Understanding Hard Fork
Blockchain’s scaling solutions can be categorized into four parts:-
1. First layer on-chain solutions
2. second layer off-chain solutions
3. scalable consensus mechanisms
4. distributed ledgers
First layer on-chain solutions
The first layer scaling solution supports changes in the underlying blockchain code.
For example, increasing the block size limit from 1MB to 10 MB or reducing the block creation time from 10 minutes to 5 minutes.
Any structural or fundamental change to the property of a blockchain requires the entire community to transit into a new and improved chain.
There are 3 different scaling mechanisms in First layer scaling solution:-
· Hard fork
In this article, I will focus on one of the scaling solutions of the first layer i.e Hard Fork.
But before starting this we will first understand what fork is?
“A fork can be defined as a software upgrade/ change that brings new features to blockchain technology.”
So what are the reasons behind Fork?
Since the technology is quite new and is continuously evolving, there is a need for the latest features to provide more security, speed, privacy, robustness, etc to make it more desirable. This necessity gives rise to `the software upgrade and enhancements regularly. Hence forking came into the picture to make changes into the underlying protocol.
Forking is one of the common and iterative processes of any technology which is under development.
Another reason for forking is when the community faces disagreement in protocol upgrades. Some community members especially miners and developers were so unhappy that they created rival cryptocurrency with similar base code.
The fork can further be categorized into two parts:-
1. Hard Fork
A hard fork is a permanent parting from the previous version of a blockchain. In this method, the network got upgraded to follow a new set of consensus rules and is not compatible with the older one. Thus, to verify and validate new blocks of transactions, all network participants are required to upgrade to the latest version of the software. i.e the nodes running the older version will no longer accept transactions created on the new version. These nodes disqualify all those blocks and consider them invalid if they are not been upgraded to the latest version of the protocol. This permits the user to use the new coin as well as a new blockchain.
This method creates two different versions of the blockchain
· One continues to run on an older version.
· And others follow the newly upgraded path.
Thus it gives rise to new coins with two separate ledgers. Old Currency user receives the same amount of new currency which they were having at the time of hard fork.
Thus hard forking gives rise to two conditions:
· Either one blockchain dominates.
· Or Both blockchain co-exists and operates independently.
Few hard forked cryptocurrencies are as follows:
Find the complete list of hard forked Cryptocurrency here.
There are many examples of hard forks, but the most prominent one is Bitcoin/Bitcoin Cash which was a hard fork on August 1, 2017.
The idea behind this division is to scale the Bitcoin network so that more and more transactions could be added to the block.
However, this idea was not fully welcomed by the entire Bitcoin, resulting in the hard fork. During this fork, Bitcoin continued to operate with the old protocol, and Bitcoin Cash was created with larger block size.
Hard forks can be categorized into two parts:-
· Planned Hard Fork
In planned hard fork users were intimated in advance by project developers regarding protocol upgrade. Thus, this activity enjoys a high degree of consensus from the project developers and the community before the actual hard fork process occurred.
Example: Monero’s hard fork in January of 2017, New privacy feature is known as Ring Confidential Transactions (RingCT) is added.
· Contentious Hard Fork
Now consider a case when a different participant of a project i.e its developers, network users, and miners does not agree to a common solution and proceed towards fork known as Contentious hard fork. This type of forking happens when a group of community users supports major code change with the view to invent a superior blockchain than the parent one.
Bitcoin Cash is one of the popular examples of a contentious hard fork and which happened because a group of Bitcoin community users believed that by increasing the block size of Bitcoin from 1MB to 8MB would results in faster transaction processing on the network.
Reasons for Hard fork
· To enhance security.
· Enhance transaction speed.
· Improving scalability.
2. Soft Fork
A soft fork is a software upgrade that is backward compatible with earlier versions of the software i.e the underlying code has been updated but the nodes running the older version approve new version. In the soft-forked blockchain, all blocks follow both the old and the new set of consensus rule, hence it does not require nodes on the network to upgrade to maintain consensus. However, blocks that were produced by nodes that follow old consensus rules will violate the new set of consensus rules. Thus unlike hard fork where two different blockchains are created thereby resulting in the creation of new cryptocurrency, the soft fork allows new blocks to be added to the blockchain would be approved by older nodes. Once the majority of users recognized and adopted the new set of consensus rules, the older network will be discarded, and the new blockchain will then be termed as a true’ blockchain. The shared blockchain history will remain the same until the fork.
Examples of soft forks:
· Bitcoin Improvement Proposal (BIP) 66: This was implemented as a soft fork on Bitcoin’s signature validation
· Pay to Script Hash (P2SH): This soft fork resulted in multi-signature addresses on the Bitcoin network
Examples of Hard Fork:-
1. Bitcoin Cash
Bitcoin Cash is a hard-forked cryptocurrency from Bitcoin and was created in 2017. It sometimes also referred to as Bcash. Some developers wanted to make certain important changes to Bitcoin but the entire Bitcoin community did not come in support of it, thus they part away to create Bitcoin Cash.
In the year 2018 Bitcoin Cash further divided into two cryptocurrencies:
o Bitcoin Cash
o Bitcoin SV
Advantages of Bitcoin cash:-
· Bitcoin Cash supports block size which is eight times bigger than a Bitcoin block.
· BCH can handle more transactions per second –Thus more people can use BCH at the same time
· It has cheaper transaction fee- Around $0.20 per transaction
· BCH has faster transfer times-It takes 10 minutes to verify a Bitcoin transaction.
Litecoin is a peer-to-peer cryptocurrency and open-source software project, Litecoin was an early bitcoin spinoff and is started in October 2011. It is very similar to Bitcoin.
Three benefits of Litecoin are as follows:
o Transaction confirmation time is faster -10 minutes per transaction in BTC whereas 2.5min in LiteCoin. This difference in confirmation time makeS Litecoin famous among merchants and e-commerce stores.
o Increased storage efficiency-due to script usage in LTC proof-of-work algorithm
o More coins to reward miners (84mn to be distributed total compared to 21mn BTC).
Read More: A Guide to Smart Contracts