A fork in crypto refers to a split or change in a blockchain’s network or protocol, usually resulting from a conflict between users or developers. The changes can be minor or more significant.
There are also two common instances where a crypto fork may occur. First, it can happen when the developers disagree on what protocol to implement for transactions made on the network. As a result, the developers may opt to create two branches for transactions.
For example, one branch would be based on Bitcoin’s original software, while the other would be based on Bitcoin Cash’s software. This would mean the latter would have its own set of blocks on its network, essentially creating a “fork,” while the former operates as usual.
Another situation where a fork may occur is when two miners find the same block on the network simultaneously. However, one of the two blocks will be considered invalid, creating a crypto fork.
Types of Forks
A crypto fork can be categorized into two types: hard and soft. The primary differences between these two types of forks are the significance and impact of the protocol change.
Aside from that, another difference between the two types of crypto forks is that hard forks are considered permanent and no longer compatible with the original software.
In contrast, soft forks are backward-compatible, and they usually consist of upgrades or improvements to the existing protocol.
Impact of Forks
Forks can significantly impact a cryptocurrency, as they can disrupt the existing blockchain network, especially when it comes to the validity of the blockchain’s rules.
Crypto forks, specifically hard forks, can cause uncertainty among a digital currency’s users, as was the case with Bitcoin and Bitcoin Cash. Moreover, crypto forks can also increase the market’s volatility and instability, especially if the changes made are significant.
These can pose considerable risks for investors, increasing the likelihood of experiencing losses with their crypto investments.
Aside from that, crypto forks also make it possible for developers to create new blockchain networks and coins using the original crypto’s software. Forks are also helpful when it comes to strengthening existing coins, particularly in terms of security and functionality.
Creating crypto forks can also resolve any existing disagreements among a cryptocurrency’s user base or developers because these forks allow them to take the coin in another direction.