What Is a Hard Fork?
A hard fork (or hard-fork), 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 be 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, but miners must choose which blockchain to continue verifying.
- A hard fork can occur in any blockchain, not just Bitcoin (where hard forks have created Bitcoin Cash and Bitcoin SV, among 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), 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 continues along the old path. Generally, after a short time, those on the old chain will realize their blockchain version is outdated or irrelevant and quickly upgrade to the latest version.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 cryptocurrencies work the same way, no matter which crypto platform they use. 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 miners need to agree on the new rules and 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 the software to reflect the new rules.
Through this forking process, 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.
As the graphic 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 several reasons why developers may implement a hard fork, such as correcting important security risks found in older versions of the software, adding new functionality, or reversing 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 to let the original owners withdraw their funds.
DAO token holders could withdraw ETH at a rate of approximately 1 ETH to 100 DAO. The DAO curators withdrew and distributed the extra balance of tokens and any ether that remained due to the hard fork to provide “failsafe protection” for the organization.
Hard Forks vs. Soft Forks
Hard forks and soft forks are essentially the same: 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 tremendous computing power, but the privacy gained from a hard fork makes more sense than using a soft fork.
