Hard Fork: Definition, Examples, Impact

Salomon Kisters

Dec 28, 2022

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Recently, the phrase “hard fork” has taken over the crypto headlines. A hard fork is a permanent divergence in the blockchain, commonly occurring when non-upgraded nodes cannot validate blocks created by upgraded nodes that follow newer consensus rules.

Put simply, a hard fork is a change to the software protocol that makes previously invalid blocks/transactions valid, or vice-versa. It requires all nodes or users to upgrade to the latest version of the protocol software.

For most cryptocurrencies, a hard fork is used to implement new features, such as increasing the block size or changing the consensus algorithm. It can also be used to reverse the effects of hacking or catastrophic bugs.

Hard forks can sometimes be contentious, as they often involve a change of rules that can result in a split in the network, in which one blockchain follows the new, upgraded protocol, and the other follows the old rules.

Let’s look at hard forks in more detail.

What is a Fork?

At first, there was Bitcoin, which aimed to serve as a decentralized digital currency substitute for the traditional financial system. As time went by, new specialized currencies like Ripple and Monero emerged. Many of these brand-new cryptocurrencies were created as a consequence of a fork rather than appearing out of thin air.

A fork, in the widest sense, is simply a modification to the protocol that the software uses to determine whether a transaction is legitimate or not on the blockchain. As a result, virtually every change or alteration in the blockchain can be regarded as a fork.

The Difference between Hard Forks and Soft Forks

There are two main types of programming forks:

• Hard fork
• Soft fork

Not all cryptocurrencies support hard forks as a method of software updating. Soft forks are often viewed as a more secure option that is fully compatible with blockchain networks, ensuring that nodes that do not update to newer versions will still be regarded by the chain as legitimate.

A soft fork, therefore, can be used to offer new features and capabilities without altering the requirements that a blockchain must adhere to. Soft forks are frequently used to add new functionality at the programming level. To further appreciate the distinction between hard and soft forks, consider a basic operating system upgrade on a mobile device or PC.

Following the upgrade, all programs on the device will continue to function with the new version of the operating system. In this case, a hard fork would mean switching entirely to a brand-new operating system.

More on Hard Forks

A hard fork is a significant modification to the blockchain, such as switching from one protocol to another. It is a major adjustment to a blockchain’s block structure or interpretation. Hard forks have historically resulted in the suspension of the previous protocol, the implementation of new guidelines, or the revival of the chain. It’s crucial to remember that a hard-forked chain will diverge from the preceding version and that the data of the pre-forked blockchain will no longer be accessible.

If a cryptocurrency decides to conduct a hard fork, then on the day of the changeover, the prior rules and structures become meaningless. This implies that for everyone to be compatible with the latest version of the software, they must all upgrade their nodes and the blocks that they have already mined.

Hard forks are significant events that are widely publicized in the world of cryptocurrency and blockchain technology. They are the focus of intense discussions and disagreements inside the crypto sphere as people try to weigh the benefits and cons of changing a certain project’s features (mostly the block size, rewards, hard cap, etc.) For example, the community as a whole reacted strongly against the idea of a hard fork Bitcoin in 2017 to expand its block size from 1 MB to 8 MB for quicker and a higher number of transactions.

Hard forks have also been used as a defense against hackers. There have been instances where hackers have sent themselves significant sums of money using illiterate means. The most well-known incident is the so-called DAO hack, in which a hacker stole 50 million in the form of Ethereum.

A hard fork, however, was approved by the blockchain, which resulted in the distribution of new coins to the holders of valid currencies. This made the hacking ineffective since the blockchain would not identify and authenticate old currencies, making the hacker unable to gain value from them.

Understanding a Hard Fork

A hard fork occurs when nodes of the most recent iteration of a blockchain stop accepting the previous iteration (s), resulting in an irreversible divergence from the prior iteration of the network. A blockchain effectively forks when a new rule is added to the code: one path proceeds along the updated blockchain, whereas the other path stays on the original path.

People using an older chain will often rapidly update to the most recent version after realizing that their version of the blockchain is now obsolete or useless. Hard forks can happen for a variety of reasons, such as enhancing the security of a blockchain network, accelerating the processing of transactions, or providing support for further features.

How Does a Hard Fork Function?

Think about how blockchain technology functions to better understand how a hard fork functions. A blockchain is a shared digital ledger that contains information about previous transactions and other activities in it. A blockchain’s transaction history data also includes a set of rules, or “protocols” as they are better known in the software industry, that specify how the network should operate.

A decentralized system like a blockchain requires its user base to vote on and accept any protocol updates. Hard forks, which result in the creation of a whole new blockchain, can be approved to make significant modifications to an existing network or settle disputes over how a blockchain should be maintained. Developers can then select one of the two blockchains when creating new projects.

Reasons for a Hard Fork

Why do hard forks occur at all if they can significantly lower a blockchain’s security? The answer is simple: Hard forks are network changes that are required as blockchain technology develops further.

A hard fork can occur for several reasons, not all of which are bad for the blockchain:

• To introduce new features
• To identify and address security threats
• To conciliate a dispute among the cryptocurrency community
• To reverse blockchain transactions

Accidental hard forks can sometimes also occur. Such situations frequently have a quick resolution, and people who were no longer in agreement with the main blockchain return to it after recognizing what had transpired. Similar to soft forks, hard forks normally let people rejoin the main chain when they add functionality and upgrade the network.

Following the DAO’s replay hack, Ethereum experienced a well-documented hard fork in 2016 that allowed the original chain to continue to function as Ethereum Classic. After its developers failed to adequately communicate these improvements to their community and infrastructure providers in 2020, Ethereum had an unforeseen but small hard fork that caused companies like infrastructure provider Infura to run out-of-date and incompatible software.

Following the breach, the Ethereum community pretty much unanimously voted in support of a hard fork to reverse the transactions that an unidentified hacker used to siphon out tens of millions of dollars worth of digital currency. The hard fork also assisted DAO token owners in receiving their Ether (ETH) cash back.

However, the hard fork plan did not completely unravel the network’s transaction history. Instead, it moved the DAO-related cash to a brand-new smart contract that was only intended to allow the original owners to withdraw their money.

Owners of DAO tokens were able to withdraw ETH at a ratio of around 1 ETH for every 100 DAO. To offer “failsafe protection” for the organization, the DAO curators withdrew and distributed any additional token balance and ether that existed after the hard fork.

Pros and Cons of Hard Forks

As already mentioned, a hard fork has several advantages. It could resolve a network’s performance challenges or address security concerns. A cryptocurrency’s mining payouts and mining algorithm can change as a result of a hard fork. They can also provide certain members of a blockchain community the chance to split out if they have conflicting goals for the project.

Hard forks, on the other hand, can have several drawbacks too. For example, after a hard fork, the blockchain network can be vulnerable to attacks like a 51% attack or replay assault from hackers who can exploit its flaws. Even if a hard fork was intended to solve performance or security issues, the original version of a blockchain may still exist after a fork.

Conclusion

A hard fork is a radical change to a blockchain network’s protocol that renders previously invalid blocks and transactions valid, or vice versa.

However, it is important to remember that the crypto world is still developing. The value of your crypto assets can be significantly impacted by changes in the blockchain system. Whatever the type of fork, it is obvious that there is still a lot to be done to guarantee a seamless transition of blockchain updates and improvement

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