Every software needs constant updates to correct problems or increase productivity. In the world of cryptocurrencies, these updates are called “forks” or “forks.”
Because cryptocurrencies are decentralized networks, all network members, also known as nodes, must follow the same rules in order to work together properly. This set of rules is known as “protocol”.
Typical rules in one protocol include: block size in the blockchain , the rewards miners receive for mining a new block , and many others.
There are two types of forks in cryptocurrencies: “soft forks” and “hard forks”. Both types fundamentally change the way the cryptocurrency protocol works.
Soft fork is a change in the backwards compatibility protocol of cryptocurrency. This means that the updated nodes are still able to process transactions and add new blocks to the blockchain, as long as they do not violate the new protocol rules.
Imagine a soft fork that creates a new rule for reducing the block size from 3MB to 2MB. Older nodes will still be able to process transactions and add new blocks that are 2MB or smaller in size. But if an older node tries to add a block larger than 2MB to the network, the newer nodes will reject the block because it violates the new rules. This encourages older nodes to be updated to the new protocol since they are not as effective as the updated ones.
A hard fork is a change to a cryptocurrency protocol that is incompatible with previous versions. This means that nodes that are not updated to the new version will not be able to process transactions or add new blocks to the blockchain. Rigid forks can be used to modify or enhance an existing protocol, as well as to create a new independent protocol and blockchain.
Imagine a protocol change that increases the block size from 2MB to 4MB. If an updated node attempts to add a 3MB block to the blockchain, older, updated nodes will not see that block as valid and will reject it.
Depending on the situation, hard forks can be planned or disputed.
In the “planned fork”, participants voluntarily upgrade their software to follow the new rules, abandoning the old version. Those who do not update are left to extract the old blockchain cryptocurrency that very few people will use.
But if the fork is disputed, which means that there is disagreement in the community about the upgrade, the protocol is usually split into 2 incompatible blockchain chains, which also means 2 different cryptocurrencies. Both blockchains will have their own community and developers will progress in the way they think is best.
Since the fork is based on the original blockchain, all transactions from the original blockchain are also copied to the new fork. For example, if you have 100 cryptocurrency tokens called Coin A, and a hard fork based on that cryptocurrency creates a new cryptocurrency called Coin B, you will also receive 100 Coin B coins.
Due to the nature of open source cryptocurrencies, and the increasing number of people and organizations with different purposes entering the crypto space, forks will continue to be an integral part of the development of cryptocurrencies.