What is fork cryptocurrencies simple words?

What is fork cryptocurrencies simple words?

News about the next fork of some cryptocurrency meet not daily — an event this important, and happens infrequently. Carrying out the hard fork can seriously change a situation in the market — therefore each person working with the crypto foreign exchange market (the investor, a miner, the trader) should understand at least bases of this concept.

What is hard fork: main data

Any cryptocurrency network has an accurate algorithm and rules of work. Sometimes it is necessary to make changes to them. For this purpose the condition of network needs to be “returned back” to some necessary point and to edit data of the last transactions. These changes are called a soft fork. Soft fork doesn’t influence the principle of work of system, and users often don’t know about its carrying out at all. Therefore this word practically doesn’t meet in news.

Another matter — hard fork. In the course a hard fork creators edit the source code of cryptocurrency network, introducing new rules (which can’t work with the old software).

We will give a simple example, having compared hard fork to the road. 1 cryptocurrency network is a direct road. Hard fork in that case is a fork on which from the direct road one more branches off. Further they pass independently of each other, in any way without being crossed. And users can choose on what of them to go (that is can use any of 2 appeared networks). Such branches (hardfork) can be a little.

After a hard fork users who had tokens of the “main” network free of charge receive some quantity of new tokens. Because of it after news about emergence the fork demand for the “main” cryptocurrency usually increases — it begins to be bought just like that to receive new tokens, in hope for their further growth.

The most frequent reason a hard fork — some massive fault which prevents normal work of system. For example — increase in the size of the block to too big.

The most striking example — Bitcoin. In the first years at the first cryptocurrency 7 transactions per second were available. As there were few transactions — the small community of users had enough it. But with growth of popularity of BTC of this quantity began not to be enough because of what transactions hanged for hours or even for several days and also the commissions increased by their carrying out. Also the reason the hardfork can become serious vulnerability of system, or some important useful innovation.

Developers, mayner or just active users of network can initiate hard fork. The main thing — a good reason with which the majority will agree (or at least a large part of audience).

Benefits and shortcomings of hard fork

Benefits from carrying out hard fork:

  • the solution of the found problems;
  • improvement of system which can become outdated over time;
  • increase in the equity of holders of the “main” network (from which “branches off” fork).

From minuses:

  • nobody knows precisely what consequences he will have hard fork;
  • the “secondary” network can be more convenient, and most of users will choose it (because of what the price of tokens of the “main” network will fall);
  • because of a hard fork the rate of the “main” cryptocurrency can sharply jump (usually at first it is take-off after which the rebound can follow).

In general hard fork — it is useful (first of all) and profitable. The unique essential shortcoming is an unpredictability of further succession of events.

History of hard fork of Bitcoin and Ethereum

For the sake of interest we will consider fork of 2 main cryptocurrencies:

  1. Bitcoin. Only for 2017 19 fork of Bitcoin appeared. The most successful (which are actively traded, and the price of them grew): Bitcoin Cash, Bitcoin Gold.
  2. Ethereum. The most known fork Ethereum  — Ethereum Classic (Ethereum Classic, or ETC). Less known fork — about ten.

Hard forks is carried out also at other cryptocurrencies, but only at popular: with large audience and actively developing network.

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