What Is A Hard Fork In Cryptocurrency?

Have you ever heard of the term “hard fork” in relation to cryptocurrency? While it might sound quite complicated, you don’t need to be tech-savvy to understand what it means. That’s why today we’ve decided to dive into this concept and make it a bit clearer for your understanding. Let’s start!

Definition Of A Hard Fork

To understand what the hard fork is, you need to know what “forking” of a cryptocurrency means. Forking essentially is a process in which the original blockchain network on which the currency operates undergoes upgrades or some technical changes. There are two types—hard forks and soft forks.

While a soft fork involves changes that are integrated into the original blockchain, a hard fork is an event during which the original blockchain splits into two different ones that operate fully independently from each other, creating a new crypto token.

How Does It Work?

Basically, a hard fork is like an update of the software on any of your devices after which you can’t use the old version of an app anymore. It often happens when the original blockchain needs upgrading—whether to strengthen security or enhance decentralization—and a group of users decides to make drastic changes to the original blockchain’s protocol. It also may happen to avoid the consequences of or prevent further cyberattacks, like it happened with Ethereum.

So, how does it work? During a hard fork, the blockchain of the cryptocurrency splits into two different networks, which need separate software to operate. It means that the newly created blockchain doesn’t work on the same conditions as the original. It also means that the token created due to the hard fork isn’t the same as the original one, and they are NOT interchangeable. The price of the new currency depends on its own demand, adoption, and supply, and its history intertwines with the original only before the moment of the hard fork—the split initiates its own.

Meaning Of A Hard Fork

But what does it mean for users? We’ve highlighted the most important things that a regular user needs to keep in mind when a hard fork happens:

1. Ownership of assets: users typically receive the same number of coins or tokens on the new blockchain as they had on the original one. For example, if you held 10 Bitcoins before a Bitcoin Cash hard fork, you’d have 10 BTC and 10 BCH after the split (if the fork happened at that point in time).
2. Compatibility and wallet updates: users may need to update their wallets or use a different one to support the new blockchain. If they don’t, they may lose access to coins on the new network.
3. Market volatility: hard forks often cause market fluctuations as traders and investors speculate on which version of the blockchain will gain adoption or hold value. This can lead to temporary price swings and uncertainty.
4. Potential benefits or risks: a hard fork might offer improvements, such as faster transactions or lower fees, but it could also introduce new security risks or governance issues, depending on the specific changes introduced by the fork.

In essence, a hard fork is a major event that can give you additional assets but also requires attention to ensure you stay updated with the changes in the system to avoid losing access to your funds.

Examples Of Hard Forks Of Popular Cryptocurrencies

To help you understand the concept even better, let’s look at some examples of notable hard forks from popular cryptocurrencies that’ve had a significant impact on the blockchain ecosystem.

Bitcoin’s Hard Forks

Speaking of Bitcoin, it’s important to note that the original blockchain has lived through more than 100 different forks by now. We’ll discuss those of them that actually had some impact on the crypto world.

1. Bitcoin (BTC) to Bitcoin Cash (BCH)

• Date: August 1, 2017
• Reason: Bitcoin Cash was created to address Bitcoin’s scalability issues. The hard fork increased the block size limit from 1 MB to 8 MB, allowing more transactions to be processed in each block with the intention to reduce congestion and transaction fees.
• Outcome: Bitcoin Cash gained its own community and ecosystem and continues to have its own value, so BTC remains the more widely adopted and valued cryptocurrency.

2. Bitcoin (BTC) to Bitcoin SV (BSV)

• Date: November 15, 2018
• Reason: Bitcoin SV (Satoshi Vision) emerged from a hard fork of Bitcoin Cash due to disagreements among its community over the future direction of the project. One faction, led by Craig Wright, wanted a larger block size and more focus on the original vision of Bitcoin's creator, Satoshi Nakamoto, while the other favored a more moderate approach.
• Outcome: Bitcoin SV aimed to increase the block size limit even further (to 128 MB initially) and is focused on being a scalable blockchain for business applications. Bitcoin SV has had a controversial existence and remains a fringe cryptocurrency.

3. Bitcoin (BTC) to Bitcoin Gold (BTG)

• Date: October 24, 2017
• Reason: Bitcoin Gold was created with the goal of decentralizing mining by using the Equihash algorithm, which is more accessible to general consumers using GPUs (graphics processing units) instead of the specialized ASIC (Application-Specific Integrated Circuit) miners that dominate Bitcoin’s mining ecosystem.
• Outcome: BTG has not gained the same widespread adoption or value as Bitcoin, but it still maintains a following and is one of the most known Bitcoin derivatives.

Ethereum Hard Forks

Ethereum is the first cryptocurrency that comes to mind when speaking of hard forks, especially those that happen as a result of hacker attacks. Here’s why:

1. Ethereum (ETH) to Ethereum Classic (ETC)

• Date: July 20, 2016
• Reason: Ethereum Classic was the result of a hard fork after the DAO hack, which resulted in a massive loss of Ether (ETH). The Ethereum community decided to reverse the hack by rolling back the blockchain to a state before the attack. However, some members of the community disagreed and continued to use the original chain, resulting in the creation of Ethereum Classic.
• Outcome: Ethereum (ETH) followed the new chain with the rollback, while Ethereum Classic (ETC) maintained the original blockchain, which still exists today but is less widely adopted.

2. Ethereum (ETH) to Ethereum 2.0 (Eth2)

• Date: Ongoing (Phased Transition)
• Reason: Ethereum's move from Proof of Work (PoW) to Proof of Stake (PoS) is a major upgrade that is often referred to as Ethereum 2.0 or simply Eth2. While this transition is happening through a series of updates (like the Beacon Chain and Serenity), it's considered a hard fork because it changes the core consensus mechanism.
• Outcome: The upgrade aims to make Ethereum more scalable, secure, and sustainable by reducing energy consumption and allowing for more efficient transaction processing. Ethereum 2.0 is still being rolled out, but it has already made significant strides.

Zcash Hard Fork

Zcash (ZEC) to Ycash (YEC)

• Date: July 18, 2019
• Reason: Ycash was a hard fork of Zcash, mainly motivated by disagreements about the future of the Zcash development fund. Ycash was created to eliminate the "Founders’ Reward," a mechanism that allocated a portion of Zcash's mining rewards to developers and stakeholders. Ycash aims to give more control to the community rather than a centralized development fund.
• Outcome: Ycash has not gained widespread adoption like Zcash, but it continues to operate, focusing on community-driven development.

Dash Hard Fork

Dash (formerly Darkcoin) to Dash (DAO)

• Date: March 2015
• Reason: Dash initially started as Darkcoin, but after a rebrand and community-driven decisions, it hard-forked to become Dash with the aim of improving governance, transparency, and privacy features. Dash was designed to offer fast, low-cost transactions and a two-tier network for improved scalability and decision-making.
• Outcome: Dash became one of the leading privacy coins and has maintained its position in the top 20 cryptocurrencies by market capitalization.

So, the hard fork is an event that can happen to any cryptocurrency on any blockchain if the community decides that it really needs drastic upgrades or there’s a hacker attack. A hard fork doesn’t mean that the original blockchain will disappear or stop working, and it also doesn’t mean that the newly created token is 100% better than the original one. The most important thing for you as a user is not to get scared and consider the changes that may occur after the split—then you’ll be fully ready to embrace the coming modifications.

Did you enjoy reading our article? What do you think of hard forks? Have you, maybe, witnessed one yourself? Share your experience in the comments below!