A fork happens when a community modifies the blockchain’s protocols.
Think of a soft fork as a software upgrade, like when your phone asks you to update a mobile app to a newer version.
Think of a hard fork as an entirely new operating system, like a mobile app notifying you to get an Apple phone because the software is no longer compatible with Android OS.
Forks add new functionalities, address security risks, and resolve disagreements within blockchain projects.

Before we proceed, let’s review some terms in blockchain

Fork: An open-source code modification.
Nodes: The participants in a blockchain network.
Protocol: The set of rules that the nodes need to follow.
Consensus: Agreements that nodes reach to maintain the shared state of blockchain networks.

Why forks?

In the world of blockchain, there are several instances where consensus needs to be reached. In some instances, the blockchain network needs fundamental change or a new asset needs to be created. When all network nodes agree unanimously, a blockchain will continue to operate with the verified data that the network asserts to be accurate. In instances where there are disagreements on the state of the blockchain, a split or fork is possible.

Forks don’t only happen because of disagreements. Sometimes, the blockchain development team initiate forks to improve the network. Sometimes, forks are implemented to make the network more secure or add new features like the creation of new coins or ecosystems.

What are hard forks?

This is a radical change in the blockchain protocol that is incompatible with the previous version. When hard forks are implemented, the pre-fork protocol isn’t able to process new transactions or push new blocks to the post-fork blockchain. Likewise, new transactions on the post-fork blockchain are not valid on the pre-fork chain. In essence, a hard fork gives rise to two new blockchains which operate independently and incompatibly with each other. For any node to use a newly forked chain, they have to upgrade to the latest version of the protocol. Bitcoin Gold and Bitcoin Cash rose out of the original Bitcoin blockchain through a hard fork. Additionally, Ethereum Classic and Ethereum 2.0 are consequences of hard fork evolution.

Planned vs Controversial Hard Forks

Hard forks may be planned or controversial. In planned forks, nodes unanimously agree on a new protocol and the majority moves onto the new blockchain. Nodes that did not upgrade their software may still mine from the pre-fork blockchain but there are usually very few miners doing that.

In controversial hard forks, there is a disagreement within the blockchain community about the upgrade and the protocol is usually forked into two new incompatible blockchains. This usually leads to the emergence of two new cryptocurrencies, each having a community of its own.

What are soft forks?

Soft forks are backwards-compatible, meaning that non-updated nodes can still process transactions and push new blocks to the post-fork blockchain. Bitcoin SegWit is an example of a project that passed through a soft fork. It was activated to increase the transaction capacity of the Bitcoin network by allowing more transactions per block, increasing transaction speed and reducing transaction fees within the blockchain. Because it is a soft fork, SegWit allows for a gradual adoption of the new protocol, users who do not upgrade their software can still participate in the Bitcoin network but won’t be able to take advantage of the SegWit update till they upgrade.

Final thoughts

Forks are important to blockchain projects because they allow the community to evolve, improve, and consolidate. Because of the decentralized nature of blockchain networks, some forks (hard forks) may lead to divisions within the community, leading to the creation of new blockchains. For crypto traders, forks are surely one of the huge factors to consider before buying cryptocurrencies or tokens because of their ability to influence prices.

Image credit: Coinbase