Bitcoin what is hard fork

What Is a Hard Fork?

There have been several pretty significant hard forks in the history of crypto and blockchain — how exactly do they work?

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A hard fork (or hardfork) is a new software update implemented by a blockchain or cryptocurrency’s network nodes that is incompatible with the existing blockchain protocol, causing a permanent split into two separate networks that run in parallel. Unlike soft forks, which are essentially backwards-compatible updates, hard forks establish a permanent change in a blockchain protocol’s rules, with each version propagating their own transactions and blocks.

As a result of these networks’ conflicting rules, a blockchain’s nodes that implement the upgraded software will cease to use the previous version, causing incompatibility issues and forcing miners to choose between either updating to the new version and its rules, or continuing on an obsolete version.В

In November 2020, both Ethereum and Bitcoin Cash underwent hard forks for different reasons that not only split their blockchains, but caused division in their communities. In Bitcoin Cash’s instance, a new chain, Bitcoin Cash Node (BCHN) was created and is now considered to be the official Bitcoin Cash due its dominating mining power.В

What Is a Blockchain Protocol?

Each blockchain is governed by a set of different rules — a protocol — that must be followed by network participants. These rules create certain parameters and standards for mining, staking, node connections, transaction specifics and more that must be adhered to by all participants.В

Why Do Hard Forks Happen?

Things change, and they often change faster and more frequently in the crypto industry than in other industries due to the fast-moving nature of blockchain innovation. As a result, a cryptocurrency’s underlying code is in some ways always a work of progress, open to both exploitation and improvement as technology changes.В

Software updates usually create hard forks for a number of valid reasons. It could be to add new functions and features to the blockchain protocol in order to make it better, more competitive or even cross-compatible with other blockchains. Of course, community developers often disagree on which changes can improve their cryptocurrency project, and these opinions occasionally result in irreconcilable differences that can only be remedied with divergent versions of their cryptocurrency.В

Blockchain and crypto asset developers continuously work on new features that iterate on the protocol’s open-source software and improve its security, stability and scale.В

In some cases, a simple network upgrade is not enough, and a drastic overhaul of existing code is required. A good analogy here are new-gen video game consoles or mobile phones, which are often not compatible with older-generation games or applications.В

Crypto hard forks can help to patch security holes in protocols, introduce new features or better functionality, and change mining rewards or transaction fees, as well as the speed and scale at which a blockchain’s transactions are validated. Importantly, hard forks can help smaller blockchains to reverse malicious transactions where bad actors hacked or scammed users out of their funds.В

The most notable example of such a reverse was the creation of the new Ethereum chain after the original chain, now called Ethereum Classic, suffered a devastating $150 million hack in 2016 due to security vulnerabilities. In order to restore the funds of victims, the Ethereum Foundation implemented a new update that rolled back the DAO hackers’ subsequent illicit transactions.В В

Of course, the most famous hard fork is surely 2017’s Bitcoin’s hard fork, which created Bitcoin Cash. A long-running community dispute came to a head, when Bitcoin Cash miners updated to a protocol version that increased the block size from 1MB to 8MB. As a result, Bitcoin and Bitcoin Cash now exist as two vastly different blockchains, catering to different communities with their own rules and objectives.В

It is important to note that while forks, especially hard forks, can cause a lot of disruption, they’re very much needed to fix security issues and help cryptocurrencies function better. As the song goes, it’s evolution baby!В

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Hard Fork (Blockchain)

Jake Frankenfield is an experienced writer on a wide range of business news topics and his work has been featured on Investopedia and The New York Times among others.

What Is a Hard Fork?

A hard fork (or hardfork), as it relates to blockchain technology, is a radical change to a network’s protocol that makes previously invalid blocks and transactions valid, or vice-versa. A hard fork requires all nodes or users to upgrade to the latest version of the protocol software.

Forks may be initiated by developers or members of a crypto community who grow dissatisfied with functionalities offered by existing blockchain implementations. They may also emerge as a way to crowdsource funding for new technology projects or cryptocurrency offerings.

A hard fork can be contrasted with a soft fork.

Key Takeaways

• A hard fork refers to a radical change to the protocol of a blockchain network that effectively results in two branches, one that follows the previous protocol and one that follows the new version.
• In a hard fork, holders of tokens in the original blockchain will be granted tokens in the new fork as well, but miners must choose which blockchain to continue verifying.
• A hard fork can occur in any blockchain, and not only Bitcoin (where hard forks have created Bitcoin Cash and Bitcoin SV, among several others, for example).

Understanding a Hard Fork

A hard fork is when nodes of the newest version of a blockchain no longer accept the older version(s) of the blockchain; which creates a permanent divergence from the previous version of the blockchain.

Adding a new rule to the code essentially creates a fork in the blockchain: one path follows the new, upgraded blockchain, and the other path continues along the old path. Generally, after a short time, those on the old chain will realize that their version of the blockchain is outdated or irrelevant and quickly upgrade to the latest version.

How Forks Work

A fork in a blockchain can occur in any crypto-technology platform—not only Bitcoin. That is because blockchains and cryptocurrency work in basically the same way no matter which crypto platform they’re on. You may think of the blocks in blockchains as cryptographic keys that move memory. Because the miners in a blockchain set the rules that move the memory in the network, these miners understand the new rules.

However, all of the miners need to agree about the new rules and about what comprises a valid block in the chain. So when you want to change those rules you need to «fork it»—like a fork in a road—to indicate that there’s been a change in or a diversion to the protocol. The developers can then update all of the software to reflect the new rules.

It is through this forking process that various digital currencies with names similar to bitcoin have come to be: bitcoin cash, bitcoin gold, and others. For the casual cryptocurrency investor, it can be difficult to tell the difference between these cryptocurrencies and to map the various forks onto a timeline. To help sort this out, we have composed a history of the most important bitcoin hard forks of the past several years.

As the graphic below displays, nodes that are not upgraded reject the new rules, which creates a divergence, or hard fork, in the blockchain.

Reasons For a Hard Fork?

There are a number of reasons why developers may implement a hard fork, such as correcting important security risks found in older versions of the software, to add new functionality, or to reverse transactions—such as when the Ethereum blockchain created a hard fork to reverse the hack on the Decentralized Autonomous Organization (DAO).

After the hack, the Ethereum community almost unanimously voted in favor of a hard fork to roll back transactions that siphoned off tens of millions of dollars worth of digital currency by an anonymous hacker. The hard fork also helped DAO token holders get their ether (ETH) funds returned.

The proposal for a hard fork did not exactly unwind the network’s transaction history. Rather, it relocated the funds tied to the DAO to a newly created smart contract with the single purpose of letting the original owners withdraw their funds.

DAO token holders could withdraw ETH at a rate of approximately 1 ETH to 100 DAO. The extra balance of tokens and any ether that remained as a result of the hard fork was withdrawn and distributed by the DAO curators to provide «failsafe protection» for the organization.

Hard Forks vs. Soft Forks

Hard forks and soft forks are essentially the same in the sense that when a cryptocurrency platform’s existing code is changed, an old version remains on the network while the new version is created.

With a soft fork, only one blockchain will remain valid as users adopt the update. Whereas with a hard fork, both the old and new blockchains exist side by side, which means that the software must be updated to work by the new rules. Both forks create a split, but a hard fork creates two blockchains and a soft fork is meant to result in one.

Considering the differences in security between hard and soft forks, almost all users and developers call for a hard fork, even when a soft fork seems like it could do the job. Overhauling the blocks in a blockchain requires a tremendous amount of computing power, but the privacy gained from a hard fork makes more sense than using a soft fork.

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What Is a Hard Fork? Understanding Hard Forks in Cryptocurrency

Bitcoin Cash hard fork, one of the biggest events in the cryptocurrency world, happened on November 15, 2018.

Basics: What Is a Fork in Crypto

Before we start talking about soft forks, hard forks, and any other forks, here are a couple of basic terms for you.

• Blockchain protocol establishes cryptocurrency network rules. It defines how mining works, which transactions can be executed, and how network nodes interact with each other. If you want to work in the network, you need to follow the protocol.
• A fork occurs when a unique version of a protocol is introduced to the network, that is different from the original.

But why does the protocol need to be upgraded in the first place?

First of all, it’s one way to fix bugs discovered in previous versions of the protocol. Cryptocurrency is a relatively new invention that is still in the development stage.

Secondly, forks allow networks to introduce new features. If we have Windows 10 at the moment, this means that the first OS version needed to be improved. The Bitcoin code has also been gradually upgraded over the years. Since it is in the public domain, every developer in the world can contribute to it. Of course, the upgrade is implemented only if the crypto community arrives at a consensus and approves the proposed protocol enhancements.

Thirdly, a protocol upgrade helps cancel transactions. It’s hard for the government to fight against forgery, but for cryptocurrencies, any damage can be minimized by a hard fork that rolls back all transactions starting from a predetermined point in time.

What Is a Soft Fork?

A soft fork is a protocol upgrade, but with backward compatibility.

Let’s take driving at the speed limit as an example. Let’s say the speed limit is 40–60 km/h, but then the government introduces new legislation that changes the speed limit to 45–70 km/h. For those who usually drive at 55 km/h, nothing changed. But those who drive at 40 km/h, they need to upgrade their vehicle and speed up a little.

The new legislation is like a soft fork in the cryptocurrency world. If you are happy with the way things are, you might as well avoid using the new upgraded version. Otherwise, you need to upgrade.

What Is a Hard Fork?

Let’s once again take a driver as an example. In this context, a hard fork would create a “parallel universe” with its own highways and speed limits.

After the hard fork, driver Jack from Los Angeles who drives a BMW would create “Jack Cash” out of “LA Cash” on “BMW Cash”. The original driver’s clone would never find a job in LA or ride the BMW car, because the two universes aren’t connected by any portal. Yeah, it sounds like a “Black Mirror” script.

Let’s go back to cryptocurrencies. After a hard fork, the cryptocurrency blockchain is split into two chains that are not connected in any way at all, they are two different universes. Each chain has its own transaction history that is usually inherited from the original cryptocurrency. As a rule, after the hard fork the old universe is forgotten, and everyone is only interested in the new one.

Famous Hard Forks

Of course, there are exceptions to the rule, and sometimes both worlds remain active. Here are a couple of examples.

Bitcoin Cash

Bitcoin Cash is the result of a hard fork. The coin split from the original Bitcoin on August 1, 2017. Right after that, BCH team headed by Roger Ver started campaigning against the main cryptocurrency, but to this day their actions have led to nothing.

DAO Hack

Another sad day in Bitcoin history is the fall of Mt. Gox. A similar thing also happened to Ethereum, the only difference is that in this case, the victim was a DAO smart contract, as opposed to an exchange.

At first, the Decentralized Autonomous Organization (DAO) was intended to be a sort of a venture fund, where shares were distributed among members in proportion to their contributions in ETH. The project gained popularity and managed to raise 12.7 million ETH. Based on the exchange rate at the time, this was valued at around $250 million.

Sometime later a hacker found and exploited a flaw in the DAO code, allowing him to steal over 3.6 million ETH. In order to prevent the hacker from keeping the money, the crypto community voted for Ethereum to hard fork, in which the majority of affected users had their funds reimbursed. This is when Ethereum Classic was born.

What To Do After a Hard Fork? How To Avoid Losing Coins?

As a general rule, all hard forks follow the same scenario that we previously described. A new universe equals new life. Now let’s see what happens when both worlds continue after a hard fork.

Our friend Jack from Los Angeles had a BMW. He had the car key. In the city of LA Cash in the new universe, Jack’s clone Jack Cash also has a BMW car that looks exactly like Jack’s car in LA. Because he has the car key, he can easily start his car. The most surprising part of the story is that the key works with both BMW and BMW Cash. If a criminal that can travel from one universe to the other decides to steal Jack Cash’s car key and his BMW Cash, he can steal Jack’s BMW too.

Obviously, Jack is afraid to lose everything. So what should he do? He has two options:

• Stop driving the car and keep the car key in a safe. At least until cloning doesn’t stop and life in the two universes goes back to normal.
• Put his BMW in a secure parking lot and leave the key with the administrator.

The first option is safer, but it requires some serious thinking. The safe must be secure. The second option is very simple because Jack doesn’t really need to do much. However, the parking lot might turn out to be fake, and all the parked cars may disappear over time.

Now let’s go back to cryptocurrencies. You have a private key that lets you access your funds. Bitcoin developers had a disagreement and decided to split: after the hard fork, some continued working on the previous chain, while others created the new Super Bitcoin. If you do everything correctly, as a result of hard fork, instead of 1 BTC you had before the fork, you should end up with 1 BTC and 1 SuperBTC.

Do Everything On Your Own

It’s the safest solution. The important thing here is patience and accuracy. Remember that your private key is the most important thing you have, as it gives you access to all your funds.

Here is what to do in case of a potential Bitcoin fork. This guide can be applied to any other coin.

1. Export your private key of the Bitcoin address and wait for the hard fork. If the hard fork already occurred, don’t worry. Just do the same – export your private key.
2. Create a new BTC address and transfer your Bitcoins there.
3. Install the wallet app for Super Bitcoin.
4. Import the private key that you’ve exported in Step 1. Now you have access to your SuperBTC.
5. Create a new SuperBTC address and transfer your coins there.

As a result, you are supposed to have two new addresses: one in the Bitcoin wallet and the other in the Super Bitcoin wallet. At this point, these addresses are in no way connected to each other.

We strongly recommend reading “How to backup your wallet? How to backup your private keys?” guide that you can find in FAQ section on 2Masternodes masternode hosting service.

Wait Out the Fork On an Exchange

You should find a reputable exchange that would announce that all Bitcoin owners will get Super Bitcoins. Send 1 BTC to the exchange and hope for the best. After the hard fork, create two separate wallets – one for BTC and another for SuperBTC, because now they are two distinct cryptocurrencies. Transfer your coins from the exchange to your wallets.

The 2Miners pool co-founder, businessman, miner. In 2017 started mining cryptocurrencies and built many rigs on his own. As a result, he gained lots of practical knowledge and became interested in sharing it with others. In his articles on 2Miners, he shares useful tips that he tried and tested himself. For example, Darek gives advice on how to buy hardware components for the basic mining rig and how to connect them to each other correctly. He also explained lots of complicated terms in simple words, such as shares, mining luck, block types, and cryptocurrency wallets. After the pool was launched, he published a series of articles ‘Crypto Mythbusters’ where he explained how to protect the network against 51% attack, talked about cryptocurrency mining difficulty and difficulties of launching your own node.

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