What is a Cryptocurrency Fork?

In 2017, many Bitcoin investors were thrown into confusion after some last-minute announcements that Bitcoin itself would be forking into different digital currencies. Today, some of the versions of Bitcoin created by forking of the original currency are known as Bitcoin Cash (BCH) Bitcoin Gold (BTG) Bitcoin Diamond (BTD) so on and so forth. Bitcoin cash has been the most successful fork so far due to its strong mining community and following. The only question is, what does forking mean exactly?

How & Why Cryptocurrency Forks Happen

A decentralized digital currency like Bitcoin isn’t managed by any kind of central authority. Most decentralized currencies are managed and maintained by thousands of individual miners, some of whom disagree with how a currency should evolve in future.

In the bitcoin vs Bitcoin cash example, the fork was due to several scaling problems and disagreements within the Bitcoin community. Due to the lack of consensus, It was decided that Bitcoin would be split into two separate forms of digital currency. One group of miners who wanted to develop Bitcoin differently cloned Bitcoin’s core software, edited it to facilitate faster transaction times, and relaunched the new Bitcoin as Bitcoin cash. Bitcoin cash then took on a life of its own, separate from the Bitcoin blockchain.

The concept of a fork is universal across all cryptocurrencies, so is not only Bitcoin that can fork, any blockchain is capable of forking. Another great example would be Ethereum forking of Ethereum classic. This fork was caused by a major hack in one of Ethereum’s platform ICOs “DOA”. The hackers managed to get away with over 3.5 million in investors’ money. In an effort to stop the loss, a major part of the Ethereum community decide to hard fork the currency. The rest did not agree, so there was not 100% consensus, which caused community to go their separate ways.

Hard fork Vs Soft Fork

The above are two examples of hard forks. A blockchain can also execute a soft fork.
To understand the difference between a hard fork and a soft fork, you should first know that blockchain is a fairly new technology and there are improvements to be made.
Contrary to a hard fork when a block chain goes through a soft fork there is not a new blockchain created. Instead there are updates made to the existing blockchain. Most blockchains decide on these changes with some type of voting or community concesus mechanism.

What Should You Do if a Fork Occurs?

When a cryptocurrency hard fork happens, newly forked coins will usually offer existing digital currency to investors with a 1 for 1 amount ratio, some offer different ratios. It is a good idea to keep your private key under your control during a hard fork. If you leave it in a third party exchange or wallet they may not support the fork. If you have control of your private key, you can always prove you owned the cryptocurrency prior to the fork, there for you are entitled to the forked currency.

During a soft fork, in fact in every case, investors should pay close attention to media releases from core coin development teams, in order to know how best to prepare. Paying close attention to releases will keep you up to date with the steps to take for each fork. This is probably the most valuable point I could leave you with. Make sure to stay on top of any news coming from core development, programming and community. You can do this by following on social media, subscribing to email updates, checking up on their website etc...

I hope this article helped you better understand what a cryptocurrency fork is and how to prepare for one.If you have any questions leave them in the comments below.

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