If you are wondering what does a fork mean in crypto, this is the article you will need to read. Blockchains need to be updated like all the softwares and OS. The updates are made to add functionality, to address security risks and to resolve a disagreement within the community about the cryptocurrency's direction.
What does a Fork mean in Crypto?
Forks are essentially a split in the blockchain network. The network is an open source software, and the code is freely available. This means that anyone can propose improvements and change the code. The option to experiment on open source software is a fundamental part of cryptocurrencies, and also facilitates software updates to the blockchain.
Forks occur when the software of different miners become misaligned. It's up to miners to decide which blockchain to continue using. If there isn't an unanimous decision, then this can result in the creation of two versions of the blockchain. There can be periods of increased price volatility around such events.
Why is Forking important?
Most digital currencies have independent development teams responsible for changes and improvements to the network, much in the same way that changes to internet protocols allow web browsing to become better over time. So sometimes a fork happens to make a cryptocurrency more secure or add features .
But it's also possible for the developers of a new cryptocurrency to use a fork to create entire 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.
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).
Bottom Line
A fork can cause a cryptocurrency to change drastically. In Ethereum's case, a fork can increase its price by more than 10 percent. The change will increase the amount of bitcoins available by ten percent. Knowing about forking in crypto will help you in the crypto industry and this article is about what does a fork mean in crypto.
