A majority of the community needs to agree before any fundamental changes can be implemented, or else you risk a hard break. The result of a successful upgrade is that a new coin will fork off from the blockchain, from the block where the upgrade took place.
Two separate coins with two separate ledgers, all originating from the same blockchain. In the case of updates like SegWit, everyone ideally updates to the new protocol, so only one coin exists. In cases of hard forks, like Bitcoin Cash , two different coins and blockchains will run simultaneously after the fork. The first outcome is the most common, as happened with Ethereum and Ethereum Classic, with Ethereum vastly outperforming Ethereum Classic.
The second is rarer, but it does happen. Bitcoin Cash and Bitcoin ended up broadly coexisting once the SegWit 2. Forks can be disruptive experiences for a community. There are often competing visions for the future of a cryptocurrency and this can lead to a point where traders and miners feel that they have no choice but to go their separate ways. For example, the lead up to the Bitcoin and Bitcoin Cash split happened after a series of increasingly venomous debates within the community.
On the other hand, sometimes, this level of disruption can be enough to prevent a fork from taking place. The controversial SegWit 2. The plan was put on hold due to fears that the upgrade might lead to another hard fork and would further destabilize Bitcoin. Hard forks can have a profound impact on the cryptocurrency and not just because of the uncertainty caused.
The Bitcoin Cash hard fork is a good example of a quirk that can occur. For example, if you had held 10 Bitcoin at the time of the Bitcoin Cash fork, you would have 10 Bitcoin Cash. This can lead to some really interesting waves within the market.
Large traders, or whales , can make big waves on the market. Whales are generally large organizations that own hundreds of thousands of Bitcoins. This is enough that their decisions will strongly influence the direction of the market. Some large private traders, or dolphins , also have enough stake to influence the market to a certain degree.
This gives them a strong incentive to increase their stake in the parent token. Thus, they begin to buy every token they can find. Their huge size means that they can artificially drive the price of the parent currency higher in the lead up to the fork as the whales and dolphins buy up everything they can find.
The whales are rewarded with new tokens on a one-to-one ratio. Because whales know that the price of the parent company has been inflated by their actions they proceed to dump both the new token and the parent token on every exchange they can. This can cause the value of both the forked and parent token to crash in value. Over time, their values will begin to stabilize as the traders use their profits to purchase more cryptocurrency coins.
The above example also applies to splits where the entire blockchain is cloned. Many forks only copy the underlying code, so while a new coin is corrected it does not create duplicates. In these cases, traders act a little differently. It is also possible to see traders largely abandon the original cryptocurrency in favor of the new fork, as happened with Ethereum and Ethereum Classic with the former strongly outcompeting the latter. A hard fork marks an unstable time for a cryptocurrency.
The community will often be divided over the issue and the market is generally very volatile, even by cryptocurrency standards. How you will react will largely depend on the stake you have in the currency and the type of fork you are looking at.
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions. Notable soft forks in the crypto industry include:.
In cryptocurrency, forking is an important practice. Forking can address system faults or bugs in a blockchain and, in turn, increase the stability and efficiency of a cryptocurrency. However, while essential to the smooth functioning of a cryptocurrency, performing forks, especially hard forks, is an extremely messy and time-consuming task.
The fact that anyone can copy and modify an existing code also means that there tend to be disagreements among developers about which route to take when it comes to initiating forks. Free rein to fork in the crypto world results in the birth of hundreds and probably thousands of altcoins , flooding the already saturated cryptocurrency market.
Even within Bitcoin itself, there exist hundreds of forks due to developers disagreeing with one another. So next time when you see the developers behind your favorite cryptocurrency announce a fork, check if it is a hard fork or a soft fork, and be financially prepared in case of a dive in value. Currently based in Melbourne, Australia, Jie Yee has experience in writing about the Australian real estate market and the Southeast Asian tech scene, as well as conducting business intelligence research in the wider Asia-Pacific region.
Enter forking, a method that solves the aforementioned problems. What Is A Blockchain Fork? What Is a Blockchain 51 Percent Attack? How Does It Work? Share Share Tweet Share Email.
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Cryptocurrencies like Bitcoin and Ethereum are powered by decentralized, open-source software called a blockchain. A fork happens whenever a community makes. 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. In blockchain, a fork is defined variously as: Forks are related to the fact that different parties need to use common rules to maintain the history of the.