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If you’ve been a member of the cryptocommunity for more than a couple of weeks, you’ve probably heard the term ‘hard fork’ thrown around. A lot of people may be wondering, what does that mean exactly? Perhaps you’ve heard of the most popular hard fork, Bitcoin Cash, and you’ve gotten a brief idea of its meaning. The goal of this article will be to simply the concept of a ‘hard fork’ in an easy to understand manner and help you dissect and digest the different hard forks that exist, what they mean, and how they happen. This article will also do its best to present the definition of a hard fork in the most nonbiased manner possible.
Hard Fork Definition
The formal definition of a hard fork in blockchain is, “…a permanent divergence from the previous version of the blockchain, and nodes running previous versions will no longer be accepted by the newest chain.” (Source: https://www.investopedia.com/terms/h/hard-fork.asp )
Unfortunately, it’s not quite that simple.
So, let’s take it back to the basics for a moment:
The fundamental concept of blockchain technology as created by Satoshi Nakamoto when he was making Bitcoin is that decentralization would occur via a distributed ledger. So, in other words, everyone on the network would have a copy of all the transactions that were made. If Jim sent 10 coins to Sarah yesterday, everyone would possess this information.
People obtained these copies by running a node. A node is a connection point. Basically, to set up a node, one would just download the necessary software and connect to the Bitcoin network. Once connected, nodes receive an updated version of the ledger with ALL of the payments ever made. All of these transactions are stored on something called a blockchain.
The rules of the chain are enforced by full nodes. This is an important fact to remember when examining and studying hard/soft forks and their occurrences. Miners are free to mine any type of blocks that they want, it is up to the full nodes to validate those blocks. However, if there is just one full nodes or even a small percentage of full nodes that validate blocks that a majority of miners are mining on, then there is an imminent risk of a chain split.
Another critical piece of information one must understand to really ‘get’ how hard/soft forks are created is the fact that full nodes are needed to enforce consensus rules on the blockchain. If miners choose to mine blocks that do not abide to these rules, then the full nodes will reject the block.
There is also a difference between consensus and consensus rules. Consensus merely refers to the adherence of nearly-all full nodes to the consensus rules of the network.
Below are some of the consensus rules on the Bitcoin network:
· Block Size
· Proof of Work
· Bitcoin Reward per block
And many more…
So How Do Hard Forks Occur?
The concept of a hard fork is somewhat similar to that of a software fork. However, the implications for Bitcoin are a bit more pronounced. Check out the graphic posted below:
This is a good, basic example of what a blockchain should look like conceptually. It is linear, so order is extremely important here.
Bitcoin was designed with a specific code by Satoshi (founder of Bitcoin) and others, which dictated the consensus rules that were discussed above. Every block that is added to this ‘chain’ abides by said rules.
A hard fork occurs when these consensus rules are expanded through different software. For example, when Bitcoin Cash was created, it loosened the rules on block size, making it a hard fork. SegWit is an example of the rules being constricted. So, a restriction of the block size would represent a soft fork.
See below to get a better visual conception of how this process manifests itself:
As stated in the definition in the beginning, this divergence is permanent and there is no longer any compatibility between the two.
Generally, there are two different ways which a hard fork can occur. It can either be:
As their names suggest, both entail entirely different things. A planned hard fork means that the creators/developers were all in agreement as to how the coin would be forked. When this occurs, there is no split in the chain. This is because all of the nodes have agreed to upgrade to the latest version of the coin’s client that possesses the rule change.
There will be a split in the chain if all nodes do not adhere to the new rules set by the hard fork implementation. This chain will more than likely die off without enough economic support. Therefore, planned hard forks are usually under little to no threat unless there is an invisible negative sentiment, which is an unrealistic scenario.
If there was disagreement in the community about the path of a coin, like Bitcoin, for example, then a contentious hard fork would occur. The most notable example of this is the creation of Bitcoin Cash, which we will cover in greater depth within this article. Given the nature of blockchains, hashing power, and hard forks, there must be a fair amount of support for the hard fork for it to be economically viable in the long-term.
Hard-forks, by definition, are always incompatible with the original chain. Thus, a hard fork will always be irrevocable and permanent. However, it is worth noting that the original chain will always be compatible with the hard fork chain by definition.
Typically, when a contentious hard fork occurs, there is a split within the community that takes place where some of the nodes on the network that were mining on the previous chain decide to mine on the new chain.
Below, is a great graphic that gives a visual of what this would look like:
Hard Forks Pose a Systemic Risk to Bitcoin
As you can see in the graphics above, when a contentious hard fork is created, there are two running versions of the blockchain. Ultimately, this is something that any coin would inherently want to prevent at any and all costs for the following reasons:
· Blockchain reorganization
· TX being confirmed by the wrong chains
· Political/Social Turmoil Within the Community Regarding the “Real” and the “Fake”
And many others…
Another facet of hard forks, which is a bit more complex to explain, is that users will receive “free” coins. However, since everything is digital in nature, this is a phenomenon that’s hard to create an analogy for in an accurate way. Essentially, when a hard fork occurs, all previous TX made on that chain are considered legitimate. Even future blocks that are created with legacy rules would still be considered legitimate, technically (unless otherwise coded to not accept any of the legacy blocks). Therefore, money that one prior could be spent on the hard fork ledger as well as the original ledger simultaneously — effectively, giving one “free” coins.