Understanding crypto: What is a hard fork?

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Depending on which cryptocurrencies you invest in, you might have heard about a past event or two – or maybe a coming event – called a “hard fork”. So what, exactly, is a hard fork, and what does that mean for the currency in question?

As the name implies, a fork involves a split in the protocol underlying the cryptocurrency – that is, a significant change in the software used to validate blocks and transactions. In a soft fork, the old protocol no longer recognises past blocks or transactions and the new protocol takes over. The new software is backwards-compatible, because it recognises past blocks and transactions, and the entire system continues to move forward as a single blockchain.

By contrast, a hard fork involves a software change in which some transactions continue to move forward using the old protocol and a new blockchain is started using the new protocol. The hard fork means that “the new chain is not backwards-compatible,” the site Hardforking notes. “Some users may not want to carry out transactions on the old chain, and they will, therefore, transfer their resources to the new chain and vice versa. Some will want to work on both the chains. Whichever is the case, the longest chain wins and more often carries the name and support of the original chain’s developers.”

That’s what happened in 2016, when a vulnerability in an Ethereum-based decentralised autonomous organisation (or DAO) allowed someone to – if not exactly hack – take advantage of the platform to gain access to a significant amount of Ether tokens that had been issued to others. Following a vote, members of The DAO community launched a hard fork of Ethereum to eliminate the vulnerability and return access to those tokens to their rightful owners.

However, not everyone in the community agreed with that action. The dissenters instead chose to continue using the old Ethereum protocol, now known as Ethereum Classic.

“Many of us have an innate sense of right and wrong, so at first glance rescuing ‘The DAO’ felt right,” the group wrote in its “Ethereum Classic Declaration of Independence”. “However, it violated two key aspects of what gives peer-to-peer cash and smart contract-based systems value: fungibility and immutability.”

“In doing so,” the declaration went on to say, “they compromised a core pillar of Ethereum just to do what they felt was in the interests of the ‘greater good’.”
In 2017, a hard fork in the Bitcoin protocol resulted in the arrival of Bitcoin Cash, which itself underwent another hard fork in late 2018 to create the competing currencies Bitcoin ABC and Bitcoin SV.

Not every hard fork is as controversial as the Ethereum/Ethereum Classic split or the latest Bitcoin Cash split, however. Constantinople/St Petersburg, Ethereum’s most recent hard fork, could be better described as a “software upgrade”.

“It is key to understand however that most hard forks are positive and are upgrades in the software.” Hardforking reported before the latest Ethereum fork. “They are good for you and your investment.”

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