Hard forks, soft forks and power of community

If you’re new to the crypto space, the terms hard and soft forks will come up from time to time.

The reason forks are important is that they define some unique elements of crypto. These are the power of community and the role that users, stakeholders and hodlers have in the direction of every crypto project.

The official definition of forks is making changes in the underlying code of the cryptocurrency, altcoin, token or Dapp.

Soft forks are like your typical software update or upgrade. These are backwards compatible to all the nodes on the network.

Hard forks fundamentally change the code of a given project. This change can be used to create a new cryptocurrency, token or altcoin. The creation of Bitcoin Cash from the Bitcoin chain in 2017 is an example of a hard fork.

Or a fork can change the direction of an existing project. Ethereum’s move from proof-of-work to proof-of-stake is an example of several successive hard forks.

Taking a copy of the original code from one chain and changing it to make a new competing chain is also a hard fork. Stellar Lumens (XLM), for example, was forked from XRP.

However, at their core, forks represent the essential element of community in crypto.

Crypto is an expression of community

The foundation of every cryptocurrency, token, altcoin or Dapp is people. People come up with an idea, create a white paper and raise funds to build.

A foundation is typically developed to lead the development of the project. Then a community builds around the project. Stakeholders buy into it. And people start to use the network, exchange tokens then eventually trade them.

The project eventually takes on a life of its own. It becomes shaped by the users, hodlers of the tokens, foundations and the various stakers or miners.

This community represents the core stakeholders in every crypto project.

Over time these communities may have ideas about where the project will go. The open-source nature of the code allows for two paths to be taken. Or perhaps three.

The first path is to update the software and make it backwards compatible. This is called a soft fork.

Soft forks are updates to the existing software

There are numerous examples of soft forks across most crypto assets.

The soft fork is where the majority of the community agrees on the update to the existing software. This could be called the friendly fork.

Some examples of soft forks are Bitcoin’s SegWit and Taproot updates.

The SegWit upgrade removed the signatures from the transaction and restructured it. This made for a larger block size and increased security.

Taproot is designed to make adjustments to Bitcoin to improve the ability to build layer two applications on top of it. Layer two would be things like DeFi applications or other smart contract dapps.

It was agreed to by the community, which included the majority of Bitcoin miners.

The backwards compatibility of soft forks and their purpose is fundamentally different from a hard fork.

Bitcoin hard forks come in different forms

Hard forks come in 3 forms.

They can fundamentally change the direction of a cryptocurrency, altcoin or token project.

A hard fork can represent a strong difference of opinion within the community about a proposal.

Or a hard fork can be a copy of the existing software that is shaped in a new and innovative way.

Many cryptocurrencies and altcoins came to be as a result of hard forks of existing projects.

Bitcoin has numerous hard forks where the software was replicated and adjusted for the preferences of another community.

Litecoin (LTC) was a fork of Bitcoin. Litecoin was itself forked numerous times to form several more altcoins. Dogecoin (DOGE) was created from Luckycoin, a fork of Litecoin.

Other examples of the dozens of Bitcoin hard forks include DASH, Zcash and Bitcoin Gold.

In 2017, the Bitcoin community had a dispute around changing block size.The dispute led to a division in the Bitcoin community, a hard fork, and Bitcoin Cash’s creation.

Bitcoin Cash itself has been hard forked into Bitcoin SV (BSV) or Bitcoin Satoshi Version.

Ethereum has been shaped by several hard forks, including the creation of new altcoins.

Ethereum hard forks

Ethereum’s evolution has included numerous significant changes in the protocol over time. The most famous hard fork was the DAO Fork in 2016.

An attack on the protocol stole millions in ETH held in a special account. The community discussed the event, and the solution had a significant difference of opinion.

On the one side, the community wanted to leave the transaction as it was, add the fix and move on. The other group wanted to reverse the transaction, eliminate future hacking risks and move forward.

This dispute resulted in a hard fork of Ethereum and the creation of Ethereum Classic (ETC) in 2016.

Ethereum has gone on to develop numerous hard fork changes to the blockchain platform. These include the Byzantium fork and the Constantinople hard fork. These two forks are part of the groundwork for Ethereum to move from proof-of-work to a proof-of-stake consensus.

Several subsequent hard forks will implement proof-of-stake. These include the Beacon Chain fork, the Berlin fork and, most recently, the London fork.

There are other examples of forks in the cryptocurrency space as well. This includes all the drama in DeFi.

Communities shape forks, and forks shape communities

DeFi is a fork mecha.

DeFi dapps are smart contract protocols with open-source software built on blockchain platforms.

Forks are common in DeFi and are typically copies of existing open-source dapp software.

Uniswap, the first DeFi decentralized exchange (DEX), was forked in 2020 into a competitor called SushiSwap. This was a contentious change amongst its community.

There was a revolt after the founder of SUSHI sold his stake. SushiSwap managed to survive the upheaval with help from members of its community. SUSHI remains a prominent DEX on the Ethereum platform.

However, subsequent forks of SUSHI, the Kimchi and Sakeswap forks, didn’t fare so well.

Other DeFi forks include the Swerve fork of Curve Finance, and Cream Finance, a fork of Compound.

These forks are not unlike how Litecoin and Dogecoin were formed. And they won’t be the last examples as DeFi expands.

Underlying it all is the strength of the community of users and stakeholders.

Crypto forks are an expression of community interests

For traders, hard forks leading to new altcoins or tokens often result in an equal amount of coins on both chains. These will be allocated based on what your wallet hodls.

So it represents a unique opportunity.

Forks are at their core are changes in technology, but they are also an expression of the core benefit of crypto, the community.

And your ability to be involved in the future of a project, cryptocurrency or token as part of that community, is one of the most powerful concepts in the future of finance.

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Bitvo is a secure, fast, easy to use cryptocurrency asset trading platform for Canadians.

Originally published at https://bitvo.com on July 30, 2021.