What is a Fork in Crypto?

Ever seen cryptocurrencies with familiar-sounding names? For example, Bitcoin (BTC) and Bitcoin Cash (BCH), or Ethereum (ETH) and Ethereum Classic (ETC). Bitcoin and Ethereum, you may be familiar with – but what about Bitcoin Cash and Ethereum Classic? What are these?

Why do they share such similar names with the two largest cryptocurrencies? BCH, ETC are spin-offs of their original blockchain, and in crypto terms, these are known as “forks.” You’re probably already wondering: what is a fork in crypto, and how do crypto forks work? In this guide, we’ll break down what a fork is in cryptocurrency, why it happens, the different types of forks, and the risks and opportunities it brings for ￰0￱ the Basics of Blockchain Forks The Definition of a Fork in Blockchain A fork in blockchain refers to a change in a cryptocurrency’s underlying code or ￰1￱ simple terms, it’s an update to a blockchain’s rules and ￰2￱ nature of the update might result in minor adjustments to the existing chain or cause a split that creates a new blockchain, a new set of rules, and a new ￰3￱ Blockchains Operate Before a Fork Blockchain networks operate on consensus, meaning everyone must agree on the same ￰4￱ most blockchains are open source, developers can propose changes such as performance upgrades, feature updates, and security ￰5￱ these changes only happen when the community reaches an ￰6￱ a fork occurs, the blockchain operates as a unified system with every participant following the “consensus.” Think of it as a game of cards: if everyone follows the same rulebook, the game runs smoothly.

Similarly, a blockchain remains cohesive and synchronized as long as all nodes adhere to the same ￰7￱ Forks Are Necessary in Crypto Forks are significant for allowing blockchains to make major changes or enhancements, like creating new features, fixing security vulnerabilities, or speeding up ￰8￱ forks, it could be possible for networks to be stuck with old rules and unable to ￰9￱ can also be great for settling disputes in decentralized ￰10￱ the developers, miners, or users can’t come to an agreement on certain changes, such as block size or governance rules, forking allows the network to split, letting differing groups follow their chosen ￰11￱ of Forks in Cryptocurrency There are several blockchain fork types, including hard forks, soft forks, and temporary forks caused by mining ￰12￱ Fork – Permanent Chain Split A Hard Fork occurs when a blockchain undergoes a major upgrade that consists of changes that are completely incompatible with previous consensus rules, transaction structures, or network ￰13￱ a hard fork to be legitimized, there needs to be a majority consensus among network stakeholders, and afterward, network participants using the previous version (not willing to upgrade) will no longer have access to the new ￰14￱ a hard fork creates two separate paths, it can lead to the development of new networks, coins, and ecosystems, each with its own rules and governance.

Typically, those who prefer the original protocol continue on the old ￰15￱ Fork – Backward-Compatible Upgrade A soft fork is a change to a blockchain’s protocol that is ￰16￱ means participants who do not adopt the new rules (old nodes) are still able to interact with the new ￰17￱ forks typically introduce smaller, incremental updates, such as improving transaction efficiency, tightening rules for block validation, or adding new features without creating a separate chain. However, for a soft fork to succeed and avoid splitting the network, a majority of participants (miners, validators, or nodes) must adopt the new rules (i. e, upgrade to the new protocol).

If not, the minority running outdated software may become orphaned from the network, forming an unintended chain ￰18￱ Forks Caused by Mining Race Conditions A temporary fork occurs when two miners find a valid block ￰19￱ blocks get shared with the network, but since the blockchain can only have one main chain, this creates a brief split called a race condition. A race condition happens when multiple processes access shared data at the same time, and the outcome depends on the order in which they ￰20￱ for example, Block A and Block ￰21￱ network nodes see Block A first while others see Block B, creating two competing versions of the same ￰22￱ conflict resolves automatically when the next block is mined – it will attach to one of the competing blocks, making that chain ￰23￱ the blockchain network always follows the longest valid chain rule, the shorter chain gets abandoned, and its block becomes an orphan ￰24￱ type of fork is temporary and does not create a new ￰25￱ Do Forks Happen?

While forks often result from disagreements, they play a crucial role in blockchain ￰26￱ are some of the reasons why forks happen: Protocol Upgrades and Feature Additions Major updates sometimes require forks to improve network functionality. A good example is the Ethereum London Hard Fork, which introduced EIP-1559, an Ethereum Improvement Proposal that dealt with transaction fee issues and improved overall network ￰27￱ Fixes and Security Patches There are times when a blockchain finds a significant security vulnerability that requires immediate ￰28￱ this case, a fork may help fix bugs and patch ￰29￱ Monero blockchain is a great example of a protocol that hard forks frequently to improve security and privacy, ensuring its blockchain is harder to attack or ￰30￱ Disagreements and Governance Issues Forks give communities the power to choose their own ￰31￱ participants disagree on updates, they can branch ￰32￱ SV (BSV) split from Bitcoin Cash over disputes around block size and governance ￰33￱ Responses to Hacks In instances where major breaches take place, forks can be useful for reversing the damage and upgrading security ￰34￱ key example is the Ethereum DAO fork in July 2016, which was executed to reverse a large hack of funds that had been taken and return them to ￰35￱ Examples of Crypto Forks Some notable crypto fork examples include Bitcoin Cash, Ethereum Classic, and Litecoin Cash.

Let’s get into the ￰36￱ Cash (Hard Fork of Bitcoin) In 2017, Bitcoin Cash (BCH) split from Bitcoin (BTC) over debates about scalability solutions and transaction ￰37￱ processes only 3-7 transactions per second (TPS) compared to VISA’s 24,000 ￰38￱ status quo was unacceptable to BCH proponents, resulting in a proposal to increase the block sizes to achieve 100-250 TPS with lower ￰39￱ supporters argued that increasing the block size to upscale TPS could compromise security or decentralization, while also increasing the cost and energy associated with running ￰40￱ to reach a consensus, the community permanently split: Bitcoin (BTC) maintained small blocks prioritizing security, while Bitcoin Cash (BCH) chose larger blocks prioritizing transaction speed and lower ￰41￱ Classic (Hard Fork After The DAO Hack) Ethereum experienced a serious crisis in 2016 when an attacker was able to exploit a vulnerability in the smart contract for the Decentralized Autonomous Organization (DAO), stealing about 3.6 million ETH (worth over $50M at the time).

The Ethereum community discussed two options: first, do nothing and let the hack stand (an unchanged blockchain) since blockchains are meant to be immutable, or implement a fork and restore the stolen ￰42￱ of the community chose to reverse the hack, creating a hard fork that became the Ethereum (ETH) we know today. A smaller group, however, rejected this decision, arguing that “code is law” and the blockchain should never be ￰43￱ continued with the original chain, now called Ethereum Classic (ETC). Ethereum London Hard Fork (EIP-1559) August 2021 saw Ethereum activate one of its most significant upgrades, the London Hard ￰44￱ most important adjustment included in the upgrade was the implementation of Ethereum Improvement Protocols, or EIPs, which are meant to upgrade the network.

A major improvement protocol was the EIP-1559, a proposal designed to fix Ethereum’s transaction fee (gas fee) system, which was at the time ￰45￱ this upgrade, users had to bid for block ￰46￱ space, in this case, refers to the storage that holds ￰47￱ this space is limited, people often compete by paying higher fees to have their transaction picked up by a miner and processed quickly, making costs unpredictable and sometimes very expensive. EIP-1559 replaced this system with a base fee (automatically set by the network) plus a small tip to miners for faster processing. Additionally, the base fee is burned (permanently removed from circulation) instead of going to miners, introducing a deflationary pressure on ￰48￱ other improvement protocols introduced as part of the Ethereum London Hard Fork include EIP-3198, EIP-3529, EIP-3541, and ￰49￱ these changes were implemented without splitting the network or creating new ￰50￱ Forks Litecoin (LTC), often called the “silver to Bitcoin’s gold,” has also experienced hard and soft forks over the years, most of which were attempts to experiment with faster transactions, lower fees, or new ￰51￱ Litecoin soft forks include: Segregated Witness (SegWit, 2017): This upgrade reduced block ￰52￱ also improved scalability and enabled technologies like the Lightning ￰53￱ Extension Blocks (MWEB, May 2022): This upgrade allows users to send confidential Litecoin transactions, where the transaction amount is visible only to the sender and ￰54￱ Litecoin hard forks include: Litecoin Cash (LCC): LCC forked from Litecoin in February 2018, created by an anonymous team with no connection to the official Litecoin development ￰55￱ developers claimed they wanted to improve transaction speeds and reduce fees by 90%, while supporting legacy Bitcoin mining hardware by using the SHA-256 algorithm (unlike Litecoin’s Scrypt).

The fork attracted a fair amount of controversy because Litecoin’s founder, Charlie Lee, openly condemned the fork as a scam, telling users to be careful and not to fall victim to it, and also criticizing the efforts behind the fork for taking the Litecoin name without ￰56￱ anonymous team promised holders 10 LCC tokens for every 1 LTC, which was appealing, but the project never took off due to its questionable legitimacy and lack of community ￰57￱ (FTC): Developed as a fork of Litecoin in April 2013, Peter Bushnell thought he could develop a more user-friendly cryptocurrency that had the potential to address the issues he saw with other ￰58￱ original concept was to create a more accessible and inclusive mining experience (especially for smaller miners) while also providing much faster block times than ￰59￱ forks include Junkcoin (JKC), Dogecoin (DOGE), Luckycoin (LKY), Monacoin (MONA), and Einsteinium (EMC2).

How Forks Affect Investors and Users While forks often aim to improve scalability, security, or functionality, they can also create uncertainty and opportunities for both investors and users. Here’s how a crypto fork affects investors and users: Impact on Coin Supply and Valuation Forks create new cryptocurrencies, effectively increasing the total circulating supply in the ￰60￱ can dilute the value of the original coin unless both chains gain independent traction and community ￰61￱ Bitcoin Cash (BCH) forked from Bitcoin in August 2017, both cryptocurrencies maintained significant ￰62￱ holders automatically received an equal amount of BCH, creating additional value for ￰63￱ unsuccessful forks, initial hype quickly fades and values ￰64￱ like Bitcoin Diamond, Bitcoin Gold, and numerous other Bitcoin variants struggled to maintain relevance after initial exchange ￰65￱ of these forks lost over 90% of their value within months, wiping out speculative gains.

Basically, you must keep in mind that not all forks create value; many result in worthless ￰66￱ and Exchange Support The overall success of any fork is dependent on infrastructure adoption, and specifically, if there is support from major wallets and exchanges for the new ￰67￱ there is no support from an exchange or wallet, then users have no way to access or store their new coins, and as a consequence, they cannot trade ￰68￱ Ethereum’s controversial split, many of the top exchanges at the time, including Coinbase, Binance, and Kraken, supported both ￰69￱ users could claim their Ethereum Classic (ETC) tokens and immediately trade ￰70￱ backing from exchanges ensured both the ETH and ETC chains were able to coexist and ￰71￱ the other hand, loads of minor forks get little or no exchange support, leaving holders with worthless ￰72￱ exemplifies such ￰73￱ it split from Monero, it promised improvements in scalability, a capped supply, and the incorporation of MimbleWimble, but the project failed ￰74￱ was never implemented, and development ￰75￱ Forked Coins When a cryptocurrency forks, holders of the original coin typically receive an equal amount of the new token – but only if they claim it ￰76￱ Bitcoin Cash split from Bitcoin in August 2017, users needed to import their Bitcoin private keys into Bitcoin Cash wallets to access their free ￰77￱ people who stored Bitcoin on exchanges had to wait months until those platforms added support for the new coin.

Unfortunately, during Bitcoin SV’s split from Bitcoin Cash, technical complications made the process risky and ￰78￱ major exchanges eventually supported both coins, many users faced weeks or months of delays before they could access their Bitcoin SV ￰79￱ who acted quickly often benefited more than casual investors who waited or didn’t understand the claiming ￰80￱ Volatility Around Fork Announcements Fork announcements often cause big swings in crypto prices because investors either hope to get “free” coins from the fork or worry about the network’s ￰81￱ may pile into the original coin before the fork, expecting to benefit, while others sell off due to uncertainty about which chain will ￰82￱ Bitcoin Cash split from Bitcoin, investors who held Bitcoin automatically received Bitcoin Cash as ￰83￱ “two coins for one” effect created excitement, increased trading activity, and rewarded early holders ￰84￱ the flip side, the Bitcoin Cash fork, resulting in BSV, fell on the other side of the ￰85￱ “hash war,” as it was called, confused investors, led to sharp price drops, and even pulled down the broader crypto ￰86￱ and Opportunities from Forks Potential Gains from New Coins Hard forks that create a brand-new cryptocurrency are often exciting for investors because they can result in “free money.” When a blockchain splits, anyone who holds the original coin at the time of the fork usually receives an equal amount of the new ￰87￱ example, if you owned two coins on the old chain, you would also automatically get two coins on the new ￰88￱ take advantage of this, investors must ensure their coins are stored in a personal wallet or exchange that officially supports the ￰89￱ the wallet or exchange doesn’t recognize the new chain, you won’t receive the new ￰90￱ the new coins are distributed, you can decide what to do with them: sell quickly to lock in a profit, or hold on and hope the value rises over ￰91￱ Security or Functionality Some forks are created to improve the original blockchain, adding new features, boosting scalability, or patching ￰92￱ instance, Litecoin’s MimbleWimble Extension Blocks (MWEB) upgrade introduced optional transaction privacy without creating a new ￰93￱ examples include Bitcoin’s SegWit upgrade, Ethereum’s London Hard Fork, and Monero’s regular hard forks for enhanced ￰94￱ successful, these kinds of forks can make the network more useful and trusted, ultimately benefiting long-term ￰95￱ of Scam Forks and Fake Chains Not all forks are made with good ￰96￱ developers launch “scam forks” or copycat chains just to cash in on hype, leaving investors with worthless tokens.

Sometimes, fake websites or wallets trick users into giving away their private keys while trying to “claim” forked coins. A good example is the wave of low-quality Bitcoin forks that popped up after Bitcoin Cash, many of which disappeared quickly or never gained exchange ￰97￱ Future of Forks in Blockchain Development Governance Models to Reduce Disputes Forks often happen because developers, miners, or the community disagree on key decisions about the blockchain, such as governance rules, transaction policies, or the project’s ￰98￱ governance systems in the future could help reduce these ￰99￱ example, blockchains like Tezos and Polkadot let token holders vote directly on major decisions, from protocol changes to network ￰100￱ kind of on-chain voting allows the community to resolve conflicts without splitting into competing chains, making the network more stable and reducing the chance of contentious hard ￰101￱ Toward Layer 2 Upgrades Instead of Forks Instead of changing the core blockchain through forks, many projects are now turning to “Layer 2” solutions to improve speed and reduce ￰102￱ are upgrades that run on top of the main chain rather than altering it ￰103￱ instance, Bitcoin’s Lightning Network and Ethereum’s rollups are Layer 2 technologies that boost scalability without needing a risky ￰104￱ the Ethereum Merge of 2022, the blockchain became a stronger base for Layer 2 networks such as Arbitrum, Optimism, and ￰105￱ networks help lower transaction fees, increase throughput, and support wider adoption of decentralized ￰106￱ and Cross-Chain Fork Impacts As blockchains become more connected, a fork on one network can affect many ￰107￱ example, an Ethereum fork can impact not just ETH, but also tokens, NFTs, and apps built on its ￰108￱ linked by bridges or cross-chain protocols can also be disrupted if rules ￰109￱ means developers must carefully plan forks to avoid disrupting multiple ecosystems at once.