How Do Hard Forks Impact the Crypto Industry by@julia-magas

How Do Hard Forks Impact the Crypto Industry

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Julia Magas

Fintech journalist. My works are featured by Cointelegraph, Investing, SeekingAlpha.

Blockchain technology is probably one of the most intriguing advancements to occur in the world of tech in the last decade. The immutability, decentralization, transparency, and security that came with the blockchain changed the course of the world and put it on a path to decentralization.

By allowing anyone to participate in the network operations, blockchain technology laid the foundations for a community-run world, where users make key decisions. But, for a community-run system, there is always a possibility of disagreements among participants.

What happens if the users of the network are torn between two sets of rules or two potential paths forward? Well, this might seem like a tricky situation to navigate through, and this is precisely why forks exist. A fork is a situation in which new rules or changes are made to the blockchain network, and there is a deviation from the older version of the chain. There are broadly two different types of forks — soft forks and hard forks. While a soft fork is just like a software update to an existing network, hard forks split the blockchain network and put it on two different paths.

Hard forks of blockchain networks have been pivotal to the creation of a diverse crypto ecosystem. Here’s taking a closer look at hard forks and how some of the most popular ones shaped the crypto industry.

Implementing a Hard Fork

The participants of a blockchain network, usually called nodes, are primarily responsible for running the system. These nodes occasionally propose changes to the network to bring new features or adopt new rules. If there is a unanimous agreement to the changes, the changes are implemented, and the blockchain continues on as a single network. But, if the nodes are torn between whether or not these changes need to be implemented, the blockchain network splits, and a new chain that implements these new features is created. This is what is called a hard fork. However, hard forks are also sometimes carried out on purpose by the entire set of nodes of a blockchain to leave behind the older network and move to a newer, more efficient one.

Technically speaking, a hard fork occurs when the changes to the code are so significant that the incoming new blocks are no longer compatible with the earlier blocks. The network is divided into two chains, where one runs the older version, and the other runs the newer version with a new native cryptocurrency altogether.

Over the years, hard forks in the crypto industry helped diversify the space by introducing new digital assets. Litecoin and DogeCoin, for instance, are hard forks of the Bitcoin network that use its underlying architecture and yet have their own unique features. These forks allow the network to evolve beyond its initial realm by adding new features and functionalities.

On the downside, there is a risk of increased volatility with hard forks. However, hard forks can significantly improve the performance, speed, and scalability of a blockchain network and give traders more digital assets options to trade in the long run.

Bitcoin Cash

Bitcoin Cash is quite a notable hard fork of the Bitcoin network. When Pieter Wuille, a core developer of Bitcoin, first introduced the idea of Segregated Witness in 2015, it was accepted as a soft fork. However, the idea of reducing the size of Bitcoin transactions did not seem to go well with the miners, and after a couple of years, they initiated a hard fork to avoid it. This gave birth to Bitcoin Cash in 2017.

Litecoin

Litecoin is one of the earliest Bitcoin forks, and it went live in 2011. The fork was created to decrease block generation times, modify the existing graphical user interface (GUI), and increase the number of coins available for staking. The value of Litecoin stands at $137 as of Jan 2022.

KardiaChain Galaxias

KardiaChain is a project that has been warming up to crypto users recently with its interoperability infrastructure. The network launched its Aris Mainnet 1.0 back in December 2020. Exactly a year later, in December 2021, KardiaChain conducted its first-ever hard fork Galaxias. Galaxias builds on the interoperability infrastructure of Aris and enhances it further to extend the network’s compatibility with major blockchain networks, decentralized applications, and Web3 wallets like MetaMask and Trust Wallet. It also helps enhance the overall performance of the network, improves smart contract staking, and expands the validation process to diversify the chain.  All of this while maintaining KardiaChains’s core features like low transaction fees, low block time, and scalability.

Ethereum Altair

The Ethereum Network has also had its fair share of forks over the years, with Ethereum Altair being the latest one. Ethereum Altair is a significant update for the Beacon Chain, a proof-of-stake chain that runs parallel to the Ethereum mainnet. The goal is to merge Ethereum and Beacon chains to create Ethereum 2.0, which is expected to offer better performance, scalability, and security. The Ethereum Altair fork is a significant step in that direction. The update aims to introduce light clients, smaller nodes that can run on smartphones, and inactivity+slashing penalties.

To Fork or Not?

While hard forks have proven to be important for the crypto ecosystem time and again, the community is still divided on whether or not hard forks should be carried out. Some blockchain networks have gone to the extent of creating unforkable blockchains to preserve the network’s original principles. However, forking gives users the power to control the direction of the network and, if planned well, can promptly expand the crypto ecosystem in the coming years.

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