*obligatory not financial advice*
Hi,
In this series I want to explain some terms that are relevant to the amazing world of cryptocurrencies to help newcomers understand it better. Today I want to talk about what forks are.
Previous Parts:
Crypto Basics #1: What even is a Blockchain?
Crypto Basics #2: What are Smart Contracts?
Crypto Basics #3: What is a Cryptocurrency Wallet?
Crypto Basics #4: What is Mining and Proof of Work?
Crypto Basics #5: What is Staking and Proof of Stake?
Crypto Basics #6: What is Decentralized Exchange? And how do they work?
Crypto Basics #7: What are Stablecoins? And How do they work?
Crypto Basics #8: What are Coins and What are Tokens?
Crypto Basics #9: What even are NFTs?
Crypto Basics #10: What is Yield Farming and Liquidity Mining?
Crypto Basics #11: What is the Bitcoin Halving?
What is a Fork in the Crypto World?
In programming, a fork is what happens when a developers takes a copy of an existing code and starts building independent software with it because various users have different preferences or because the development on the original program halted or was too slow. Such forks also happen with entire blockchains when some miners want to change things and other don't. This way the community of one cryptocurrency can be split into 2 that each have their own crypto.
Most older proof of work chains were created as forks of Bitcoin, the most famous example is Bitcoin Cash that was created when some Bitcoin users wanted to increase the size of every block to be more scalable but some didn't because they didn't want to do any drastic changes to the network, this caused the Bitcoin blockchain to be split into two separate versions that are both independent from the other.
It’s important to understand that Bitcoin Cash and Bitcoin were one and the same chain until the fork happened. That’s why it’s called fork, if you imagine the chain as a series of blocks it would at one point turn into two series of blocks like a fork in a road. If you owned BTC before the fork, you would own the same amount of coins on both chains and you could import the same seed phrase of your wallet on both chains. This means that very old BTC owners basically got a BCH airdrop.
This type of fork is caused intentionally due to large disagreements in the community, but forks in a blockchain can also happen accidently. This is a problem that mostly proof of work chains have. Usually only one node can create the next block but sometimes two miners believe they can add a block and other nodes might build new blocks on both of them.
This could split the chain entirely but usually at some point the nodes notice that there are two different versions of the chain and will reject one of them, this would undo all the transactions that were part of the rejected blocks. This is why when you deposit crypto on exchanges they insist on multiple confirmations, which are just blocks added after your transaction was processed, because the more blocks are built on top of it the less likely it is that your transaction will be reset. This makes transactions generally slower because they aren't instantly finalized, proof of stake chains don't have this problem because only one node can work on the next block.
People also call upgrades to a blockchain forks. There are soft forks, where the nodes with the updated version still can interact with the nodes that use the old version, this can be used to slowly implement small changes without risking that the blockchain is split into two versions. There are also hard forks, where the nodes that use the updated version cannot interact with the nodes with the old version, this can be used to implement larger changes but it has to be well coordinated because if many nodes don't update fast enough they will create an accidental fork.
I hope that short explanation was helpful for some newcomers. I will keep writing more such short articles about various crypto terms. Feel free to follow me if you are interested.
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