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Hard forks essentially change how a blockchain network operates. They create a divergence in the underlying chain, where the split protocol adopts new parameters from its predecessor.
Significant changes to a blockchain network can take the form of a soft or hard fork. Soft forks are backward compatible changes that enable older nodes to consider new transactions as valid. However, updated nodes see any blocks mined after the upgrade as invalid.
Meanwhile, hard forks introduce changes that break backward compatibility, forcing nodes running older software to update so as to mine new valid blocks on the network.
What Is the Driving Force Behind Hard Forks?
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Blockchains such as Bitcoin and Ethereum are community-driven. That means that most of the network’s user base or developers must agree on any fundamental changes to the underlying protocol.
The need for a fork often originates from a clash of ideas in the community over how they should run the protocol to make it function as smoothly as possible. All Forks enable users to solve problems that plague a particular chain and often lead to new tokens that are more palatable to new or existing investors.
Fresh code introduced through forks can be highly beneficial and innovative to specific community members. At the same time, those who disagree with the changes can opt to branch out in a different direction.
Ultimately, these software upgrades allow the original protocol’s token to split into incompatible chains as warring community members set different rules. Disputes may stem from issues such as the original currency’s mining potential, changes to the preset transaction parameters, and much more.
Anyone can initiate an adjustment on the original blockchain, provided they persuade a large enough user base to mine and perform transactions on the updated chain. Therefore, a hard fork requires consensus from a majority of coin holders. A successful hard fork results in the birth of a new token.
The Most Notable Hard Forks
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The Ethereum network has arguably undergone the most upgrades in its six-year history. The DAO hard fork, which took place in 2016, was the first significant change to the protocol. The update changed the face of the ETH project and its community, creating a new token on a separate ledger (Ethereum Classic).
The network then underwent a series of more obscure upgrades, with “Constantinople” being the most notable one in 2019. That fork paved the way for ETH to transform into the more efficient Proof-of-Stake (PoS) chain in the future.
Unfortunately, that vital upgrade faced a temporary hurdle after Ethereum developers and security professionals flagged a severe code bug that delayed its execution.
More recently, the project’s dev team unleashed the ETH 2.0 Beacon Chain after a consensus decision from the community. That significant milestone opened the door for Ethereum to adopt a new protocol that would use PoS.
However, Ethereum’s biggest upgrade to date was the London hard fork that introduced EIP 1559, a component that burns ETH from circulation. The hotly anticipated upgrade that went live in early August of this year promised to make Ether a deflationary token.
Bitcoin, the world’s pioneering blockchain, has undergone two major hard forks in its history. The first split in the chain occurred in August 2017 as some community members sought to increase the number of transactions processed in every block. The division led to the creation of Bitcoin Cash (BCH), which could process more transactions per second than its older sibling.
The second hard fork came in later in 2017, leading to the creation of Bitcoin Gold (BTG) which focused on developing a more decentralized cryptocurrency.
Another notable hard fork is Cardano’s Alonzo upgrade, which will soon introduce smart contract functionality and establish the blockchain as a true Ethereum killer.
Scheduled for final release in September 2021, the upgrade is expected to unleash Cardano’s potential in decentralized finance (DeFi).
The Impact of Hard Forks on Crypto Prices
The ETH price jumped from $2,600 to hit highs near $2,800 right after the highly anticipated London hard fork took effect. The ETH/USD pair has gone on to hit highs above $3,800 as investors injected funds into the project, expecting that the top altcoin will soon turn into ultrasound money.
Meanwhile, news that Cardano’s upcoming hard fork would support smart contracts sent ADA prices into new price discovery. The third-biggest cryptocurrency hit a new all-time high soon after IOHK announced that the planned “Alonzo” upgrade was right on track. The ADA price rose over 20% in 24 hours after the hard fork announcement, peaking at highs above $3 for the first time in history.
In the case of the Bitcoin network, several cryptocurrencies have split from the main blockchain without much success. It remains to be seen whether any of the coins created from hard forks can be nearly as successful as Satoshi’s original invention.
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