What is a Hard Fork

First published
February 4, 2022
Last updated
February 4, 2022

If you’re in the cryptocurrency space for a while, you are probably familiar with the term ‘hard fork.’ What is a hard fork? It is a significant change in the protocol of the blockchain network. With the change comes a wide range of implications to the network, and the old protocols become invalid. Before we dive into more details, let’s understand the blockchain network.

What is Blockchain?

In a nutshell, Blockchain refers to the list of publicly available records called blocks, which store data in chronological order. To put it simply, it is a type of database. The data in it is encrypted using a method known as cryptography, which is a science of keeping information secure by transforming the data into a form that unintended recipients can’t understand. There is no centralized authority in the blockchain that controls the data; instead, the network’s users maintain the data, and they are the ones who approve transactions in the blockchain.

Blockchain stores data in blocks that are chained together. Once a new block is filled with data, it is chained with the previous block making the data connected chronologically. There are many types of information stored in the blocks, but mostly as a ledger for financial transactions. One thing to note is that blockchains are immutable, meaning the data is irreversible once entered. In the case of bitcoin, any transactions are recorded and viewable for everyone.

What is Hard Fork?

As mentioned above, a hard fork is a radical change in the blockchain network in which the previous protocols that make up the blocks and transactions become invalid. When the newest version of nodes (computers that form the blockchain infrastructure) no longer accepts the old versions of the blockchain, it creates a permanent divergence in the blockchain network’s codes. All nodes or users need to upgrade to the latest version of the protocol to stay relevant in the network. Furthermore, hard forks happen not only for bitcoin but for any crypto-technology platform, like ethereum, in the blockchain.

The miners in the blockchain set the rules on what comprises a valid block in the chain. For a fork to happen, all miners need to agree on the new rules, which then the developers can update all the software to reflect the fork. The forking process resulted in various subset digital currencies similar to Bitcoin, such as Bitcoin Cash and Bitcoin Gold.

Why Hard Forks Happened?

There are various reasons why hard forks happen. Developers may have found a security risk in the older version of the protocol and thus need to implement a hard fork. That is the case with the hack on the Decentralized Autonomous Organization (DAO) in 2016, where attackers stole millions of dollars worth of digital currency. The Ethereum community voted in favor of a hard fork to roll back the transactions and helped DAO token holders to get their Ether (ETH) funds back.

Another reason for hard forks could be to improve the overall software performance. They can introduce new features, better functionality, change mining rewards, and change in transaction fees. To put it simply, developers of the blockchain network and assets always explore new features that iterate the security, stability, and scalability of the protocol’s open-source software.

What’s the Difference Between Hard Forks and Soft Forks?

Hard Forks and Soft Forks are similar in the sense that when the network’s code is changed, the old version remains alongside the new. With the soft fork, only one blockchain will remain valid, while in a hard fork, both the old and new blockchain exits simultaneously and requires the software to be updated to work by the new protocols. Both forks create a divergence; however, a hard fork resulted in two blockchains, whereas a soft fork resulted in one.

Although soft fork does the job, most developers and users prefer hard fork due to security differences. Harnessing the blocks in the network requires a significant amount of computational power, and the privacy gained from hard forks is more favorable than soft forks.

Disclaimer: By using Hodlnaut, users expressly acknowledge and agree to the Terms of Use listed on our website at www.hodlnaut.com. This includes the relevant risk warnings applicable to you as a user of Hodlnaut's services, prior to/when carrying out Digital Payment Token (DPT) transactions. This article is for informational purposes only, and is not an offer nor a solicitation to invest in DPT, securities, funds, partnership interests or other investments or funding or purchasing loans. It is the user's sole responsibility to conduct due diligence and research extensively into each DPT and platform, and understand that the volatility and unpredictability of the price of DPT may result in significant loss over a short period of time. No information on Hodlnaut should be considered to be business, legal, financial or tax advice regarding the use of Hodlnaut. Users should consult their own legal, financial, tax or other professional advisors before using Hodlnaut. Please refer to our website at https://www.hodlnaut.com/tos for the full Terms of Use.

Put Your Crypto to Work!
Earn Passively with Hodlnaut

Join Now
Hodlnaut Crypto Interest Account