Cryptocurrency Forks

Cryptocurrency forks are changes in the code or operational rules of a blockchain that result in the creation of a new version of the blockchain. Forks can be divided into two main types: hard forks and soft forks.

Main types of forks:

1. Hard Fork:
   • A hard fork is a radical change to the protocol that makes new blocks and transactions incompatible with the previous version of the blockchain. With a hard fork, a new version of the blockchain is created, separating from the original, resulting in two independent networks.
   • Example: Bitcoin Cash — a result of a hard fork of Bitcoin, where developers modified the rules to increase the block size for processing more transactions.
2. Soft Fork:
   • A soft fork is an update to the protocol that maintains backward compatibility with the previous version of the blockchain. Network participants who do not update their software can continue operating on the same network, but with certain limitations.
   • Example: The implementation of SegWit (Segregated Witness) in Bitcoin was a soft fork that improved the way transaction signatures were handled.

Why forks are created:

1. Updates and improvements:
   • Forks are often created to implement new features, improve network performance, enhance security, or reduce transaction fees.
2. Disagreements within the community:
   • Forks can also occur due to disagreements among the community of developers or network participants about the future direction of a cryptocurrency. This can lead to the creation of an alternative version of the blockchain.
3. Problem resolution:
   • Forks can be a way to fix vulnerabilities or bugs in the original code.

Examples of well-known forks:

• Bitcoin Cash (BCH) — A fork of Bitcoin created in 2017 to increase the block size and speed up transactions.
• Ethereum Classic (ETC) — A fork of Ethereum, which arose after a disagreement within the community regarding the return of funds after the DAO hack.

Forks allow blockchains to evolve and adapt to new conditions, but they can also lead to divisions within the community and the creation of competing cryptocurrencies.