Cryptocurrency Forks: What Are They and Why You Would Want to Choose One over Another?
Cryptocurrency forks are common occurrences in the blockchain and cryptocurrency industry. However, they are not often understood or explained effectively.
A cryptocurrency fork is an instance where a specific digital currency splits in two. Forks can occur due to disagreements between the developers of the currency’s software. When this happens, a part of the development team will implement their version of the project, creating more than one type of cryptocurrency. For example, the Bitcoin Cash fork that occurred in November 2018.
The Bitcoin Cash Team had been implementing changes that were not seen as positive by those who supported the original Bitcoin and its software. This led to some original team members implementing their version of the software with new rules and features. Another example is how Ethereum Classic split from Ethereum after a controversial hack of the DAO, a decentralized autonomous organization built on top of the Ethereum platform.
This article will describe forking and its implications for users. It will also explain why users want one fork over another to determine which project or coin to support. But, first, what is a fork?
What is a fork?
A fork occurs when two miners find a block at about the same time, which causes one of them to be discarded as an invalid block. It can also happen if there is a disagreement on upgrading or changing the protocol that governs transactions on the network (e.g., Bitcoin Cash). This can result in two different branches with different transaction histories being created — one branch inheriting from bitcoin core software and another branch inheriting from bitcoin cash software. The original blockchain will continue uninterrupted while each new branch will have its own set of blocks branching off it, creating a fork. Also, there are two kinds of forks: soft and hard.
Soft forks versus hard forks
A hard fork is a permanent change to the protocol that differs in such a way to render transactions valid on one of the chains invalid as well. For a transaction to be included in both forks, it has to follow the protocols of both branches. A soft fork, also known as a backward-compatible fork, differs from a hard fork because it won’t necessarily cause one branch’s transactions to become invalid on the other branch.
Hard forks offer better security and are seen as the preferred option for most users. This is due to how hard forks increase network effects and create stability for the cryptocurrency in question. It can also lead to greater decentralization by moving power from developers back into the hands of miners.
An example of a soft fork is Segwit. Segwit (Segregated Witness) changes Bitcoin Core software’s transaction format that was implemented to increase transaction capacity. Segwit activated in August 2017, but it wasn’t until February 2018 that all active nodes running on Bitcoin’s network began enforcing it by rejecting non-segwit blocks and transactions.
Forking sounds like it could mess with my portfolio. What can I do?
If my cryptocurrency forks, what happens to my investment?
If your cryptocurrency forks, it means that you own the same number of coins on both chains. If this is the case, you would need to decide which branch you want. Of course, the outcome of each fork can differ in different ways, but this will all depend on your personal preferences. So if you are hesitant about which group or coin to support, it’s best to research each one extensively before making a decision.
But what makes a fork a good one?
What determines which fork is better?
There are a few factors that can determine the outcome of each project or cryptocurrency. One main factor to consider when choosing between two forks is which one has more support backing it up, whether from miners or investors. This may be difficult to determine before the hard fork takes place, but it is essential to keep it in mind before making your choice. It may also be wise to consider which of the two cryptocurrency projects has been around longer and has proven its worth over a long period.
We can find an excellent example of this with Bitcoin Cash and Ethereum Classic. After the hard fork on August 1, 2017, Ethereum split into two separate cryptocurrencies, Ethereum (ETH) and Ethereum Classic (ETC). The split resulted from problems in the DAO that led to around 3.6 million Ether being stolen by a hacker. These funds were supposed to be refunded, but after much debate within the community, they took no action, and funds were subsequently lost. This led to a rift between those who still supported the old chain and those moving forward with Ethereum as a brand new project.
This split caused an uproar within the community, causing many users and miners to side with ETH, ETC. Those who chose ETH went on to trade it for new ERC20 tokens, giving the project a massive surge of Initial Coin Offering (ICO) investments that have helped it grow tremendously in all areas. On the other hand, those who chose to stick with ETC were more interested in the ideological concept of immutability and honesty within blockchain technology and did not want to endorse something they saw as an inherently dishonest action on Ethereum.
This disagreement was the main factor in their conflict and, though it may have been a good idea, in theory, it eventually led to the downfall of both projects. As time went on, however, many more cryptocurrencies began to pop up that represented similar ideologies as ETC even without having split off from ETH during the hard fork.
Is it possible for both forks to exist?
Forks are something that has happened many times throughout cryptocurrency history. Whenever a hard fork occurs, there are generally two sides with very different ideas and aims. In these cases, the communities typically support one branch or the other. Either cause both chains can remain active for an extended time, or one side can completely disappear. So a fork that occurred in 2014 led to two different cryptocurrencies coexisting on their network before eventually splitting off into other enterprises. The coin we’re referencing is Ethereum Classic (ETC), and the fork that occurred was known as The DAO or Decentralized Autonomous Organization.
What is the best way to stay informed about cryptocurrency forks?
There are few ways to stay informed about upcoming cryptocurrency forks, but participating in forums or social media is the most direct way. Forums like Reddit and Twitter are great resources if you want to be directly up-to-date on what is happening with upcoming forks.
When a new cryptocurrency fork is announced, members of these online communities will provide as much information as possible. This will include the date of the fork and where to find the new cryptocurrency’s wallet to claim your tokens if you already own any of the coin being forked.
If you’re looking to stay up-to-date on upcoming cryptocurrency forks, the best way is by participating in forums or social media. When a new fork is announced, members of these online communities will provide as much information about it as possible and share where you can find your tokens if you already own any coins that are being forked. If all this sounds confusing and you want help, the crypto community is stronger than ever. However, it all comes down to your decision.
If you invest in cryptocurrency, you must stay abreast of your particular coin’s latest news about forks.
Have you experienced a fork in crypto?