What is a Fork in Crypto?

What Is A Fork? 

A fork occurs whenever a community governing a blockchain decides to modify the fundamental regulations or protocol. This is typically triggered by changes or upgrades made to the original blockchain's protocol.  This results in a process called 'forking', leading to the creation of hard and soft forks.

Key Takeaways

• A 'fork' occurs in the blockchain network when substantial changes are made to its code base or its operating rules. 

• Forks are designed to adapt the network's capabilities to fit the preferences of the community or to comply with specific technological demands.

• A new blockchain, possessing similar but tweaked features, can emerge from an existing one via a hard fork. Famous blockchains such as Bitcoin and Ethereum have been forked numerous times, resulting in new independent blockchains.

• There are also soft forks, which are backward compatible, where minor upgrades are made to an existing blockchain.

One of the most notable examples of forking can be seen in the discontent within the early Bitcoin community, leading to the creation of two well-known cryptocurrencies: BSV (Bitcoin Satoshi’s Vision) and BCH (Bitcoin Cash). Certain features remained the same, such as the total supply, circulating supply, and the record of assets held by individual ledger accounts. This meant that every bitcoin holder received BSV and BCH equal to the amount of bitcoin they held. In simpler terms, if you had one Bitcoin, you would have also received one BSV and one BCH each. 

This process birthed new chains, what we now know as “Bitcoin Forks”. Many forks of Bitcoin emerged after this event. In this article, we will explore what exactly forks are, and how they are formed. 

How Do Forks Work? 

A fork occurs when part of a blockchain network or a decentralized application is taken from an existing system and developed further. It is a change made to the code base or the rules that guide the operations of a blockchain network. This change makes a clear difference in how the network runs or how its users interact. The improved ‘cut’ of the blockchain or application can then be merged with the original system to create a new version or retained as a separate system. 

Forks in decentralized systems could happen for several different reasons. Let us take a look at why forks happen. 

Why Do Forks Happen? 

Centralized systems are easy to improve through direct system upgrades. On the other hand, improving a blockchain application or network is more rigorous, with community consensus playing a large role in the upgrading or updating of such networks.

A blockchain network is maintained by its main participants who ensure its security and stability. Any proposed changes to the network have to be approved by at least a majority of these core members. This step isn't needed in centralized systems but is crucial in blockchain forking. ‘Participants’ in this context refers to miners in a Proof of Work blockchain or validators in a Proof of Stake blockchain. These and any other community member who is eligible to participate in the core consensus make up this group. 

When (tangible) changes are made to the blockchain, a new blockchain is created. If the new changes are accepted by the miners and validators on the network, they will upgrade their nodes to the new version of the blockchain and continue to maintain the network. In cases where the community is unable to reach a uniform agreement, a faction of the community may decide to continue maintaining the old network while the rest of the community moves to the new chain. This leads to a split of the network and the emergence of a new blockchain network that bears the history of the parent chain but works a bit differently. The Bitcoin forks mentioned earlier are good examples. 

To sum it up, forks can happen for one or more of the following reasons: 

To Introduce Changes To Rules Embedded In The Blockchain’s Code 

Certain laid-down rules like the requirements needed to run a node, community proposal systems, and tokenomics can be modified through a fork. In this case, the blockchain’s technology didn’t change, but the rules that guide how community management functions are changed. 

Technological Enhancements Or Optimization 

As a blockchain network evolves, there might be a need to make changes to the core code base or the code that powers certain infrastructures. This can enable it to work better or satisfy the presiding requirements of the user community. 

To Create A New Independent Blockchain Or Application 

A blockchain or decentralized application can be forked in a deliberate attempt to create a new blockchain that operates independently of the parent chain. This can be done by a revolting fraction of the blockchain community or independent developer(s) who wish to improve on the parent chain’s technology or rules without building a new blockchain from scratch. 

Types Of Forks 

Considering the mode and result of a fork, blockchain forks can be categorized into:

Soft Forks 

Soft forks are mild upgrades to the blockchain network. They are simple improvements to the blockchain’s code or rules, such that the blockchain still maintain its basic outlook and function and can be easily merged with the original version. 

The new changes made to the blockchain’s software in a soft fork are compatible with the records and the system existing before the upgrade. They are said to be ‘backward-compatible’. Once the network participants agree with these changes, the upgraded version will be integrated into the old network and a new version emerges. 

Hard Forks 

Changes to the blockchain in a hard fork are not ‘backward-compatible’. That is, the blockchain’s software is altered to the extent that it cannot be integrated with the existing records and system. However, if the decision to carry out this upgrade was unanimous, the miners or validators on the network will upgrade their software to the new version and maintain a uniform chain instead of splitting the network. A hard fork can be conducted solely to split the blockchain. 
 

Accidental Forks 

Accidental forks happen very often, even though they are not as popular as soft and hard forks. Accidental forks are also known as temporary forks. This is because they are not planned. Temporary forks happen when two miners or validators on the network mine different blocks at the same time or almost the same time. 

An event like this splits the blockchain temporarily as other network participants struggle to decide on the most recent and valid version of the blockchain. For the blockchain versions to remain in unity, the miners must decide on one of these versions to recognize, once this is done, they update their software to a single version and the network remains whole.

Failure to achieve this will lead to an eventual split of the blockchain as participants move to the version they recognize as current and most valid. 

Notable Forks 

The Bitcoin community split that resulted in the network split that brought BSV and BCH to life is one of the earliest and clearest examples of a fork that resulted from community disagreement. We have referenced this event in other sections. Here are other popular forks that made waves in the crypto space. 

Ethereum Classic 

Ethereum launched a DAO (Decentralized Autonomous Organization) in 2016 as a collective attempt to provide adequate funding for projects building on the then ‘young’ network. The DAO had raised over $150 million in Ether for project funding within 3 months of its launch. 

Unfortunately, the DAO’s wallet was compromised in a $60 million hack barely 5 months after its launch. This accident meant grave losses to the DAO and the contributors. To salvage the stolen fund, a faction of the Ethereum community agreed to backdate the blockchain to the pre-hack period to remove the blocks containing post-hack records. This comes after a series of events that kept the community from proceeding with Vitalik Buterin’s proposed soft fork to prevent attackers from moving the stolen funds. However, a faction of the community insisted that the chain be maintained with the current records. This would mean a total loss of the DAO’s funds. This was simply unacceptable to the rest of the community. 

As a result of this dispute, the Ethereum blockchain was split into Ethereum blockchain and Ethereum Classic (ETC). The Ethereum Classic community retained the old chain with a record of lost funds while the rest of the Ethereum community forked the chain and backdated the records to salvage the DAO’s funds. 

Ethereum’s Constantinople Hard Fork 

Scalability and efficiency issues had already started rocking the Ethereum blockchain as early as 2017. Developers’ approach to fixing these issues would only mean deploying a series of advanced upgrades to Ethereum’s software and general network rules. But the Ethereum blockchain was in fact, not properly advanced to support these new protocols and algorithms. 

The Metropolis era of the Ethereum blockchain’s evolution included a series of soft forks to install Ethereum Improvement Protocols (EIP). The Metropolis phase was divided into two phases – Byzantium and Constantinople. 

The soft forks of the Byzantium stage added features such as account abstraction, difficulty bombs, and ZK-SNARKS (Zero-Knowledge Succinct Non-interactive Argument or Knowledge).

Following the Byzantium soft forks was the Constantinople hard fork which occurred in 2019 on the agreement of the miners on the Ethereum network. The Constantinople upgrade was completed on February 28, 2019. 

Despite the blockchain being changed extensively; the Ethereum blockchain remained in one piece, due to the unanimous acceptance of the upgrade by the network participants. 

The Constantinople upgrade introduced a faster way to verify smart contracts via EIP-1052 and other features that improved the blockchain’s scalability and user experience. 

Ethereum Fair And Ethereum POW 

As the Ethereum blockchain migrated to the Proof of Stake consensus algorithm; the community split again. Several factions of miners wished to maintain the Proof of Work (POW) chain as initially intended. 

As Ethereum completed the switch to POS, the Ethereum Fair and Ethereum POW communities and chains emerged. The two chains run on the Proof of Work consensus algorithm and will hope to uphold this design, unlike the new POS chain. Ethereum holders received a 1:1 airdrop of Ether (ETH) held in Ethereum Fair (ETHF) and Ethereum POW (ETHW). 

Check out this in-depth coverage of Ethereum Fair and Ethereum POW. 

Bitcoin’s Taproot Soft Fork 

The Taproot upgrade was arguably the hottest topic of the crypto space in the last two quarters of 2021. The upgrade was expected to add important features to the Bitcoin blockchain, improve the network’s security and open up the blockchain to novel decentralized use cases including DeFi and smart contracts. 

Miners on the bitcoin blockchain reached a majority agreement on June 2021 for this upgrade. An impressive 90% of the miners agreed to upgrade their software to the Taproot version of the blockchain when the upgrade is deployed. The upgrade was slated for November 14 2021 at the block height of 709,632. 

Pieter Wullie proposed the upgrade in 2020. The Taproot upgrade added support for Schnorr signatures, improved smart contract functionality, and optimized Bitcoin’s lightning network. The upgrade was backward-compatible. Miners were given a 6 month period to upgrade their software to support the Taproot upgrade. 

Terra Foundation’s LUNA fork 

LUNA’s collapse was part of an eventful second quarter of 2022 for the crypto space. Check out Decrypt’s coverage of the event. A dysfunction in the stablecoin maintenance algorithm for the

Luna blockchain saw both Terra’s reserve currency (LUNA) and Stablecoin (UST) crash to extreme levels from over $100 and a stable $1 level respectively. 

In an attempt to salvage the network and alleviate investors’ losses; Terra’s founder – Do Kwon proposed a hard fork of the blockchain to a version that dates back to the pre-crash period. The new chain will retain the Luna name with a native LUNA coin but without the algorithmic stablecoin. The old chain’s native token and stablecoin will be renamed to LUNA Classic (LUNC) and UST Classic (USTC) 

Both chains emerged as the LUNA Classic community continues to maintain the old system while Do Kwon and the core LUNA developers will attempt to build afresh on the new chain. An airdrop was also conducted for pre-crash LUNA investors and USTC holders. 

UniSwap Forks 

The notable forks described earlier only cover the forks of a blockchain network. But forks are not limited to blockchain networks alone. Decentralized applications can also be forked. However, most forks of decentralized applications are done by independent developers to create a separate project with an application that works like an already existing one. A good example is the Uniswap exchange. 

The decentralized application was first launched on Ethereum blockchain. Uniswap’s approach to decentralized swaps and automated market making is unique. The code bits that power this application have been adopted by many other projects. The projects are basically Uniswap forks with changes to certain aspects such as user interface, tokenomics, and certain other technological or governance changes. 

Final Thoughts 

Blockchain systems, due to their rigid structure, require consensus for any upgrades. If you ever wondered why the count of blockchain and cryptocurrency projects is growing much faster, your answer is as simple as 'Forks'. 

Contrary to popular sentiment, forks aren't mere copies of old chains; they often represent technological innovation or political viewpoints. The POW forks of Ethereum Blockchain represent the latter while the other rampant smart contract blockchains represent the former. Current attempts have produced super-fast and secure networks, but each one is a separate system. These separate systems will work towards putting these features together or renting infrastructures where possible. In any case, forks will keep the technology alive. These networks aim to integrate their features or utilize shared infrastructures. Forks play a vital role in this evolution, pushing technology forward. 

Remember to always conduct thorough research before investing in cryptocurrencies.

CoinGecko's Content Editorial Guidelines

CoinGecko’s content aims to demystify the crypto industry. While certain posts you see may be sponsored, we strive to uphold the highest standards of editorial quality and integrity, and do not publish any content that has not been vetted by our editors.

Learn more

Joel Agbo

Joel is deeply interested in the technologies behind cryptocurrencies and blockchain networks. In his over 7 years of involvement in the space, he helps startups build a stronger internet presence through written content. Follow the author on Twitter @agboifesinachi