Breaking the chain in cryptocurrencies – what is it?

A blockchain is a specific sequence of blocks containing information. A company or group of developers creates a blockchain as a perfectly sterile system, where each new block follows the previous one, maintaining a consistent and logical order. However, after the launch of a blockchain, the occurrence of "forks" is possible. A fork happens when the blockchain splits into two independent chains that continue to exist separately. Let's explore the reasons behind such phenomena.

Reasons for Forks in a Blockchain

There are several reasons why a blockchain can experience forks:

Rule changes in the network that do not require updating the software to operate under the new rules. Nodes that do not accept the new conditions can still interact with other network participants. This situation is known as a soft fork. Such a change is reversible and does not disrupt consensus.
A hard fork occurs when the new rules are no longer compatible with the existing network. The consensus mechanism is disrupted, and the blockchain splits into separate chains, with blocks being invalid between the two chains. In this case, network participants with voting rights can change the rules by creating a new chain. Bitcoin experienced a split in 2017, resulting in the original cryptocurrency and a new fork, Bitcoin Cash. Disagreements within the network led to the split.
Sharding involves deliberately dividing the chain to increase throughput and solve scalability issues.
A 51% attack occurs when dishonest miners direct more than half of the existing computing power toward mining a particular cryptocurrency. This approach allows for the creation of forks or separate chains. Bitcoin SV experienced three forks as a result of such an attack.

Purposes of Chain Forks

Chains can split for various reasons:

User disagreement with existing rules.
Technical decisions made by the creators.
Improvement and enhancement of an existing network.
Interference by malicious actors.
Economic reasons, such as obtaining a second cryptocurrency.

As a trader, it is always advisable to track forks using a fork calendar. This will allow you to successfully buy and sell cryptocurrencies, taking into account both planned and unplanned forks.