Even if you’re new to the cryptocurrency space, you’ve probably scrolled down Coinmarketcap and seen the number of digital currencies with the word Bitcoin in the name. From Bitcoin Private to Bitcoin Diamond, you might have even found yourself asking why so many Bitcoins exist in the first place, and whether you buy Bitcoin that everyone is talking about.
In the following guide, we’ll be looking at what is known as a hard fork, soft fork, and source code fork in the cryptocurrency space. Don’t worry if you’ve no idea what they are just yet. We’ll be explaining it all in a way that will leave no doubt in your mind. After that, we’ll look at a few examples of Bitcoin forks – from the obvious to the not so obvious.
**Let’s get it started **
Put simply, a fork is a change in a cryptocurrency network’s rules. Such changes might occur for several reasons. The first is to add extra functionality to the network. Alternatively, a fork might address security risks that have emerged in the network.
It’s widely acknowledged that there are two ways to apply an update to a digital currency network - via a soft or a hard fork. Alternatively, there is a source code fork. This type of fork simply borrows from some of the original coding of Bitcoin without taking the whole blockchain history. Different groups of developers make changes to the code as they see fit to attempt to realize their vision of what a perfect cryptocurrency should be.
Source Code Upgrades
In fact, many cryptocurrencies in the market are actually Bitcoin forks. However, rather than using the branding of Bitcoin, they have attempted to distance themselves from it. These forks only use the same source code and don’t take the entire transaction history. They actually start with a completely new genesis block. They simply borrow from the original code and change it as the development teams see fit.
For example, the “silver to Bitcoin’s gold” – Litecoin is an early fork of Bitcoin. There were some changes made to the Bitcoin protocol when Litecoin was launched. The block time was made shorter and the mining algorithm changed to make it more difficult for ASIC mining chips to dominate the network. Another change was to increase the total maximum supply of Litecoins from Bitcoin’s 21 million units.
Another source code fork of Bitcoin that didn’t attempt to steal Bitcoin’s branding is Zcash. Zcash is a privacy-focused currency. It adds features that increase user’s anonymity to the basic code base. Those who make Zcash transactions can choose if they want to transact privately or not.
Soft Forks and Hard Forks
What is a soft fork?
A soft fork is a change in the network rules that allows backwards compatibility. Backwards compatibility means that those who use the network by the old rules can still use the network even when it has changed to include new rules. To further explain this, let’s look at a real example.
Bitcoin was soft-forked in August 2017. The network change that was added is called Segregated Witness (or SegWit for short). SegWit is an effort to allow more transactions to fit in each block without actually increasing the size of the blocks themselves. To achieve this, some of the transaction data is left outside of the blocks. This makes each transaction smaller so that more can fit into a block. However, those who don’t transact using the protocol upgrade can still use the network. Their transaction data is not split and yet their transactions go through just fine. This is a classic example of a soft fork.
What is a hard fork?
A hard fork in cryptocurrency is a bit more dramatic. It’s also what most people think of when they hear the term “fork” in relation to digital currencies. A hard fork changes the rules in a way that is no longer compatible with the original rules. For example, if Bitcoin was forked to have a one minute block time instead of a ten-minute one, the network simply wouldn’t work if one group of miners (computers that validate transactions on the network) decided to use the one minute block time rule and another decided to use the original ten-minute rule.
The result here would be a hard fork in the network. At the point that the one-minute miners decided to start using the different rules, a new network would come into being. All the transactions that had occurred before the hard fork would still exist on both blockchains, though. Users who held the currency subject to a fork at the time it occurred would also now have identical balances on both blockchains. Although identical at the precise moment that the split occurs, the two networks would be entirely independent of one another going forward.
From Bitcoin Cash to Super Bitcoin
The most obvious Bitcoin forks are ones with Bitcoin in the name. There are quite a few of these today. Like our soft fork example, the first proper example of such a hard fork also occurred in August 2017.
Bitcoin Cash was formed because the consensus in the Bitcoin community couldn’t be reached about the best way to scale the network. There were those who agreed with the idea of SegWit as the best way to allow more transactions to occur. Meanwhile, others thought the best way to extend Bitcoin’s usability to more people was to increase the size of the blocks themselves.
The dispute couldn’t be resolved, and a compromise was not reached. The big blockers, as they became known, decided to change the network’s rules to include larger blocks in August. The result was the hard fork that split the network into two branches and introduced Bitcoin Cash to the general public.
Since the Bitcoin Cash split, there have been several other examples of hard forks that some consider as shameless efforts to hijack the Bitcoin brand. Some of the forks that have occurred since the Bitcoin Cash split have included: Bitcoin Private, Bitcoin Gold, Super Bitcoin, and Bitcoin Diamond. These have had varying degrees of success in terms of market capitalization.
That’s a Forkin’ Lot to Take in!
Hopefully, you now know a bit more about hard, soft, and source code forks. The topic is pretty confusing at first, but you’ll soon understand it if you’re still struggling.