What is cryptocurrency hardfork and everything about it

All cryptocurrencies are unique networks that work on their own principle. The functioning of the system goes on as usual until a certain point, until any improvement is required. The introduction of a modification to create more favorable operating conditions is usually associated with a system rollback. In such a situation, the last blocks located before the conditional checkpoint are changed. Accordingly, all recent transactions are overwritten. All this does not imply that a global change will be introduced into the system, therefore this operation is called a soft fork.

If the system requires more global changes, then a hard fork is already involved. This procedure affects the very principles of the system. The situation escalates to the point that the old version of the software becomes practically useless and incompatible with new changes.

Carrying out a hardfork leads to such a situation that the system is split into two different branches. Users have two choices. They can stay on the old network without accepting the rules of the new one, or they can move to the new network by accepting the new rules. Thanks to such a radical transition, the operation received the name "hard fork", since, unlike the "soft" one, here one already has to choose one of the sides.

After carrying out such a fork, some nodes of the blocks remain true to the formation according to the old rules, while others are formed according to the new ones. If the majority of users accept the new rules, the hard fork is successful. As a result of such actions, the system often becomes split into two parallel lines. This provision is no longer uncommon when working with cryptocurrencies.

Reasons for the emergence of a hard fork

There are several serious reasons that can lead to the need to implement a "hard fork" of the cryptocurrency. In most cases, they lie in the shortcomings of the system, which manifest themselves over time. Problems often accumulate that lead to a decrease in the speed of work. The simplest example of the need for a hard fork is to resize one block.

Given that Bitcoin is considered the most widespread and popular cryptocurrency, it was he who first needed to hard fork. Over the years, miners and users have not had serious problems with transactions and cryptocurrency mining. With the increase in popularity, the number of users using Bitcoins for payment also grew. Initially, the speed of transactions was 7 transactions per second. Soon the moment came when this time was not enough. This situation led to network scalability issues. Each time, the operations took more and more time. The critical moment was the situation when it took more than a day to complete the transaction. Naturally, this influenced the increase in the commission for making payments. A lot of problems led to the fact that users stopped working with this cryptocurrency and switched to other assets. Only a hard fork could solve the problem.

Changes to be made during the cryptocurrency hard fork

In order for the community to really accept all the changes as a new cryptocurrency after the hardfork, it is required to introduce serious changes to its original blockchain. The novelty is formed due to the fact that the changes turn out to be incompatible with the old rules. The fundamental changes required for the implementation of a hardfolk include:

• change in the amount of issue for new payments;
• a new time for creating one block is indicated;
• the amount of reward for opening a block is formed, as well as the time of a new adjustment of the chain;
• an algorithm is formed that affects the complexity of the search for a new block, and, accordingly, its production;
• a new block size is determined, and it is additionally indicated that this parameter may change after a while, since this is inevitable with the successful development of a cryptocurrency.

It should be noted right away that in practice, drastic changes rarely affect all of the above parameters. For a hard fork, 2-3 parameters are enough for the essence to work differently. This can be seen in the example of one of the most popular Bitcoin Cash offshoots. It is similar in many ways to the original Bitcoin. They have almost the same emission amounting to 21,000,000 coins. The period of block creation is also not much different for them. Only a few significant changes were required to recognize Bitcoin Cash after the "hard fork" as a new currency. These include:  

1. The original Bitcoin adjusts the difficulty of mining new blocks approximately once every two weeks. This happens after the deployment of 2016 new blocks of the chain. In a branch, this parameter occurs much more often, every 144 blocks. Accordingly, the difficulty level of mining blocks in the chain changes once a day.
2. In a fork, a function was introduced to respond to the need for urgent adjustments to the difficulty level. It was named EDA. The function turns on automatically if 6 blocks were not found in the system in 12 hours. When activated, the difficulty is reduced by 20% for the next 6 blocks. This innovation allowed miners to artificially reduce the hash rate and influence the complexity of the search on their own. With a properly built strategy, after stopping and resuming production, the profit will be higher. In practice, this strategy is almost never used, since it was actively used at the beginning of the appearance of the currency, but now the production rate remains stable.
3. Reduced block size. In Bitcoin Cash it is 87.425 KB, and in the original Bitcoin it is 912 KB.

Separately, attention should be paid to the algorithm by which cryptocurrency mining takes place. In the overwhelming majority of cases, initiators want to leave the previous algorithm, which was used in the original currency. In the above example, you can see that the original and the fork are mined using the SHA-256 algorithm. On the other hand, if we compare with Bitcoin Gold, then blocks with the original cryptocurrency are revealed in approximately the same period, respectively, the emission remains the same. But at the same time, Golden Bitcoin uses a new mining algorithm. Equihash applies here. This was done to enable miners to use video cards. This step contributed to the development of the popularity of the new currency.

How is Hard Fork done?

Almost any party can initiate a hard fork. This can be suggested by the creators of electronic coins, miners or those who use them for payment. If the initiator manages to gather around himself a significant number of like-minded people, then he will be able to convince the cryptocurrency community that it is necessary to carry out a "hard fork". If a significant number of people disagree on exactly what the future of this cryptocurrency should look like, it will lead to a split. These situations have already happened several times.

In practice, it happened that the initiators were both influential figures in the world of cryptocurrencies, people who had a direct relation to their creation, and confidential programmers.

What happens after the hardfork?

Even experienced experts cannot accurately predict the development of the network, since the opinion of users and owners who support a particular branch becomes decisive. There are several ways of development of events. Almost all of them begin with the appearance of two systems that work independently.

In one scenario, a new branch, in which all the changes made, remain relevant, becomes more popular among users than the old system. This leads to the gradual withering away of the outdated direction, which was previously the main one.

After a hard fork, users may not support all the changes made, and a significant part of them will remain true to the old system. Thus, a blockchain with new branch blocks will be created for some time, until they finally lose popularity and the branch dies out.

According to the third scenario, already implemented in practice after one of the Bitcoin Cash hardforks, the new and old branches get enough followers to stay relevant. In the presence of the required number of miners and cryptocurrency owners, two branches function, albeit with varying degrees of popularity.

What does a hard fork bring to miners?

Hardfork is of great importance to miners who are constantly involved in this business. For them, creating a fork is, first of all, another opportunity to increase their earnings. As a rule, common popular cryptocurrencies are difficult to mine. They are mainly dealt with by those miners who have sufficiently large capacities, since otherwise the competition is difficult to withstand. With the changes, the mining of cryptocurrency becomes easier. Moreover, some blockchains allow new available hardware such as graphics cards to be used. If we consider everything using the example of Bitcoin and Bitcoin Gold. Despite the similarity of the code, Gold mining is much easier and faster than the original cryptocurrency.

Investor actions at hardfork

Investors are the main force that supports the cryptocurrency, providing it with a strong position in the market. If a hard fork happens, then the concentration of attention from one branch is scattered into several. Investors are trying to predict the future main offshoot, which will bring the most benefits from investments due to the growth of the exchange rate. Due to the constant rushing of depositors, the cryptocurrency exchange rate remains unstable during the "hard fork". Due to changes in market positions, serious fluctuations in the rate occur in each of the branches. The adherents of each of them are trying to stabilize the rate and make the cryptocurrency more attractive for further development.

Investors actions during a hard fork are primarily aimed at protecting their savings. The protection of electronic coins with private keys and placement on several wallets allows you to protect yourself from the encroachments of fraudsters and save the currency if the market becomes very unstable. Distribution of currency among personal wallets helps to use it in the future in two systems. Accordingly, it becomes possible to wait and decide on a more profitable branch direction. If an investor saves money on the exchange during a hard fork, then the use of coins in the two systems remains impossible, since the transfer of coins into the currency that the exchange will accept as the main one will be carried out on the exchange account.

Saving the accumulated cryptocurrency for investors is only part of what they want. It is also important for them to earn money on it. During the first leaps in rates, they often use exchanges to sell coins at a better rate. In their choice, investors are guided by their own assumptions and forecasts of experts. The early days after a split are often a serious period for speculation.

Advantages and disadvantages of a hard fork

Carrying out a rigid fork is almost always ambiguous. After that, not only pluses but also minuses appear. Their objective assessment leads to splits in the mining society and the spread of cryptocurrency. The main advantages include the following:

• a well-performed operation helps to remove all defects that were present in the operation of the platform, which will lead to an increase in the speed of its operation;
• many users get the opportunity to increase their own capital, as new coins begin to appear from the offshoot;
• the cryptocurrency market is developing, new abilities appear that the old systems did not have;
• modernization of sites to support the competitiveness of old electronic coins;
• the popularity of the entire field is growing, since innovations, as a rule, expand the ability to use cryptocurrencies, attracting new users;
• new opportunities are opening up for investing in cryptocurrency;
• new opportunities for mining are emerging (an example is Bitcoin Gold, which allowed mining only with the help of video cards).

The main disadvantages of a hard fork include:

• there is no precise definition of how exactly a hard fork will show itself in practice and will be reflected in the development of the entire system;
• there is a split in the cryptocurrency community;
• it is impossible to say for sure which of the branches of the fork will become the main one after the operation;
• carrying out the procedure increases the characteristics of the volatility of the cryptocurrency, which may result in a decrease in investment on the part of investors;
• sometimes the initiative to carry out a hard fork is not improving the functioning of the network, but some other selfish goals, such as the elimination of ASIC miners;
• periodically, such procedures are carried out in order to make easy money, when, after a fork, a fork is formed, promoted among users and miners, but over time it is not specially developed, which leads to a depreciation of the cryptocurrency;
• after a hard fork, the activity of fraudsters increases greatly.

If we try to give an objective assessment based on comparing several hard forks that have occurred with cryptocurrencies, then this phenomenon should be more regarded as positive. Naturally, the actions of fraudsters, as well as the burnout of some depositors, always inevitably occurs. But with the qualitative implementation of changes, the development of the cryptocurrency as a whole occurs, the convenience of their use increases, and new investment horizons open up. With a competent hard fork, the risks are minimized, and the remaining ones become less critical.

Hardfork Bitcoin

Given the popularity and prevalence of the Bitcoin cryptocurrency, it was its hard forks that became the most famous, resonant and historically the first. Not all of the offshoots turned out to be successful and received user support, which once again reminds of the risk. It is necessary to consider in more detail what happened to the cryptocurrency during such forks.

Bitcoin XT

Bitcoin XT became the first “hard fork” in the cryptocurrency world. It happened in the summer of 2015. After some changes, it was decided to create a new electronic currency Bitcoin XT. The main reason for these actions was the need to increase the volume of the chain block. Otherwise, it would not have been possible to eliminate the limitations in the operation of the current system, which is gradually inferior to developing competitors. Practice has shown that the first splinter branch did not receive due popularity. The process was initiated by the Bitcoin Core team.

Bitcoin Unlimited

The second hard fork in the history of Bitcoin was not long in coming, as after six months there was a second attempt to make changes in the system. The main goal of this project remains the same - to increase the volume in one block of the chain. The main difference from the previous case was that the developers offered the nodes to determine the block size themselves. It was assumed that based on all opinions, an average value would be compiled, which would be determined as the block size. After a while, the thought began to prevail that thanks to such innovations, large pools would be able to impose their policies on other participants. This provision would lead to decentralization, which would be contrary to one of the basic principles of cryptocurrency. Even taking into account the work on the errors, Bitcoin Unlimited could not confidently gain a foothold in the cryptocurrency market and did not become popular.

Bitcion classic

Another hard fork on the Bitcoin network proposed increasing the block size to 2 MB at the first stage. The first stage was supposed to last 2 years, after which the block size was supposed to grow to 4 MB. This fork was the first to be greeted warmly by users. Many agreed on the upcoming changes, but everyone wanted to clarify the details, which led to lengthy discussions and negotiations. All this turned into a loss of the relevance of the cryptocurrency.

Bitcoin Cash

This hard fork has become one of the most scandalous. It was held in the summer of 2017. Then a special software was introduced into the cryptocurrency, which was called SegWit. This technology made it possible to prescribe all operations with cryptocurrency behind the block itself. Naturally, there were people who did not accept the innovations and went along another branch of the fork. Bitcoin Cash has become exactly the same splinter branch whose adherents have not accepted the new software. Thanks to their actions, it was possible to increase the size of one block by 8 MB. Crash protection was also added, which helped to better save data about ongoing transactions. After this hard fork, the input data began to be signed. An interesting fact should be noted that the initiators of this branch promised to hold another one in 2018, already based on Bitcoin Cash as the main branch.

Bitcoin Gold

In the fall of 2017, another hard fork occurred on the Bitcoin network. Bitcoin Gold has become the next addition to the growing family of cryptocurrencies. The main change was that the network algorithm was replaced. Now the Equilash algorithm has begun to operate. This provides the ability to mine using ordinary video cards. The main idea of the innovation was to move away from the centralization of the cryptocurrency. More accessible mining, opening up the opportunity for participation for many users, will help decentralize cryptocurrency.

SegWit2x

An unrealized hard fork that was planned for November 2017. It was supposed to be an improved version of the SegWit software. If it could be done, then the block size in the new branch would become 2 MB, and the transaction fee decreased. The reason for refusing to create a "hard fork" was doubts about which branch would withstand the competition.

Bitcoin Diamond

In November 2017, a new offshoot was released, which was named Bitcoin Diamond. One of the main features of this innovation was the change in the algorithm by which coins are mined. It is the more advanced X13 algorithm. The size of the issue increased by 10 times. At the same time, support for SegWit technology and 8 MB blocks remains relevant here.

Bitcoin Super

In December 2017, another Bitcoin split took place, dubbed Super. The main change was the increase in the block size up to 8 MB, as well as the use of a special add-on over it. The additional use of Lightning Network technology was supposed to open up the possibility of an unlimited number of microtransactions. The technology involves recording only the final balance after all payments have been made. Also smart contracts have been added here, which was not previously. Despite the active support of the new currency after its appearance, now it is practically not popular and is below the 1000th place in the general rating of cryptocurrencies.

Bitcoin lightning

This hard fork happened 2 weeks after the previous one. Here the block size was planned to be 2 MB. It was supposed to keep the add-on for an unlimited number of microtransactions. The main advantage for miners should have been a shorter block search time. If in the original Bitcoin it is about 10 minutes, then in the new one it is 3 seconds. The use of smart contracts and other advantages at the start also did not give the proper impetus to development. Now this cryptocurrency is practically dead.

Almost every Bitcoin hard fork, according to skeptics, had to fail. But in practice, it is clear that Bitcoin Cash ranked third in terms of capitalization in the overall world ranking. Currently, this branch is second only to the original Bitcoin and Ethereum. Bitcoin Gold, whose goal was to move away from centralization, took the eighth place in the overall world ranking of cryptocurrencies. The main feature here is that ordinary users practically do not lose anything from the fact that additional branches appear. Their accounts are credited with an equivalent amount of tokens in the new branch of the system.

Ethereum hard fork

Ethereum is the second most popular cryptocurrency in the world. Not as many hard forks happened here as the leader. For the first time it happened by force. The beginning was laid with the creation of a decentralized fund of venture capital assets. This happened in 2016. The fund was named DAO. A global smart contract was used to implement it. The main purpose of using this fund was to use it to allocate finance for DAPPS, which were created on the basis of Ethereum. The main nuance was that the owners of the DAO cryptocurrency could make their own adjustments to the creation of applications.

This innovation aroused great interest among investors. The project quickly received the required amount of funds for implementation. During the development of the code, a loophole was left in it, which made it possible to withdraw about 30% of the total cryptocurrency capital to the account of one of the companies. Under the terms of the smart contract, it was impossible to immediately use the withdrawn money. The hackers had 28 days left before they could use the funds received.

Naturally, this situation caused a lot of discontent in the community and heated debates began. During the discussion of the solution to the problem, it was decided to conduct a "hard fork" for Ethereum, which would roll the system back. Not everyone supported the decision and some felt that the hard fork was not really necessary, although it was carried out. The new offshoot left the original name Ethereum. Users who did not accept the change created their own community, which worked with the non-updated electronic currency. It was named Ethereum Classic.

The results of the Ethereum hard fork showed that it was the new fork that retained the original name that turned out to be the most popular. Now it ranks second in the world ranking, while the classic version is eleventh. According to experts, the cryptocurrency hard fork will not stop there. Many people believe that after a certain time the creators will have to deal with unlimited emission issues in order to provide more protection for the platforms functionality. This will be the main task of the future hard fork in Ethereum.

Konstantinople

The maximum rate of the Ethereum cryptocurrency was registered in 2018. Within a year, its rate dropped by almost 10 times relative to this maximum. Various companies and platforms based on this blockchain have come under pressure from the SEC and the United States Securities Commission. One of the reasons for the pressure was the unreported emission. At the end of 2018, there was more and more talk about the future fate of Ethereum. Most of them were conducted in a negative way, as the exchange rate continued to fall and confidence in these electronic coins became less and less. After the onset of the new year, the rate began to grow and almost doubled, which began to return confidence in using Ethereum, but the developers had the task of making the blocks faster for processing, since the low speed was the reason for the loss of popularity. New technologies are used for updating, leading to significant changes. Constantinople becomes Ethereums second hard fork. There have been many changes this time around regarding mining rewards, blockchain performance and more.

This cryptocurrency was also called "New Ethereum" and "Ethereum 2.0". The main change here was the replacement of the protocol. Now the blockchain does not use Proof of Work. This is where Proof of Stake comes into play. The network has become simplified and cheaper to use. At the same time, the remuneration for miners also decreased, which became the flip side of this electronic coin.

2018 hard forks

If at the very beginning a tough fork concerned the predominantly common cryptocurrencies that occupy the top positions in the overall world popularity rating, then later it became relevant for other coins as well. In 2018, literally from the very beginning, there were a large number of hard forks. Based on Bitcoin alone, 5 new coins have appeared. These include:

• Bitcoin Private;
• ABitcoin;
• Bitcoin Atom;
• Bitcoin Hash;
• Bitcoin Interst.

This year was also marked by many forks in other cryptocurrencies. This was due to various reasons, but everything becomes a confirmation of the idea that a hard fork is inevitable for any developing electronic coin.

Monero

In March 2018, a hardfork of the Monero cryptocurrency took place. Its purpose was to protect against ASIC miners. A coin update was carried out, but it did not receive the proper degree of support from the community, so the new branch did not become the main one.

Bytecoin

At the end of summer, a hard fork in Bytecoin was made. The reason for the cryptocurrency update was a software update. An additional commission was also introduced, the wallet was updated. The cryptocurrency programming interface has also undergone changes. All this was adopted by the community of cryptocurrency owners and miners.

Siacoin

A hard fork was held here in November. The purpose of the fork was not to create a new asset, since it was only required to correct the principle of mining this cryptocurrency. Changes in Siakoin have become one of the most striking examples of changes for this purpose. The community decided to block the possibility of mining cryptocurrency using ASIC miners, which were produced by Innosolocon and Bitmain. After the hard fork, mining is only possible with the Obelosk SC 1 ASICs. The situation helped to eliminate competitors.

Bitcoin Cash

In mid-November, there was a split in the already forked Bitcoin line. This time, two branches were formed at once from one branch. The new coins were named Bitcoin ABC and Bitcoin Satoshi Version (or simply SV). Practically both directions have received their share of adherents in order to remain relevant to the cryptocurrency community. Most people prefer Bitcoin ABC, so it was he who was predicted to become a leader in this fork. Many crypto exchanges recognize this currency as a replacement for the previous Bitcoin Cash. At the same time, the SV branch does not disappear and remains in the competition.

What is the right thing to do with a hard fork so as not to lose your savings?

In this situation, accuracy and patience become the main factors that will help preserve capital. The most important here is the private key that remains with the client. With such a key, the user can access all available funds. There is a simple self-defense scheme, applicable to almost any hard fork with any cryptocurrency. It looks like this:

• it is necessary to export the private key from the cryptocurrency address and wait for the hard fork. This is relevant even after the fork has occurred, therefore, in any case, the key should be exported;
• you need to create a new address for your cryptocurrency and transfer existing funds to it;
• install software to work with the new currency formed after the hard fork;
• then you need to import the key obtained at the first stage, which will provide access to new coins;
• create an address for the new currency and transfer the existing capital to it.

This scheme will allow you to get two addresses at once. The first will contain old coins that were relevant even before the hard fork. The second will be occupied by new ones formed after the fork. Wallet addresses will not be interconnected.

If there is no desire to act independently, then you can trust the exchange. Naturally, it should be a trusted partner with a good reputation, who cares about their customers. As a rule, everything happens automatically with them and the owners are simply informed that after the hard fork, their coins have been transferred to a new currency. It is also possible here to create two separate wallets for each cryptocurrency, after which you can transfer them to your wallets and exchange them for something else.

How to understand the reliability of a hard fork?

Experienced cryptocurrency investors always perceive hardfork ambiguously, since after it there is a fluctuation in the rate. This leads to both losses and income, which depends on the choice of the side. It is difficult to determine the success of the fork, but if you pay attention to several factors, you can understand the level of reliability of the new cryptocurrency:

1. The initiators suggesting the change should be examined. Their number, level of influence, technical capabilities, intensity of information dissemination, all this affects the success. Small teams often fail hardforks.
2. The initial cost of the new cryptocurrency. If at first it turns out to be very high, then this often leads to a drop in its value or very difficult growth, which is unprofitable for investors.
3. User base analysis. It is required to consider existing exchanges that have added cryptocurrency to work. If it is actively represented on the world market, then this is a good sign for its further development.