We often spoke about many cryptocurrencies, their exchange platform, and their pros & cons.
Here at Coinraja, we feel responsible for our users or our family. So we always let you know about all the information regarding the world of Digital currencies. in last post we covered about Best cryptocurrency exchanges. and today we have a new topic
We have always said that every coin has two faces, heads or tails. Sometimes it can be good but sometimes it can to another side of the coin. Investing in the Digital currencies can be risky – not always but sometimes it happens. If you are a beginner in this field so you need to understand this thing.
However, if you are in this field for quite a while you know that if you will play smart enough you can still make a good amount of money. For that, you need to be aware of every news, terms (social or technical). So that you can make good decisions out of it and that’s why we are here to help you.
So to give you another important feature of the cryptocurrency market rather than ICO’s and wallets I am writing this post. In this post, we will talk about another term that you must heard of and known as “Fork”.
What is Fork in The world of Digital currencies?
You can define “Fork” in three various ways.
- A change in procedure or system.
- Takes place when a blockchain splited into two potential paths forward.
- It is a situation that occurs when two or more blocks contains the same block height.
It indicates a splitting of the chain on which cryptocurrency runs. This makes it the cryptocurrency to go in a different direction. With the different rules after splitting both the blockchain will now show different characteristics of the crypto.
At the time of bitcoin fork to cash, Bitcoin cash changed the block size and it can be greater than 8 MB. While Bitcoin blockchain continues with the block size of 1 MB.
Types of Fork
Forks are classified as “Accidental” or “Intentional”.
Accidental forks take place when two or more miners find a block at nearly the same time. It can be resolved by adding subsequent blocks to one of the chains and making it longer compared to another one.
On the other hand, Intentional forks modify the rules of existing blockchain. They are of two types “Hard Fork” and “Soft Fork”.
What is Hard Fork ?
The hard fork is a permanent change in the blockchain. Hard fork increases the chances of scrapping older blockchain with the upgraded one. It means that all nodes of miners, merchants, and users will have to upgrade to the new nodes in order to be able to validate the new blocks.
In a simple language, a hard fork is splitting of cryptocurrency into two parts. It occurs when the code of cryptocurrencies are changed. It results in both old and new version.
It can be implemented to correct important security features found in older version of the software, to add new functionality or to reverse the transactions. For example, a hard fork is done on DAO (decentralized autonomous organization) to reverse the hack on it.
The path of blockchains is split into two parts by invalidating transactions confirmed by nodes which are not been upgraded to the new version of the protocol software. After the DAO hack, most of the investors voted in the favor of a hard fork in order to recover transaction that has been stolen off tens of millions of dollars’ worth of digital currency by an anonymous hacker.
In that case, the hard fork also allowed DAO token holders to get their funds returned to them.
Understanding Soft fork
In the process of the soft fork, the only thing which changes is protocol and the cryptocurrency continues to work on the original blockchain rules.
The soft fork is different from the hard fork. Here new rules do not scrape the old rules. You did not need a universal update of nodes and software as old nodes are also capable of recognizing the change.
Suppose you have opened photoshop and it shows you a plugin update. You updated the software with a plugin (like a soft fork). By doing so updated your photoshop with a new property. Same goes for a blockchain in the soft fork. You are able to update because the older software is compatible with the updated plugin.
What causes a fork?
An accidental fork occurs if coin updates are not truly compatible. Suppose you and your friend is using the same software. You are using a newer version and your friend is using an older version. You both will find an output as ledger but the output that you founded will be different. As your software versions are different.
The hard fork is done when the cryptocurrency developers decide to change the programming of the coin. So that it will create incompatibilities between the older version and a newer version of the software. When all updates are done all users must update all application of that software to make sure you are using that coin in a correct manner.
In a simple language, if you use a smartphone in that also you receive updates from the play store or from the phone software. You update it because you want to make your device better.
Hard fork vs Soft fork
|Hard fork||Soft fork|
|In a hard fork, the existing code of the cryptocurrency changes.||The code does not change.|
|While the fork old version remains with the new version.||In a soft fork, only one blockchain remains valid as per user update and upvote.|
|A hard fork splits into one blockchain.||Soft fork splits into only one blockchain.|
Are forks are Good or Bad?
When forks are done two different blockchains are created. In that only one blockchain can truly survive. In that process, the coin transaction found on the wrong blockchain can be lost. Because of that people are told to not to do transaction during the fork.
It is also a headache for the companies which depends on such time of coins. A transaction can be lost during the fork so ultimately the companies have to shut down all of their active processes.
The fork that taken place recently of Bitcoin given rise to Bitcoin cash. All the bitcoin holders got bitcoin cash credited to their account. However, in the initial stages, all the companies and platforms do not support Bitcoin cash. So it takes time to implement bitcoin cash on the platform.
Same goes for the bitcoin gold. However, bitcoin cash is credited to the most of their users but bitcoin gold is yet not credited to account holders of that particular currency.
As a result of all this, the focus of miners is shifted on the process of a fork. They are not giving their efforts to add new blocks to the blockchain. So because of that, the transaction time is increasing day by day as the increase in blockchain solving time.
All of this shows that a fork is a stressful event for the cryptocurrency world and the companies which are totally lying on this type of coins. It also increases the risk factor. Some investors are ready to take these type of risk but on the other hands, some are willing to sell it.
It also decreases the survival life of that particular coin. If the fork can improve some factors in it such as coin stability, and code structure than it can be seen as an option.
I hope you like this post. If you have any doubts regarding this article make sure to mention in the comment section.
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