What are blockchain forks and its consequences?

 

A fork (in the context of blockchain) is a technical phenomenon that occurs when a blockchain splits into two separate branches/or chains. The two chains share their transaction history up until the point of the split. Each of the chains can go independently on their own direction and the forks may happen due to many possible reasons.

 

There are two types of forks?

1.     Accidental

2.    Intentional

a.    Soft forks – similar to applying the patch to the existing software.

b.    Hard forks – similar to the incompatibility of our laptop and the software.

c.    Blockchain fork essentials:

a.    A chain splits into two producing two branches competing for each other

b.    Can be accidental or intentional

c.    Accidental forks are resolved by the blockchain.

d.    Intentional forks are later used to implement new consensus rules

e.    Hard forks require nodes to be upgraded to the new consensus rules or to roll back the state.

f.     Soft forks do not require the upgradation of the nodes.

g.    Some cryptocurrencies like Bitcoin Cash (BCH) are created using the hard forks.

1.     Accidental Forks

Since thousands of miners are competing to create a new block during which two or more miners mining a new block at the same time, an accidental fork is created. Such problem or the accidental fork is solved when new blocks are added to one of the chains i.e., the addition of the blocks continue on the long chain than the shorter chain.

2.    Intentional Forks

This happens when the network (the two chains) does not compromise on a single chain. Thus, during such forks, blockchain developers implement changes to the protocol such as the ‘block size’, reduction of ‘block time’, or even implement an entirely new ‘consensus algorithm’. This is because the two forks differ from each other in terms of compatibility with the other chain and their applications.

Hard fork vs Soft fork

A hard fork introduces new rules and requires the nodes in the network to upgrade their software. For example, the introduction of 8 MB block size to the existing 1 MB block size of the bitcoin. This is one of the examples of the hard fork. During hard forks, community members (users and miners) must make the decision to either upgrade their node or to keep running in the old software. If they happen to upgrade the node, the nodes have to switch onto the new protocol having new cryptocurrency. Non upgraded systems can no longer process the new consensus rules, making a blockchain split by a hard fork ‘forward incompatible with the main chain’.

On the other hand, soft forks make the chains ‘forward compatible’ i.e., blocks created under new rules must also be valid under the old rules (but not the other way round). Due to that, a soft fork does not require nodes to be upgraded. They can keep running the old software version and still participate in the upgraded network as validators of transactions.

Consequences of forks!!!

As you have already seen that the hard forks give rise to the different cryptocurrencies. Bitcoin Cash (forked from Bitcoin) in August, 2017 where the size of the block has been increased from 1 MB to 8 MB and then to 32 MB. Similarly, Ethereum Classic was created in October, 2016 when the developers rejected new rules that were implemented with a hard fork (and opted to keep using the old Ethereum blockchain) which was later renamed as ‘Ethereum Classic’.

Because they have the potential to split the blockchain community into two groups, hard forks normally take a back seat to soft forks in the development process. It was initially thought that Bitcoin’s SegWit protocol would require a hard fork to change the fundamental structure of transactions. However, the developers found a forward-compatible solution and implemented SegWit with a soft fork.

Now what is SegWit protocol?