What are forks?
If you’ve looked at any website like Coinmarketcap that lists the existing Cryptocurrencies, then maybe you’ve found yourself wondering: what’s the deal? Why isn’t there just one Bitcoin and one Ethereum?
The answer is fork.
No. not the sort of fork that you eat with, more like a fork in the road.
Over this piece, we’d like to clarify for you exactly what a fork in a Cryptocurrency is, how it can happen, and what can go wrong when it happens.
Types of Forks
When it comes down to it, there are really only two existing types of Cryptocurrency forks. Before we get there, however, it’s important that you understand the overall context of these forks.
In the simplest possible sense, a fork of a Cryptocurrency or a Blockchain network is when, because of a new rule or a change in its consistent transaction history, the network needs to adapt to survive.
These rule changes are usually related to how transactions are done on the network. Furthermore, the reason that the network needs to adapt in this case is that if it does not, because of how many or how little transactions are coming in, it will not be able to continue running as efficiently as it has been running.
As of now, our knowledge of forks and how they work is in its early stages due to the fact that the entire Blockchain industry is also in its early stages.
Even so, we know of two working types and one theoretical type of fork at this juncture. As we speak about these types, keep in mind that overall, forks occur quite commonly with the Bitcoin network, though they have occurred with other Cryptocurrencies as well.
Overall, a hard fork is a software update that expands the network’s capability to do something like fully process transactions in a certain amount of time. In addition to this, it is typically thought of as something that replaces old rules.
What is perhaps the universal key example of a hard fork is the idea of increasing the block size in a blockchain. To see this as it has already played out, look no further than the Segwit debate with Bitcoin, from 2017. In essence, when two or more groups dispute whether the block size should be increased or stay the same, that is a dispute on whether a hard fork should go forward or not.
To understand why this is a very contentious sort of issue, look to our other pieces on similar subjects, but also understand that to increase the block size is to give miners more work overall and to keep it the same is to risk increased latency on the network.
If the hard fork, which for example wants 2 megabyte blocks instead of 1 megabyte blocks, does go through, then all users will also need to update their current version of the Blockchain network that they have downloaded.
For a bit of perspective on this issue, think about the fact that most Blockchain networks require active users to download a complete version of the Blockchain to their desktops to be able to be truly involved in the network. To do so usually means allotting up to 25 gigabytes of space for the task, which was reportedly recently the case with the Ethereum Blockchain.
For some users, this means that even if they have the funds to be active on a Blockchain like Ethereum, they may not have such a massive amount of hard drive space available, without radically compromising the performance of their computers.
Related to this, if the block size is increased, then the required storage space will also increase and some users will be completely opposed to the idea on this basis. Regardless of how these users feel, when a hard fork goes through, those who refuse to support it will see any new network transactions as invalid or unable to be added to the main blockchain. Because of this, these users will be cut out of the mining process, which includes transaction verification.
If they are interested in joining the network after the hard fork, then they have no choice but to update to the new version of the blockchain. To make matters worse, during a hard fork, if all users do not update their chains, they face causing serious problems to the performance of the network.
On top of this, if a large part of the network’s nodes still refuse to update their chains, then all of the processing power and also, all of the users who support the old chain, become irrelevant to the true chain’s performance. When this happens, the value can easily be taken away from the true network and in such cases, networks can fail in the face of large opposition.
All in all, as you can see, there are a lot of large risks with hard forks, but at the same time, if opposition does not really exist, then they are an easy path towards readying a Blockchain network for its future.
For a prime example of persistent opposition to a hard fork that still has not gone away, take a look at the current Ethereum versus Ethereum Classic debate. When the notorious Ethereum DAO hack occurred, the Ethereum Network pushed a hard fork to recover a lot of stolen funds. Unfortunately, those who did not support the hard fork were strong enough to force an old version of the Ethereum network to keep existing and even now, they do seem to believe that it is the one true version of Ethereum that should exist.
Now, as new users join the Cryptocurrency world, some are not even aware of this history and the fact that a hard fork is what created Ethereum Classic.
These large risks that come with hard forks, as in the case with the Ethereum network, help the case of the existence of other types of forks.
A soft fork, on the other hand, is when a network decides that it is doing too much related to something like the processing of transactions, and it needs to scale back. A prime example of this lies inside the debate that Bitcoin had on what size blocks should be used in its main Blockchain, for it to be the most efficient that it could be.
The group that supported smaller blocks, such as blocks that can hold 500 kilobytes of data instead of a megabyte of data, would be considered to be the group that supported a soft fork.
You might be wondering with good reason at this point: what exactly happens during a soft fork?
First and foremost, every node needs to upgrade its version of the Blockchain in order to receive the Blockchain with the correct block size. Those that do will be okay in terms of continuing without incident based on past experiences with soft forks.
Those that do not will initially see all transactions as valid, but over time, it is expected that the upgraded users or “nodes,” will outpace the non-upgraded “nodes.” When this occurs, then every transaction that the non-upgraded nodes try to validate will be rejected by the upgraded nodes and therefore, also rejected by the network.
This idea relates back to hash power. If you go back to some of our basic pieces on how Cryptocurrencies work like how Bitcoin works, then you’ll remember that hash power is what controls the network. All in all, it is basically the total amount of computing power that currently participates in the network.
With the facts also comes, of course, the negative side of things. In this case, it is natural to wonder: what could derail a network during a soft fork?
The first answer is that if the soft fork does not have the majority of the network’s computing power behind it, then it will fail. In the event that it fails, then the attempted new chain will split off from the existing network and become its own network, which is called “splintering off.” In addition to this, the affected blocks can also become “orphaned,” which means that they end up being part of no Blockchain, officially.
With all of this in mind, it is easy to see exactly why having as much support as possible behind any fork in a Blockchain network is key.
The Future of Forks
The next steps for forks are hazy at best. According to one source, we do have knowledge of at least one theoretical fork that hasn’t happened yet, which some have termed a “user-activated soft fork.”
The core of this idea is that we should take the power of choosing whether or not to support a fork away from the miners, or whoever controls what blocks are added to a network’s main chain, and give it to those who are the most influential users on the network.
In theory, this would mean banks, Crypto exchanges, and businesses who run active nodes on these networks would become the decision makers, which is where problems with this idea would begin to arise.
The central way that the fork goes through would remain the same as it is with normal hard and soft forks. In this case, these new users would still have to represent a majority of the network’s hash power in order for the fork to go through. If they do, then it will, it they don’t, then it won’t.
The first problem with this is at the code level. Of course, everything in the Blockchain world needs to be coded well to promote the safety of its participants. According to a key industry source on this topic, it is widely accepted that to do this with a user-activated soft fork would require a year or more of preparation. On the other hand, it is widely accepted that normal hard and soft forks take a significantly shorter amount of time to get up and running.
As if matters were not shaky enough at this juncture, it is also suggested that it would be easier to end up with a situation like Ethereum versus Ethereum Classic, than it is with typical forks.
For these reasons, this idea is still very much under development and to our knowledge, no Blockchain network has successfully run a user-activated soft fork in the present time.
Lining up all of the Forks
Finally, I wouldn’t blame you if you're sitting at home now, wondering how to make sense of your place in all of this.
For now, it’s more than enough to understand the basics of these forks. You don't have to worry any further unless you are planning on being a serious Crypto miner. In that case, stay tuned for future pieces on how miners can make informed decisions in these situations.
However you feel now, we hope that you continue on your journey with us to what it truly means to be an active participant in the rise of Cryptocurrencies and the Blockchain.
By the end, we hope that you’ll be confident enough to take on the basics of just about any situation you might encounter and if not, we hope you will come back to us for more guidance in the future. Take these points to heart and you will be able to participate in most community discussions about forks.