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What Is A Cryptocurrency Fork?

How To Tell If a Cryptocurrency is Just A Copy Of Another

blockchain, bitcoin, hard fork, fork, cryptocurrency, crypto

Blockchain Cryptocurrency Hard Fork Example

You might have heard of a cryptocurrency going through a hard fork or a fork.  This is a reference to the merkle tree design on top of which they’ve been built – the ability for a blockchain database system to split its references into another branch, allowing for the development of other features or maintenance of different data.

In other words, it means that a development team will take the underlying code from another coin, copy it and then develop new or different features on top of it.  This splitting or forking of the code base is called a hard fork.

The vital thing to remember about cryptocurrencies is they are almost all of them are entirely built on top of blockchain technology – a type of decentralized database system which allows for data to be amended or added-to over a sustained period, rather than relying on single files.

Why Do Forks Happen?

A fork happens if a cryptographic system, the blockchain, requires a different set of rules for its system or there is a debate by the developers on.  At its core, the blockchain is basically a way to manage input & output data, typically in ledger format, which is how they all track the various payments and transactions they facilitate.  If a problem arises with the way in which these systems store and/or edit their data, a new set of rules needs to be applied to the system. This is done through something called “hard forking” (a “soft fork” option is available but this just generally means a cosmetic change, rather than something substantive).

Notice how each fork sets new rules which basically means the likes of the system’s encryption algorithm or some other setting is changed.

The bottom line is that each fork is basically designed to improve the quality of the system – allowing for either better functionality or more appropriate facilities for the system.

Examples of Cryptocurrency Hard Forks?

One of the most famous forks in the crypto world occurred with the Ethereum (ETH) cryptocurrency.  Ethereum was designed to give users the ability to participate in a DAO (Decentralized Autonomous Organization), which basically gave them the ability to contribute their tokens to a central “fund” which would be distributed to other projects in return for interest/earnings potential.
Whilst the system worked, someone discovered a flaw through which allowed someone to essentially steal all the funds from the central DAO system. Although the hack was carried out anonymously, the funds were eventually recovered and the central Ethereum foundation decided to fix it permanently with a hard fork.  The new fork continued as the ETH token whilst a group of dissenting community members decided to revert to the old system – using the ETC (Ethereum Classic) token.
Whilst this is probably one of the more well-known examples of a hard fork in the wild, there are a number of others, most notably with Bitcoin. Bitcoin Cash and Bitcoin Gold were both hard forks of the main Bitcoin system – designed to try and resolve the slow processing times within the BTC system.

Other examples of a  hard fork is Bitcoin Cash & Bitcoin Gold which are forks of the original Bitcoin (BTC).

 

Related Terms

Block Reward A block reward is the amount of Bitcoin or cryptocurrency that is awarded to a miner for confirmation of transactions in a block.
Block in a Blockchain A block in Bitcoin or on a blockchain is a group of transactions bundled together that will be placed on the blockchain as public record.
What is an ICO? An Initial Coin Offering (ICO) is a way for a company to crowdfund and distribute a token or coin for cryptocurrency prior to release on exchanges.
Cryptocurrency (Crypto) A cryptocurrency is the use of encryption to create a decentralized digital currency through encryption. The main technology behind it is called, blockchain