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A blockchain is a decentralised, open-source software that powers cryptocurrencies such as Bitcoin and Ethereum. A fork occurs when a group modifies the blockchain’s protocol, or simple collection of rules.
Cryptocurrencies such as Bitcoin and Ethereum are operated by a blockchain, which is a decentralised, transparent software that everyone may connect to. Blockchains are so-called because they are simply made up of blocks of data – imagine a very long train – that can be tracked all the way back to the network’s first transaction. They still rely on their communities to preserve and improve their underlying technology since they are open source.
A fork occurs when a group modifies the blockchain’s protocol, or simple collection of rules. When this occurs, the chain breaks, resulting in a second blockchain that retains much of the original’s existence but is heading in a different direction.
Why is this important?
Most digital currencies have separate development teams in charge of network updates and enhancements, much as how changes to internet protocols enable web browsing to improve over time. As a result, a fork can occur to improve the security of a cryptocurrency or to add new features.
However, the creators of a new cryptocurrency could use a fork to build entirely new coins and ecosystems.
Soft fork: Think of a soft fork as a software upgrade for the blockchain. As long as it’s adopted by all users, it becomes a currency’s new set of standards. Soft forks have been used to bring new features or functions, typically at the programming level, to both Bitcoin and Ethereum. Because the end result is a single blockchain, the changes are backward-compatible with the pre-fork blocks.
Hard fork: A hard fork happens when the code changes so much the new version is no longer backward-compatible with earlier blocks. In this scenario, the blockchain splits in two: the original blockchain and new version that follows the new set of rules. This creates an entirely new cryptocurrency – and is the source of many well-known coins. Cryptocurrencies like Bitcoin Cash and Bitcoin Gold evolved out of the original Bitcoin blockchain via hard fork.
Why do forks occur?
Just like all software needs upgrades, blockchains are updated for a variety of reasons:
To add functionality
To address security risks
To resolve a disagreement within the community about the cryptocurrency’s direction
How are forks continuing to change the crypto landscape?
The Ethereum blockchain is designed to run “smart contracts,” which are chunks of code that automatically execute a set of predetermined actions when certain criteria are met. Smart contract applications include everything from games to logistics tools to DeFi dapps.
As the platform that runs all these applications, you can think of the Ethereum blockchain as similar to a computer’s operating system. In that analogy, the various Ethereum forks – Ethereum, Ethereum Classic, Ethereum 2.0 – are like newer versions of an operating system that add features or efficiencies the prior versions might have lacked.
An older fork might continue as a stable, well-proven platform while a newer fork might offer developers entirely novel ways of interacting with it. (Older and newer versions can eventually merge or continue evolving further apart.)
Think of a soft fork as a ‘software upgrade’ (like when your phone asks you to update to the latest OS) and a hard fork as an entire new operating system (like Linux and Mac OS are evolutions of the half-century old UNIX platform).