From the invention of Bitcoin, digital currencies showed huge growth. The digital currency era that started from bitcoin has spread to more than 1000 digital currencies. But in the initial stage, these currencies did not appear as it looks today. The network protocols, technology, and the software that accommodated these currencies crossed different levels and time periods. These changes have occurred due to many reasons and requirements of the currency (or its background). Considering the changing facts of currencies, it was able to identify a common reason behind these changes; known as “Fork”. Let’s discuss what are forks, when do they occur, and their impact on the crypto networks
What is a Fork?
Digital currencies function as a digital alternative for physical currency aspects. These currencies and the networks of the currencies have grown to the current level after facing many changes, Forks are the reason for these rapid changes of the crypto-network protocol. The concept of forks is a bit complex to understand. In simple terms, fork is a change on blockchain’s protocol that is used by its network in order to identify whether the transactions are valid or not. Any change/divergence that occurs in a blockchain network is considered a fork. Forks occur when either the users or developers identified a necessity of a fundamental change that needs to be performed within the network. This can be due to security issues or hacks. There are two types of forks known as Hard fork and soft fork.
Soft Forks
Soft Fork is the change of the software protocol; this happens when the previously valid transaction blocks are made invalid. Soft forks are backward-compatible because the validation of new nodes is recognized by old nodes. In soft forks, a majority of miners being upgraded is sufficient to enforce the new rule. It emphasizes that a large portion of hash power is required; but not the complete hash power.
Hard Fork
Unlike soft forks, the upgrading of the entire node is required to enforce the new rule or a condition. If the nodes running old software identify any new transaction as valid, it is said to be a hard fork.
What is the impact of a Fork?
In many past scenarios, forks have been a considerable impact on cryptocurrency. Forks have been predicted by huge price fluctuations and subjected to many controversies.
On the other hand, forks might impact the crypto-community as a disruptive experience. This might drop the miners and traders to a point where miners feel disappointed because of the radical changes. The forks create high fortune for the large traders who are known as whales. They make large fluctuations on the crypto-network. This influence is the main reason for the disappointments of the minor-medium traders/miners. In general, forks create a bit of instability in cryptocurrency. It is recommended for the miners to avoid such instabilities while trading in cryptocurrency networks.