Hard Fork Meaning
What is a Hard Fork in Crypto?
A hard fork (often used as one word, “hardfork”) is a protocol software upgrade that permanently splits a blockchain network into two separate chains. It occurs when nodes on the newest version of the protocol fail to accept the older version of the blockchain.
Technically, modifying the blockchain forces all the nodes to comply and upgrade to the newest version of the protocol. However, some continue along the old path. This lack of consensus results in the upgraded protocol being permanently split from the previous version. It also leads to the invalidation of previously valid transactions and blocks, and vice versa.
Two things can happen when a blockchain undergoes a hard fork:
- The hard fork creates another crypto asset when the cryptocurrency’s community fails to reach a consensus. For example, in August 2017 Bitcoin Cash (BCH) was formed in response to Segregated Witness (SegWit) when the Bitcoin community failed to reach a consensus to increase Bitcoin’s block size.
- One of the crypto assets formed from the hard fork may virtually disappear in the case an upgrade is unanimously supported by the community. Hence, the crypto asset that lost community support disappears. For example, the Ethereum community unanimously supported the Byzantium hard fork, leading to only a single crypto as a result.
Examples of a Hard Fork in Crypto
Hard forks occur when blockchain developers are:
- Trying to maintain an existing code that cannot be updated.
- Fixing security hurdles.
- Attempting to roll back transactions to reverse a hack on the network.
- Adding new functionality or features.
- Resolving conflict among the developers.
- Revising mining rewards or the fee structure.
For example, the Ethereum community proposed a hard fork to reverse a hack on the DAO (Decentralized Autonomous Organization) project, which claimed crypto worth tens of millions of dollars of DAO token holders’ funds. A newer version of the network was created with newly formed smart contracts that enabled the original owners of the stolen crypto to recover their funds. The older version of the network was renamed Ethereum Classic, while the newer version retained the original name, Ethereum.
What is the Difference Between a Hard Fork and Soft Fork?
Hard forks and soft forks are similar processes with different results. A soft fork is performed when forward and backward compatibility is possible. This means that the new version can still communicate with the old version of the software.
In hard forks, nodes stop processing blocks following the introduction of new rules, that is, upgraded nodes stop communicating with non-upgraded nodes. With hard forks, networks do not maintain backward compatibility.
