Why Do Hard Forks Occur?
In the world of blockchain, hard forks refer to any radical change in the protocols of a blockchain network. It occurs when developers fail to form a consensus over the developmental direction for a coin. As a result, a single digital currency splits into two, which means anyone using the old software will see the new transactions as invalid and vice-versa. Thus, all developers need to upgrade to the new software in order to use the new coin and blockchain.
A hard fork usually requires majority support from people holding that coin within the blockchain network. If there is a lack of consensus amongst the users, the upgrade will not be clean, leading to a break in the blockchain. Unlike soft forks, which do not cause a major structural change, hard forks lead to a permanent change in blockchain protocol. Hard forks are forward compatible, i.e., the old version of the software will be completely obsolete, and the developers will be either forced to move to the new software or keep using the obsolete version.
Hard forks happen due to the dynamic nature of the blockchain industry. Cryptocurrency codes are a constant work in progress and developers want to improve the features, functionality, and security of blockchain protocol to improve its efficiency and make it more competitive. However, this is not always easy because sometimes a simple addition of features might need a drastic overhaul in the existing code. Developers do not always agree on a particular way the cryptocurrency project can be furthered, which causes divergence in the cryptocurrency, as discussed earlier. A hard fork is an unstable time for any cryptocurrency and its value is highly volatile at this time. There have been several hard forks since the conceptualization of cryptocurrencies, and they are bound to occur as technologies advance.
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Hard Forks – A Short History
1. Bitcoin XT: It was the first major hard fork of Bitcoin. In 2014, Mike Hearn, former senior software engineer at Google, proposed to improve the features of Bitcoin – increasing the number of transactions per minute from 7 to 24. To achieve this, he wanted to increase the block size from one megabyte to eight megabytes. Initially, Bitcoin XT became a huge success, but its craze went down in a few months as it lost user interest over time. The original website doesn’t function now, and Bitcoin XT is no longer available for its users.
2. Bitcoin Classic: In early 2016, some developers launched Bitcoin Classic because they wanted to increase the block sizes to two megabytes. Like Bitcoin XT, Bitcoin Classic also garnered the interest of developers, but similarly, it was driven into oblivion with time.
3. Bitcoin Cash: It is certainly the most famous and most successful hard fork of Bitcoin. This happened in August 2017 when Bitcoin miners changed to a protocol version to solve bitcoin’s scalability problem. They wanted to increase the block size from one megabyte to eight megabytes. But not all miners could afford to start mining eight-megabyte blocks. As a result, a philosophical split occurred and now this digital currency exists as Bitcoin and Bitcoin Cash – two very different blockchains – that cater to widely different user communities with diverse objectives. Currently, Bitcoin Cash is one of the most successful digital currencies by market cap.
4. Bitcoin Gold: This hard fork came shortly after Bitcoin Cash, in October 2017. The aim of this hard fork was to tackle the mining difficulty that had become too specialized as it became impossible to profitably mine bitcoin at home with the speed of a simple computer. The development of Application Specific Integrated Circuit (ASICs) was created specifically for bitcoin mining, thus reducing its accessibility from home. Bitcoin Gold attempted to change the hardware required for bitcoin mining to make it decentralized again. It provided a unique feature called “pre-mine” that allowed developers to mine 100,000 coins after the hard fork. Bitcoin Gold provided an opportunity to a large number of people to participate in the mining process through consumer hardware that is widely available and distributed.
5. Ethereum Classic: In 2016, a hack on the Ethereum blockchain led to the theft of $50 million worth of ether, which further rose to billions of dollars. To counter this, the Ethereum blockchain went through a hard fork to reverse the loss and retrieve the stolen ether. The newly developed ledger that retrieved the stolen ether and reversed the hack became the main Ethereum blockchain while the older version was renamed as Ethereum Classic. A majority of users chose the version that reversed the hack, but some clung to the original version. Like Bitcoin, there was also an ideological rift between proponents of the immutability of the original Ethereum blockchain and those who preferred the new version that successfully erased a cybertheft.
Hard Forks – Disruptive or Beneficial?
Since its inception, cryptocurrency was always supposed to develop and improve with time. Cryptocurrency was never supposed to be a finished product. Since then, there have been several technological innovations to add features or create new cryptocurrencies. Miners and developers usually make changes in existing blockchain protocol to improve existing functionalities or revert the effect of a bug or hack. And whenever there are disagreements amongst the community about proposed protocol changes, hard forks occur. However, they can also occur due to technological upgrades.
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Hard forks can be disruptive for a short time, especially when the change is happening – the digital currency is highly volatile and unpredictable at that time. However, when we see the big picture, it has been largely beneficial for the crypto markets and community – as hard forks have led to the creation of new cryptocurrencies, improved existing functionality, erased bugs, and tacked hacks.At Unbanked, we firmly believe in the potential of blockchain technology and that cryptocurrency is disrupting the traditional market and banking system. With new users every day, the crypto industry is witnessing unprecedented growth with opportunities for everyone. Visit us today to get the best out of the booming crypto market.