What is a Fork in Blockchain? | Crypto Terms

Summary

A blockchain fork is an update to a blockchain's protocol that changes how the network operates. There are two primary types: soft forks, which are backward-compatible upgrades, and hard forks, which are non-backward-compatible upgrades that can create an entirely new blockchain and cryptocurrency. Forks help improve security, scalability, and functionality while allowing blockchain networks to evolve over time. For those interested in crypto, iTrustCapital offers a secure platform to buy and sell crypto within a Crypto IRA for retirement savings, or in a Premium Custody Account for everyday investing.

What is a Blockchain Fork?

A blockchain fork is a change to the protocol of a blockchain network. There are two main types of forks: soft forks and hard forks. Each type represents a different approach to updating blockchain rules, affecting how networks evolve and how their communities interact.

What is a Soft Fork?

A soft fork is a type of update to the blockchain protocol that is backward-compatible. This means that while an update introduces new rules or enhancements, it does not compel all participants on the network to upgrade their software. Nodes that do not upgrade will still see the new blocks as valid, ensuring that the network continues to function smoothly.

Soft forks are typically used for minor tweaks that enhance functionality or security without disrupting the existing blockchain structure. For example, soft forks might introduce tighter transaction rules or small performance improvements that do not require a complete overhaul of the protocol.

What is a Hard Fork?

A hard fork is a significant, non-backward-compatible update to a blockchain's protocol that necessitates all nodes to upgrade to the new version to continue participating effectively. This type of fork leads to the creation of a new pathway in the blockchain, which can operate independently of the original.

Because hard forks require universal agreement from all network participants but don't always achieve it, they can result in the formation of a new cryptocurrency. Hard forks are often implemented to introduce major functional changes, address serious security issues, or reflect differing visions within the community about the blockchain's future direction.

Soft Fork vs. Hard Fork: Key Differences

Aspect	Soft Fork	Hard Fork
Compatibility	Backward-compatible. Older nodes can validate new blocks even without upgrading.	Not backward-compatible. All nodes must upgrade to validate new blocks and remain part of the network.
Consensus Requirements	Requires a majority of network participants to upgrade and enforce new rules.	Requires consensus from all network participants to avoid splitting the blockchain.
Network Impact	Generally allows for a smoother transition, minimizing disruption to the existing network.	Can split the community and create a new blockchain, potentially leading to significant changes in the ecosystem.
Examples	SegWit (Bitcoin, 2017)	Bitcoin Cash (2017), Ethereum Classic (2016)

Why Do Blockchain Forks Happen?

Forks occur for several reasons within blockchain networks:

Scalability improvements: Networks may fork to increase transaction speed or block size
Security enhancements: Addressing vulnerabilities or responding to hacks
Community disagreements: Differing visions about a blockchain's future direction
Protocol upgrades: Implementing new features or functionality
Bug fixes: Correcting errors in the existing code

Notable Historical Fork Examples

The history of cryptocurrencies is rich with examples of forks:

Bitcoin Cash Hard Fork (August 2017): A debate over Bitcoin's scalability led to a hard fork, resulting in the creation of Bitcoin Cash. This fork was initiated due to disagreements over increasing the block size limit to improve transaction speed and scalability.
Ethereum & Ethereum Classic (July 2016): Following the DAO hack, the Ethereum community decided to execute a hard fork. This fork reversed the fraudulent transactions to mitigate the hack's impact, leading to the split between Ethereum (ETH) and Ethereum Classic (ETC).
SegWit Soft Fork (Bitcoin, August 2017): Segregated Witness (SegWit) was implemented as a soft fork designed to solve issues related to transaction malleability and improve block size limits indirectly. This backward-compatible update laid the groundwork for further developments like the Lightning Network.

What Happens to My Crypto During a Fork?

When a hard fork occurs, holders of the original cryptocurrency typically receive an equivalent amount of the new forked cryptocurrency. For example, when Bitcoin Cash forked from Bitcoin in 2017, Bitcoin holders received an equal amount of Bitcoin Cash tokens.

During a soft fork, your holdings remain unaffected since the network maintains backward compatibility. The transition happens seamlessly, and you continue holding the same cryptocurrency on the updated network.

For a more comprehensive look at the differences between soft forks and hard forks, check out this article: What's the Difference Between a Blockchain Soft Fork & Hard Fork?

The Future of Blockchain & Forks

Understanding the difference between soft and hard forks is vital for anyone interested in the crypto space. These upgrades potentially help drive the evolution and enhancement of blockchain technologies, shaping the direction of cryptocurrency projects toward a better future. For those interested in the world of crypto assets, iTrustCapital offers a robust platform to buy and sell crypto within tax-advantaged retirement accounts* or in a Premium Custody Account, for everyday investing.

Click here to sign up today!

*Some taxes may apply.

Frequently Asked Questions

What is a blockchain fork?

A blockchain fork is a change to a blockchain network's underlying protocol that alters how the network validates transactions or processes blocks. Forks are a normal part of blockchain development and allow networks to introduce new features, improve security, fix bugs, or increase scalability. Depending on the type of fork, the update may simply upgrade the existing blockchain or create an entirely new one.

Can a fork create a new cryptocurrency?

Yes. A hard fork can permanently split a blockchain into two independent networks, resulting in the creation of a new cryptocurrency. Well-known examples include Bitcoin Cash (BCH), which forked from Bitcoin (BTC), and Ethereum Classic (ETC), which continued on the original Ethereum chain after the DAO hard fork.

What happens to my crypto during a blockchain fork?

It depends on the type of fork. During a soft fork, your holdings generally remain unchanged because the blockchain stays unified. During a hard fork, eligible holders of the original cryptocurrency may receive an equivalent amount of the new cryptocurrency, although whether you receive the new asset depends on the wallet, exchange, or platform supporting the fork.

Do I need to do anything when a fork happens?

Most investors do not need to take any action during a soft fork because the upgrade occurs without disrupting the blockchain. For hard forks, you may need to follow instructions from your wallet or platform if you wish to access any newly created tokens. If your assets are held with a custodial platform, support for forked assets depends on that provider's policies.

Why do blockchain forks happen?

Blockchain forks occur whenever developers or the community want to change the network's rules. Common reasons include improving transaction throughput, fixing software bugs, enhancing security, adding new functionality, or resolving disagreements about a project's future direction. Forks are one of the primary ways blockchain networks continue to evolve over time.

How often do blockchain forks occur?

Minor software updates and soft forks happen fairly regularly across many blockchain networks as part of ongoing development. Major hard forks are much less common because they require significant community coordination and often involve controversial protocol changes. The frequency varies depending on each blockchain's governance model and development roadmap.

Are blockchain forks risky for investors?

Forks can introduce short-term uncertainty and increased price volatility while the market determines which blockchain will gain broader adoption. However, forks are not inherently negative and often represent technological improvements or community-driven innovation. Investors should understand the purpose of a fork and monitor announcements from the projects and platforms they use.

What determines which blockchain becomes the main chain after a hard fork?

Following a hard fork, the blockchain that receives the strongest support from miners or validators, developers, exchanges, wallet providers, and users generally becomes the dominant network. Adoption across the broader ecosystem plays a major role in determining which chain becomes the primary version. In some cases, both blockchains continue operating independently for years.

Can a soft fork become a hard fork later?

Not directly. A soft fork remains backward-compatible by design, meaning older nodes can still recognize valid blocks. If developers later determine that larger protocol changes are needed, they may propose an entirely separate hard fork, but that is a new upgrade rather than the original soft fork evolving into one.

Why do developers usually prefer soft forks?

Soft forks generally minimize disruption because they allow updated and non-updated nodes to continue participating in the same blockchain. This reduces the likelihood of splitting the community while still introducing meaningful improvements. For changes that don't fundamentally alter the network's rules, a soft fork is often considered the more efficient and less disruptive approach.

Categories:

Cryptocurrency

DISCLAIMER

This article is for informational purposes only and does not constitute investment advice or an offer to buy or sell any cryptocurrency, digital asset or security or to participate in any particular investment strategy.

iTrustCapital is a fintech software platform for alternative assets. iTrustCapital is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager or adviser. iTrustCapital is not affiliated with and does not endorse any particular digital asset, precious metal or investment strategy.

Investing in any digital asset or cryptocurrency carries significant risks due to their speculative and highly volatile nature. No investment is completely risk-free, and every investment carries the potential for losing some or all of the principal amount invested. Cryptocurrency is not legal tender backed by the United States government, nor is it subject to Federal Deposit Insurance Corporation (“FDIC”) insurance or protections. Digital asset (Cryptocurrency) deposits held with institutional storage providers are never FDIC insured and may lose value. Clients do not receive a choice of custody partner.

Investors assume the risk of all purchase and sale decisions. iTrustCapital makes no guarantee or representation regarding investors’ ability to profit from any transaction or the tax implications of any transaction. iTrustCapital does not provide legal, investment or tax advice. Conduct your own research and consult with a qualified legal, investment, or tax professional to assess your own risk tolerance prior to investing.

iTrustCapital makes no representation or warranty as to the accuracy or completeness of this information and does not have any liability for any representations (expressed or implied) or omissions from the information contained herein. iTrustCapital disclaims any and all liability to any party for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising directly or indirectly from any use of this information, which is provided as is, without warranties.