If you have been into cryptos for long, it is highly likely that you have come across clones of major cryptocurrencies. For instance, Bitcoin clones include Bitcoin Cash, Bitcoin Gold, and Bitcoin SV among many others. According to BitMex Research, Bitcoin alone has over 44 clones. Ethereum has also given birth to several clones including Ethereum Classic, Constantinople, Shift, and others.
The cloning of existing crypto to a new currency with different rules is what is known as a hard fork. Simply put, a hard fork occurs when the existing code of a currency is modified to result in a new version. The new version comes with its coin and follows its own rules.
For instance, Bitcoin Cash, which is a hard fork of Bitcoin, has its token known as BCH. Bitcoin Cash was made as an alternative to Bitcoin which is considered slow in terms of transaction speed. This hard fork has a larger block size limit than Bitcoin which makes it a bit faster than Bitcoin.
When a hard fork is introduced, the old version must become obsolete, or the new version split to form an entirely different cryptocurrency. Most Bitcoin and Ethereum hard forks have split from the original protocols to create new cryptos. The opposite of a hard fork is a soft fork.
A soft fork refers to an upgrade of a cryptocurrency without creating a new asset. This happens when the new changes are compatible with the old version. Consequently, no significant changes are required for the new rules to be implemented.
Case in point, Bitcoin did not initially have a block size limit. The 1MB limit was introduced through a soft fork to make the protocol stricter. A soft fork only requires the miners to upgrade, which is easier and less disruptive.
An example of a Bitcoin soft fork is SegWit. This protocol addresses the scalability issue of Bitcoin and Litecoin by decongesting the networks. This article by Coin Desk explains the SegWit approach in more detail.
A hard fork is introduced to solve an existing protocol problem. For instance, one of the limitations of Bitcoin is its slow transaction speeds. Without going much into detail, the low transaction speed is a result of the limit in block size.
Bitcoin Cash, which is a hard fork of Bitcoin, tries to solve this problem by increasing the block size. However, an increase in block size raises several challenges which disagree with the concept behind Bitcoin. As a result, Bitcoin Cash is forced to split from Bitcoin and operate as independent crypto.
As mentioned earlier, the introduction of a hard fork either makes the old version of the original crypto obsolete, or the fork splits to form new crypto. In most instances, hard forks end up becoming new cryptos with independent ledgers and protocols.
A hard fork can also occur to repair the damage done by a hack on the main crypto. A good example is Ethereum classic which was formed after an attack on DAO. A hard fork can also happen when a consensus is not reached for a soft fork.
Anyone can create a hard fork provided that they have technical expertise and a legit reason for creating the fork. Cryptos are open source, and their source code can be accessed on GitHub. However, it is tough to get enough miners to mine the new coin.
For a hard fork to gain any considerations, it must have a valuation almost close to the original coin. This is a tough task, and only a few succeed to achieve it. Even for those that have made it to this level, the survival rate is little given the complexity around the technology.
Hard forks usually come with challenges of their own, which means that they are not always better than the original crypto. Case in point, by increasing the block size, Bitcoin Cash raises security concerns. The advantages and disadvantages of various cryptocurrency hard forks will be discussed in detail in another post.