A change to a blockchain protocol that creates a divergence from the existing version, either as a soft fork (backward-compatible) or hard fork (new chain).
Detailed Explanation
Forks occur when developers modify a blockchain's rules. Soft forks tighten existing rules and are backward-compatible, meaning old nodes can still participate. Hard forks create entirely new rules incompatible with the old chain, potentially splitting the network into two separate blockchains. Notable hard forks include Bitcoin Cash (forking from Bitcoin in 2017) and Ethereum Classic (from Ethereum in 2016 after The DAO hack).
Why It Matters
Forks are the mechanism for blockchain upgrades and governance disputes. Planned hard forks upgrade network capabilities, like Ethereum's merge to Proof of Stake. Contentious forks arise when the community disagrees on direction, creating two competing chains. For investors, forks can mean receiving new tokens on the forked chain but also create temporary market uncertainty.
Key Considerations
When a hard fork approaches, understand whether you need to take action to claim tokens on the new chain. Store assets in a wallet where you control the private keys before the fork snapshot. Be cautious of scam tokens that impersonate legitimate forks. Not all forks create valuable new tokens.
Example
In 2017, disagreements over Bitcoin block size led to a hard fork creating Bitcoin Cash (BCH). Everyone who held BTC before the fork automatically received an equal amount of BCH on the new chain. The original Bitcoin chain continued unchanged.
Related Terms
Frequently Asked Questions
A change to a blockchain protocol that creates a divergence from the existing version, either as a soft fork (backward-compatible) or hard fork (new chain).
Forks are the mechanism for blockchain upgrades and governance disputes.
In a hard fork, holders typically receive an equal amount of the new token on the forked chain. However, you must hold tokens in a wallet where you control the private keys. Funds on exchanges may or may not be credited depending on the exchange's policy.