Fork - what is it in cryptocurrencies?
One of the meanings of the word "fork" is "branch." A fork refers to the splitting of a blockchain, where it is duplicated, resulting in two chains—one remains the same, while changes are made to the other. As a result, a new cryptocurrency emerges, and the original one does not disappear.
There are two types of forks: hard fork and soft fork.
A hard fork usually occurs when there is a division within the community, with one group of developers wanting to make significant changes to the blockchain's code and another group opposing it. In such cases, the first group carries out a hard fork and can develop their own version of the blockchain as they see fit.
For example, Bitcoin Cash, the most well-known fork of the original cryptocurrency, was created in this manner. Its developers advocated for increasing the block size in the blockchain, which was initially limited to 1 MB. They wanted to raise this limit to 8 MB to process transactions faster. However, the majority chose a different path, so they decided to separate. When this split occurred, all Bitcoin holders became owners of the same amount of the new cryptocurrency. Since then, there have been several hard forks of Bitcoin, including Bitcoin Cash.
A hard fork allows holders of the affected cryptocurrency to receive the new one for free, but it can also have negative consequences. After all, its formation means the emergence of a direct competitor to the old cryptocurrency. Too frequent forks undermine the stability of the cryptocurrency and reduce trust, especially since developers are not always motivated solely by the desire to make improvements. In the case of Bitcoin forks, they may also seek to profit from its name and gain initial momentum through its popularity.
A soft fork, on the other hand, does not result in the creation of a new cryptocurrency. Instead, changes are made to the existing one. Soft forks have a much more beneficial impact, but it is not always possible to achieve consensus within the entire community for their implementation. Therefore, sometimes hard forks accompany soft forks, as a part of the community that opposes the changes carries out hard forks to keep everything the same. This is how Ethereum Classic, for example, came into existence.