus no longer requires crypto mining, as was necessary with its previous proof-of-work consensus mechanism.
Now that the Merge has taken place, another old version of Ethereum has emerged: EthereumPoW (ETHW), while the new proof-of-stake version of Ethereum (ETH) continues to march forward.
Bitcoin Cash (BCH)
The Bitcoin Cash hard fork took place in August 2017 after a long-running disagreement among developers about how to improve scalability on the original Bitcoin network. The Bitcoin development community was fractured during this time, but most fell into two camps: those who wanted to increase the block size and those who wanted to keep it unchanged.
The Bitcoin Cash hard fork implemented a change to the protocol that increased the block size from 1 MB to 8 MB, which was intended to improve scalability. However, this change was not backwards compatible, meaning that all users had to upgrade to the new software to continue using the network.
The fork resulted in two separate cryptocurrencies: Bitcoin and Bitcoin Cash. Both have since grown to become large and successful projects in their own right, with Bitcoin Cash currently maintaining a position within the top 50 largest cryptocurrencies by market cap.
Ethereum Classic (ETC)
Another significant crypto hard fork occurred in 2016 when developers in the Ethereum ecosystem launched The DAO, one of the world’s first decentralized autonomous organizations. The DAO was intended to be a decentralized crowdfunding platform, but it quickly ran into trouble when a critical vulnerability was discovered.
This vulnerability allowed a hacker to siphon funds from The DAO, and soon the project had lost over $50 million worth of ETH. One of the highest profile hacks in cryptocurrency history, the Ethereum community was unable to reach consensus on the proper course of action.
Some in the community believed that the funds should be returned to the investors, while others believed that the code should remain immutable and that the funds should be left in The DAO. Beyond the technical and financial implications of this debate, this issue raised questions on a philosophical level about the nature of a blockchain’s immutability.
In the end, the community was unable to reach a consensus and the Ethereum network hard forked, resulting in two separate projects: Ethereum (ETH) and Ethereum Classic (ETC). Both projects have continued to thrive in the years since, with Ethereum remaining the world’s second largest cryptocurrency by market capitalization.
Crypto Forks Summed Up
As decentralized projects grow and evolve, crypto forks can become inevitable in order to keep the blockchain alive and accommodating for its incoming demand. Sometimes crypto forks are technically motivated, while other times they arise from community disputes. While crypto forks can be disruptive, they’re ultimately a natural and necessary part of any decentralized project.
While forks can be difficult to navigate in the short term, they usually resolve over time as the community comes to a consensus about the best way to move forward. In the end, forks are a necessary part of any decentralized project, and they should be seen as a sign of healthy growth.
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