Foreword
Many crypto investors and traders have probably come across the word "fork" or "hardfork" more than once, but most of them are not familiar with this concept, because everyone is more interested in the trading process than in how cryptocurrencies are structured and work.
Everyone who is interested in this field should know in general what a fork of cryptocurrency is, because strong price fluctuations often occur during forks, and you can make money on it or at least stay with your own money.
What is a fork?
The word "Fork" translates from English as "fork" or "fork". In the world of cryptocurrency, it is used for those cases when a new branch of blocks is formed in the block chain, functioning on the basis of slightly different principles than before. During a fork, a new cryptocurrency emerges, while the old one either ceases or continues to exist. The simple figure below helps to understand that this is a fork:
The principle of cryptocurrency forks
Forks first appeared when new hashing algorithms began to emerge in the cryptocurrency world and blockchains began to evolve and improve by switching from one hashing technology to another. As a result, new cryptocurrencies emerged that functioned on modified initial principles and received their own names. However, they did not appear from scratch, but took the software code of their "forebears" as a variant of Bitcoin. Thus, one of the first forks of Bitcoin, the cryptocurrency Litecoin, appeared. It was based on the same principles as Bitcoin, however, scrypt technology was used as a hashing algorithm.
What are Forks for?
Fork is not only a branching of blocks due to new hashing technology. During the existence of cryptocurrencies, blockchain technology has improved and changed many times, and almost always this change was accompanied by the appearance of a new fork. Sometimes a fork is caused by a simple desire of developers to release a new cryptocurrency. Often this is due to financial or technological disagreements. Forks of cryptocurrencies are triggered by the appearance of important updates in the software, the operation of which requires the appearance of a new chain of blocks. For example, when switching from proof-of-work to proof-of-stake type of matching.
In the world of cryptocurrencies, there are several main types of forks:
- Hardfork - a significant change in the rules of block generation, leading to a radically new cryptocurrency;
- Softfork - the new branch works on the old principles and is compatible with the previous software;
The most famous forks of cryptocurrencies
Forks happen in the cryptocurrency world all the time. Some of them are planned and some of them happen spontaneously. The most famous examples of forks can be seen in the table:
Several other cryptocurrencies were subsequently created based on Litecoin, one of the most famous of which is Dogecoin. This cryptocurrency, to the surprise of its developers, at one time enjoyed great popularity.
But the most famous fork of bitcoin is the cryptocurrency Bitcoin Cash, which appeared in 2017. It emerged as a result of the growing popularity of cryptocurrencies, which caused a sharp increase in the number of requested transactions in 2016-17. But since the block size in the bitcoin blockchain is very limited, the waiting time for transaction confirmation was constantly increasing. To solve this problem, a mechanism was invented to increase the size of blocks from 1 to 8 Mb. The first of these blocks gave birth to the new cryptocurrency Bitcoin Cash. Subsequently, due to disagreements between developers, Bitcoin Cash split into two separate branches: Bitcoin ABC and Bitcoin SV.
Another major event in the cryptocurrency world was the separation into two branches of the Ethereum cryptocurrency, which was the first to allow the creation of smart contracts. This happened in 2016, when hackers were able to steal 3.7 million Ethereum coins as a result of a DAO hack. To recover the funds, a hardfork was held, which reversed the hack and returned the stolen funds back to the accounts. However, not everyone liked this idea, and as a result, Ethereum supporters were divided into two camps. Those who did not agree to switch to a new branch called their cryptocurrency Ethereum Classic. It is still traded on many exchanges and has a fairly high capitalization.
To summarize the above
Forks are branches of a distributed ledger blockchain that result in a new or modified blockchain.
Often a fork results in a new cryptocurrency, but sometimes it does not. The main types of forks are hardforks (strong source code changes) and softforks (soft changes).
Forks often occur because of software updates or improvements in blockchain technology. Among the most famous cryptocurrencies resulting from a fork are such coins as Litecoin, Bitcoin Cash, Ethereum, etc.
Thank you for your attention and see you soon in the new article!
Peace and prosperity to you friends!
Always yours C.J.
