What Are Cryptocurrency Forks? What Kinds of Them Exist and Why Do We Need Them?

cryptocurrency forks

An active discussion of forks started in the cryptocurrency community at the beginning of 2017. Some time ago no one even knew about their existence, and since the last year this issue has gained increased popularity. There is enough news about the various forks of Bitcoin, Ethereum and Litecoin on the Internet. But what exactly are these forks, why do they happen, and who are they profitable for? In this article we will try to give structured answers to all of these questions.

Contents:
(please, click the topic to scroll down to it)

  1. What are cryptocurrency forks?
  2. What types of forks exist?
  3. Advantages and disadvantages of forks
  4. Calendar of forks for 2018
  5. Conclusion

1. What are cryptocurrency forks?

In the terminology of programming fork means changing the program code of a certain product and developing a new project on its basis. In fact, fork can happen in any program, which is based on the code. Since the blockchain technology is based directly on the program code, such a phenomenon as fork  is possible in the overwhelming majority of coin networks.

In fact, fork implies a correction of the system rules, which are responsible for the process of interpreting the blocks into the status of authentic ones. We agree, it was a complicated explanation, let’s try to explain it in simple words. The fact is that the whole mechanism of the blockchain technology is built on a chain-based confirmation of the block authenticity. If the system can not confirm the status of blocks validity, it will simply not be able to conduct transactions. Accordingly, each cryptocurrency system (coin) has its own rules, according to which the system confirms this very authenticity. This list of rules is described in the source code of the system, the rules of which you can change. As a result of such a change, an alternative branch is created on the basis of one blockchain.

If you look at it, you can see the connection between the number of forks and the popularity of the coin with your own eyes. That is, most of the “forks” happen to cryptocurrencies with high capitalization. Bitcoin is the unconditional champion in the number of forks. Several dozen branches have been created on its blockchain during the entire period of the coin’s existence.

What is the reason for making new cryptocurrency forks?

  • making adjustments to the source code of the network (changes in production or encryption algorithm);
  • correction of errors and bugs of the network;
  • creation of an alternative product based on the technology already tested.

2. What types of forks exist?

The chain of blocks can be changed in different ways, so there are 2 main types of forks:

  • Soft fork

It implies superficial code adjustments. As a result, the operation of the main network protocol does not change. For the most part, it is used by the development team to upgrade the network or fix existing bugs. You need the approval of the majority of the community members to carry out a soft fork. However, if users do not support the innovation, they have the opportunity to continue working on the old blockchain. In simple words, soft fork does not cause a split of the network. If you look at the calendar of cryptocurrency events, last year the network of Bitcoin did have a soft fork, and the SegWit protocol was introduced, thereby increasing the total network bandwidth.

  • Hard fork

The name (hard – complicated) makes it clear that this is a total change in the code that is not compatible with the old main network protocol. As a result of its implementation, an alternative chain is created. It has nothing to do with the “maternal” chain. The new chain does not recognize the old blocks as authentic.

If you look at last year’s calendar of cryptocurrency events, a striking example of the hard fork in the Bitcoin network is the creation of a new coin – Bitcoin Cash. If you do not dive deep into complicated technological terms, then the main change was the increase in the block size from 1Mb to 8Mb.

3. Advantages and disadvantages of forks

After analyzing the issue, we made a conclusion that forks have a sufficient number of positive sides:

  • investors have more choice of coins, free accrual of new coins (the equivalent of the old network coins);
  • miners have more opportunities for earnings, since it is much easier and more profitable to mine young coins than established ones, which networks already have a lot of competition;
  • the network itself is modernized, developed and improved as a result of competent updates;

In general, the industry is developing, new investments, participants, etc. are joining.

But all of these advanatges are possible only if the developers have really created a fork with the goal of upgrading the system. If you look at cryptocurrency news and analyze the latest forks, it becomes obvious that most of their creators do it solely for enruchment purposes. Having created a new coin that nobody wants, they artificially “pump” its rate, thus attracting naive investors. As a result, they multiply their assets, receive a profit and leave people with a nothing.

4. Calendar of forks for 2018

Calendar of cryptocurrency forks for 2018 includes from 10 to 15 forks, according to various data. The upcoming 2018 cryptocurrency forks are:

  • LBRY Credits is scheduled for July 9, 2018;
  • Ethereum Classic is scheduled for July 13, 2018;
  • Bytecoin is scheduled for the last day of summer, August 31, 2018;
  • ZClassic is scheduled for September 9, 2018;
  • Dogecoin is scheduled for the 4th quarter of 2018.

There are also lesser known cryptocurrency forks scheduled for 2018, which we did not mention.

5. Conclusion

Forks can help you to improve the performance of a particular network. Forks became popular only a year ago, before they had a purely sporadic character. If you look at the cryptocurrency fork schedule, most of them happened/will happen in 2017-2018. Most likely, cryptocurrency forks will be held in 2019 much more often. Their conduct is beneficial for all participants of the network, but only if the fork is not a dummy, but really brings profit. Unfortunately, most of them are not like this.

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