What are blockchain forks and how do they work?
A blockchain is a decentralized network ledger that is digitally distributed and records information and transactions. The “chain” component of a blockchain is made up of a sequence of successive blocks that are connected to create an unchangeable ledger.
A basic idea in blockchain technology, a blockchain fork occurs when one blockchain splits into two or more distinct chains, each having its own transaction history and, sometimes, distinct rules or protocols. Forks come in two primary varieties: hard forks and soft forks, and they can occur for a variety of reasons.
Forks are a normal part of the blockchain development process that facilitates innovation and evolution in blockchain ecosystems. Understanding the distinctions between hard and soft forks and their ramifications is essential for anyone involved in the blockchain industry, as they can occasionally cause confusion and difficulties for users and developers.
It’s essential to remember that not every fork produces brand-new, thriving ecosystems with matching cryptocurrency tokens. Certain forks are temporary or have little effect, but others can result in the creation of whole new blockchain networks with distinctive communities, features, and value propositions.
What is a hard fork?
A substantial and permanent deviation in a blockchain’s protocol guidelines is known as a hard fork. Beyond the fork, it produces two separate, incompatible chains with no shared transaction history.
Hard forks frequently entail modifications to the consensus rules of the blockchain, like raising or lowering the block size limit, changing the hashing algorithm, or adding new functionality. “The Merge,” which happened when Ethereum switched from a proof of work (PoW) consensus mechanism to a proof of stake (PoS) mechanism, is an example of a well-known hard fork. Following the switch to PoS, some supporters of the original Ethereum architecture split off to create a new chain they called EthereumPoW, which is similar to the main Ethereum blockchain but retains the PoW consensus mechanism.
To stay part of the updated, canonical chain, users, miners, and nodes need to update their software to the new protocol. Remaining on the original chain and unable to communicate with users on the new chain, those who choose not to upgrade will undoubtedly miss out on the benefits of being a part of the ecosystem that embraces the upgrade.
What is a soft fork?
A soft fork is a protocol update to a blockchain that is backward compatible and permits limited communication between nodes and endpoints running different versions of the blockchain code. Hard forks typically result in the creation of new cryptocurrency tokens, whereas soft forks typically do not.
Nodes running the updated software—whether validators or miners—will continue to accept blocks and transactions from nodes running the older software during a soft fork. Nevertheless, blocks and transactions made with the new rules might not be accepted by nodes using the outdated software. To start accepting new blocks on the upgraded version of the blockchain, nodes running the older version of the protocol will need to update to the most recent version.
Soft forks are intended to make changes to the blockchain’s protocol while keeping the network compatible with the current version of itself. Usually, all that is needed to enforce the new ruleset throughout the chain’s ecosystem is the upgrade of a majority of nodes. Frequently, a blockchain will use soft forks to introduce intermediate updates en route to more significant ones that are likely hard forks.
How do blockchain forks happen?
Most of the time, community proposals that explain the rationale behind the request, the anticipated costs and consequences, and details about the technical architecture and code modifications required for implementation are what cause blockchain forks. The arguments will also support the decision between a hard and a soft fork, as well as any potential ramifications for the node operator community.
After that, the plan is usually put to a vote by the community or approved by a similar process, and there is a time for the community to offer suggestions and voice their support or opposition.
The process for making changes on blockchains that use a PoW consensus mechanism is usually determined by a vote among miners. If enough people agree to the upgrade, the blockchain will be updated. Miners who disagree with the change may stop mining blocks and redirect their resources to a fork of the previous chain.
PoS-powered blockchains can govern their forking process as a single validator, one vote process, or weight the voting power based on the value of the validators’ stakes, with room for experimentation in the precise voting mechanisms. Validators who do not agree with a blockchain upgrade must withdraw their stake from the staking contract in order to proceed with a new fork of the blockchain and commit their tokens to a new staking contract.
Examples of blockchain forks
Most popular blockchains have had dozens, if not hundreds, of forks, as they’ve made improvements and changes fueled by community sentiments.
Ethereum’s Merge
Ethereum, the first blockchain to popularize the use of smart contracts and the most popular blockchain for developers, has undergone a number of forks that have made headlines in the web3 space.
The most significant change occurred in September 2022, when Ethereum transitioned from a PoW to a PoS consensus model. Years of work by Ethereum developers resulted in the Merge, which allowed the chain to reduce its energy consumption by more than 99.9%. Instead of miners competing to process blocks in exchange for gas fees, Ethereum blocks would now be processed by validators who staked significant amounts of ether tokens (the Ethereum blockchain’s native cryptocurrency token) and were chosen at random by the consensus algorithm. Bad actors who are caught passing faulty transaction data in blocks may lose their staked tokens, whereas validators will be rewarded a portion of gas fees for successfully processing accurate transaction data. The Merge was a hard fork success.
Ethereum’s Shapella fork
Since the Merge, Ethereum has undergone another significant upgrade, colloquially known as the “Shapella” fork, a portmanteau of the Shanghai and Capella hard forks that, when combined, allowed validators to withdraw and access their funds, they staked ether tokens. This withdrawal ability allowed validators who were securing the network with their stakes to have more liquidity, as they were no longer bound by the year-long lockups that were previously required.
Ethereum Classic and the DAO fork
In the early days of Ethereum, a project called “The DAO” raised about $150 million in ether in 2016 and lost a large portion of that money due to hackers exploiting flaws in its codebase. The Ethereum community responded with a hard fork that reset the blockchain’s history to the block before the hack, effectively returning the funds to The DAO.
While the majority of the Ethereum community supported the move at the time, a significant number of detractors felt that reverting transactions was unjustifiable and violated the principles of immutability that blockchains promise. In response, they forked a version of the Ethereum blockchain from just before the reversion and dubbed the new chain “Ethereum Classic.”
Bitcoin Cash split, Bitcoin
Launched in 2009, Bitcoin was the first blockchain in history and the first instance of decentralized computing and cryptography being used to produce a verifiable public ledger through a proof-of-work consensus model. Bitcoin is the name of the native cryptocurrency token.
The standard block sizes that would dictate how the network could scale caused a rift in the Bitcoin community in 2017. A portion of the community advocated for Bitcoin to be used more as a medium of trade, but the majority of users preferred to use the chain as a store of value. With a larger block size and the potential to handle more transactions per second, the splinter group split off from Bitcoin to create a new chain they called “Bitcoin Cash.”
Taproot fork, Bitcoin
In 2021, the Bitcoin blockchain underwent a major hard fork upgrade known as Taproot, which improved transaction efficiency and privacy while also preparing the chain for smart contracts and layer 2 support for the Lightning network, which aims to make Bitcoin more scalable. The Taproot fork is the upgrade that allows Bitcoin Ordinals to be created.
Conclusion
Blockchain forks are a complex and fascinating phenomenon that can significantly impact the crypto landscape. While they can be disruptive and confusing, they also represent a unique feature of decentralized systems like blockchains, highlighting the power of community consensus and the potential for continuous evolution. As the cryptocurrency world continues to grow and evolve, understanding forks will be crucial for any user looking to navigate the winding roads of this ever-changing realm.
