A Cryptocurrency Fork is a common term in the blockchain space.

It refers to the modifications made to a blockchain’s protocol.

Several cryptocurrency forks exist today including BCH, LTC, BTG, and a lot more to mention.

In today’s post, we look at what exactly a Cryptocurrency Fork is and how profitable it may be.

Post Summary

This is what I will cover:

1. What Is Cryptocurrency Fork?
2. Types Of Cryptocurrency Fork
3. How Does A Cryptocurrency Fork Actually Work?
4. Most Popular Crypto Forks
5. Is A Cryptocurrency Fork Really Necessary?
6. FAQs
7. Conclusion

Let’s dive in!

1. What Is Cryptocurrency Fork?

As already mentioned, a fork is a modification made to a blockchain protocol.

Every blockchain has its own protocol, which is essentially a set of rules that govern how a blockchain network works.

The set of rules might be, for example, how new transactions are added to a blockchain, what miners should receive as incentives, and so on.

However, because the blockchain network is open-source, anybody can change these rules.

For example, a miner may come up with a brilliant idea to improve bitcoin’s scalability.

Let’s assume he proposes to raise the block size of bitcoin’s blockchain.

If other miners realize how advantageous the change is, they may agree to adopt it.

And when this happens, the blockchain or cryptocurrency is said to have undergone a fork or a split.

We will go over this in detail in the next subheading.

Interestingly, a cryptocurrency fork might result in the creation of two blockchain versions as well as new coins that current holders can claim.

This, however, is contingent on the type of cryptocurrency fork implemented.

Below, we’ll go through the types of cryptocurrency forks… Continue reading!

Let’s dive in!

Types Of Cryptocurrency Fork

Cryptocurrency Forks can be classified into two major types:

1. Soft Fork

A soft fork is a modification to the blockchain network that is backwards-compatible.

It simply implies that the old protocol is unaffected by the new one and may coexist with it.

However, each miner must choose whether to use the new protocol or the old one, potentially resulting in a temporary network split.

To break it down even more:

You see, when a change is made to a blockchain protocol, every miner needs to upgrade his node for the change to be fully implemented.

However, in the case of a soft fork, nothing about the blockchain is changed except that there are newly added features.

These features are not enforced on miners but are left open to them to decide if they want to make use of them or not.

Now, if we should go back to our previous example, where we talked about increasing the block size to achieve scalability.

A miner who is impressed by this idea will have to upgrade his node software to enjoy this advantage.

But a miner who rejects this idea will still make use of the old node software to verify transactions on the blockchain.

Furthermore, for the soft fork to be effective, a majority of nodes must upgrade to the new protocol.

Otherwise, the soft fork will fail or will remain unnoticed.

2. Hard Fork

A hard fork, on the other hand, is a modification to the blockchain that is backwards incompatible.

This simply implies that the old and new protocols are incompatible, resulting in the full and permanent blockchain split.

It’s worth mentioning that when a hard fork happens, two blockchain versions and perhaps two coins are generated.

Also, miners that refuse to upgrade to the new protocol will not be able to validate transactions on the new blockchain.

A Hard Fork can actually happen in one of these two ways:

a. Planned Hard Fork

It’s a hard fork that the community of a blockchain, led by the core developers, agreed upon.

When this hard fork is carried out, the community transitions to a new blockchain, while the old blockchain is totally abandoned.

To be a bit practical, a planned hard fork can be seen as a continual upgrade to your smartphone and PC.

An example of a planned hard fork is Ethereum 2.0.

No new crypto is created in the case of a planned hard fork; instead, the current crypto is adopted into the new blockchain.

b. Controversial Hard Fork

A controversial hard fork happens when the community of a blockchain disagrees with a proposed hard fork.

This causes a divergence, resulting in the formation of a new cryptocurrency and a modified second version of the blockchain.

Also, the new cryptocurrency created can be claimed by those who are still using the older version of the blockchain.

Before I proceed to the next section, I would like to mention yet another type of cryptocurrency fork called the Spin-Off Coins”.

3. Spin-Off Coins

This happens when a new blockchain project duplicates the code, protocol, and architecture of an existing blockchain but modifies it to suit its goal.

Also, unlike the controversial hard fork, there is no such thing as claiming a new coin here.

We can’t really call this a traditional fork per se.

This is because it is a separate blockchain that is modelled after an existing one, rather than splitting a single blockchain.

Below, I will be discussing how a soft fork and hard fork actually works.

Scroll down and continue reading!

How Does A Cryptocurrency Fork Actually Work?

Things can really get complicated when explaining how a cryptocurrency fork works.

But I’ll try to break it down for you so you don’t get confused halfway.

You see, for a fork to happen there must be something we call consensus.

Consensus is one of the key characteristics that distinguish cryptocurrencies and blockchain networks from centralized systems.

And it basically means that the blockchain community must agree.

In the case of a soft fork, the explanation I gave above is sufficient.

A hard fork, on the other hand, not only splits a blockchain in two but also sets in motion additional technicalities that I didn’t cover above.

So, this is basically how a hard for works:

• After making specific changes to the blockchain, the developers will set a time for their fork to go live.
• They achieve this by specifying a block number. They might state, for example, that the fork will take effect when block 640000 is posted on the blockchain.
• When the block is reached, the blockchain will split in two.
• If it is a controversial hard fork, the community will split as well, and if it is planned, the whole community will forsake the old blockchain.
• The interesting thing, however, is that both blockchains shared a genesis blockchain prior to the fork. Put it this way, all transactions that happened on the old blockchain before the fork also happened on the new blockchain.
• Because of this, if you have a specific amount of coins on the old blockchain, you will have the same number on the new blockchain.

Assuming you had 2 BTC before the fork, you will also have a different version of 2 BTC on the new blockchain, which you can claim freely (if it is a controversial hard fork).

• However, once the fork has happened, further transactions on the old blockchain will no longer be visible on the new blockchain.

Please scroll down to the next section!

Most Popular Crypto Forks

In this section, we will go over 6 of the most popular cryptocurrency forks.

1. Segregated Witness (SegWit)

Segregated Witness is a soft fork of the Bitcoin network that became active in 2017.

However, it was initially presented by Pieter Wullie at a Bitcoin conference in 2015.

SegWit nodes remove signature data from Bitcoin transactions.

It aims to increase the size of a block on bitcoin’s blockchain, enabling more transactions to be processed at the same time.

2. Bitcoin Cash (BCH)

Bitcoin cash is widely regarded as the most successful “controversial hard fork” of the Bitcoin network.

The hard fork happened on August 1, 2017, at exactly block 478,559 of the bitcoin network

Bitcoin Cash essentially expanded the block size of bitcoin from 1MB to 8MB, then 32MB, and implemented it on its blockchain.

Bitcoin Cash has also undergone a hard fork known as Bitcoin SV.

More information on Bitcoin Cash can be found here.

3. SegWit2x

Following the SegWit implementation on the bitcoin network, a group of developers in the bitcoin community decided to implement SegWit2X.

SegWit2X was initiated as a hard fork that would increase bitcoin’s block size to two megabytes.

However, this move was not supported by a majority of the bitcoin community.

Eventually, the SegWit2x group announced on November 8, 2017, that their planned hard fork was aborted owing to a lack of support.

4. Ethereum Classic (ETC)

This is the first hard fork in Ethereum’s history.

Also, It’s the most controversial of all the hard forks on the Ethereum network.

It was initiated in 2016 after the DAO, an Ethereum smart contract, was hacked.

In a bid to address this issue, Ethereum was split into two.

The older blockchain was renamed “Ethereum Classic,” while the new blockchain kept its original name of “Ethereum.”

5. Litecoin (LTC)

Litecoin is a spin-off coin since it is a distinct blockchain that was created as a modified copy of Bitcoin’s source code.

It was founded in 2011 by Charlie Lee.

And he defined it as a “light version of Bitcoin” that had the potential to become “the silver to Bitcoin’s gold.”

Litecoin made the following changes to Bitcoin’s source code:

• In contrast to BTC’s SHA-256 hashing algorithm, it introduced the Scrypt hashing algorithm.
• A 2.5-minute block time versus BTC’s 10-minute block time
• Increased total coin supply of 84 million compared to BTC’s 21 million coins

6. London Hard Fork

The London hard fork is a significant Ethereum modification that took place on August 5, 2021.

It introduced five Ethereum improvement proposals which were codenamed  EIPs 1559, 3554, 3529, 3198 and 3541.

The upgrade is touted for two major upgrades:

• It brought about coin burning of the Ether coin
• Also, it aims at making Ethereum’s transaction fee more stable and less expensive.

It’s worth noting that cryptocurrency forks are common; there are many more crypto forks that we couldn’t mention in this article.

But is crypto fork really necessary and why is it common in the crypto space?

We will discuss that in the next section. Continue reading!

Is A Cryptocurrency Fork Really Necessary?

A cryptocurrency fork could be necessary for the following reasons:

– Improved Scalability

Scalability has become a cause of concern for blockchains such as Bitcoin and Ethereum as the number of users continues to grow.

As a result, a fork may be required to improve the scalability of such a blockchain.

Furthermore, some developers believe that hard forks are the most effective way to improve scalability.

This is because it offers more flexibility to achieve a greater block size.

– Bring New Functionalities To The Blockchain

Apparently, a blockchain will become widely adopted if there are functionalities that will propel it forward to new development.

Think of it this way:

Bitcoin might become a global payment system if it adds a feature that allows it to process more transactions than Visa.

Moreover, users will no longer have to worry about exorbitant transaction costs.

– Fix A Security Bug

A fork on a blockchain may be initiated to address a critical security problem that threatens the blockchain’s long-term survival.

One example is the initial hard fork of the Ethereum network where some members of the community saw a hard fork as the only way to secure the network.

Now, it is true that a cryptocurrency fork could be beneficial to the blockchain.

However, it also provides an opportunity for certain people to take advantage of it for their own personal gains.

And by personal gains, I mean the following:

• Marketing Stunt: Some developers may create a coin fork only as a strategy to draw people’s attention to their undervalued projects.

Imagine I created a shitcoin and hyped it as a fork of bitcoin.

People are apparently going to fall for it, believing it to be the next Bitcoin rival.

• An Opportunity To Carry Out A Scam

Scammers can take advantage of a hard fork to steal people’s cryptos during the process of claiming the new coins.

Similarly, when there is a hard fork, a replay attack may be used by a fraudulent person or group to falsely claim coins that they do not own.

I explained what a replay attack is in the FAQ section.  Scroll down and learn more!

FAQs

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Conclusion

This section concludes our discussion for today’s post.

A cryptocurrency fork is when an upgrade is made to the blockchain.

Just like I pointed out, a crypto fork might be profitable, but it can also have disadvantages.

Interestingly, it offers a way to earn free cryptocurrencies.

So, what are your thoughts on the cryptocurrency fork?

Have you ever claimed a forked coin before?

Write down your thoughts in the comment box.

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