Hard Forks
Digitalization is getting over everything in the world. And along with that, it is getting harder to understand the digital terms and techniques. In this article, we will highlight some of these simple but confusing terminologies. First of all, we will try to understand basic things and then we will restrict ourselves to the topic.
What does cryptocurrency mean? How is it made? And how it works? These are the simple things which must be known by everyone before moving to any details. In most simple words, cryptocurrency is a resource and a tradable entity which uses the secure techniques of communications to carry out the transfer of assets. Satoshi Nakamoto, in 2008 introduced the first and the most famous cryptocurrency called Bitcoin. The main concept which Satoshi used and everyone failed at is that he created a cash without a central entity i.e. peer-to-peer network. Just like any bank transfer it also works or carries out the transactions under some greatly specified rules. If your signature in a cheque resembles the signature in the record, then you will be able to transfer any amount from your bank account. Cryptocurrency also follows the same rule, but the difference between these two is that it does not contain a central server. Therefore it resists the double payment which is due to the central server.
Now let's talk about some general but unique properties which you can find only in cryptocurrency.
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Control
The transfer of the tokens is totally controlled. These cannot exceed or fall short of a certain limit which is specified by the coder while building the cryptocurrency. So, we can guess the supply at any instant. -
Reliable
It is a very secure system built by a complex mixture of data and numbers which can only be opened by the owner who has the key to excess the data. So, it seems to be impossible at the present time to breach the system or codes of cryptocurrency. -
Irrecoverable
Once a transfer of cryptocurrency is done, cannot be revised. No one can retract the transaction. It is built in such a way that if an owner allows and does the transfer of tokens, no one can undo the transfer. -
Unallowable
You write the amount of money on your cheque, signs it and hand it over to someone to whom you want to pay money. But in case of a virtual coin, it is not applicable. You cannot allow someone to make transactions in your name. It is solely your job and solely you are permitted to make transactions.
What does fork mean?
Now let’s discuss, what do forks mean? Is it the tool with two or three prongs and which is used to take our meal? No definitely not. It is something which will take the crypt currency transactions to a next level. It is the splitting of one cryptocurrency into two new ones. More precisely, a cryptocurrency is composed of many blocks which process the data one by one when transfers are made. So, if the overall process is observed, it forms a chain of processes which are linked with one another. All these blocks should agree on some specific laws to come up as a unit function. So, any change in this chain or blocks will split it into two new cryptocurrencies.
Why do forks occur?
A fork may be created because of accidental change in the arrangement or because of intentional change in the system by the developer of cryptocurrency. When more than one miner reaches the same block at the same time creating more than one chain, this is the time when the forks occur. The miner who approaches the next block earlier than the others will ultimately create the longest chain of blocks which mean it will be the right path to follow and falsifying or restricting the path of others. This is called the forks due to the accidental forks.
But the main reason behind this phenomenon is the intentional changes made by the cryptocurrency developer. This change is made in order to upgrade the existing currency so that it can be easy to handle by the customer. But the main reason to do this is to make it safe against the hackers and other intruders who can try to breach the block chain and steal the data and make transactions. Because millions of dollars are invested in cryptocurrency and millions of dollars of transactions are made in internet using the tags of these currencies. This creates a good ground for the hackers to assail the blocks and to make unlawful transactions.
There are two types of forks.
- 1. Soft forks
- 2. Hard forks
Soft forks
For the cause of explanation let’s say you are using an application of gym and fitness. You have installed this application and after using it for few days you upgrade your application to the premium version. What will happen then? You will unlock new and more useful features in the application. Like, you will be able to make your daily plans for the workout and many more. But you were not able to use them in your older version of gym and fitness application. The soft forks work in the same way as the application discussed above. This type of fork is also called backward compatible fork. It means that when the participant uses non-upgraded software to mine the blocks it will be able to receive and transmit data. But the criterion is that those blocks should also be non-upgraded because it will not be able to read and process the new blocks which are created. But if the participant uses the upgraded version of the software, he can mine the new blocks as well as the older blocks. It will recognize the new codes which are used to build the blocks.
Hard forks
As discussed above, when a person upgrades its software and which will be totally new not following the rules and don’t acknowledge the transactions of the previously used version of block-chain. While the occurrence of the hard fork, the crypto developers alternate the route of the chain as well as upgrade the blocks of the chain in such a way that it will become a totally new and polished version of the former version of the blocks as well as the chain. The way these blocks deal with the strokes of data and transactions will be poles apart than the un-upgraded version of itself. It is not compulsory that the changes brought by the originator in this network is always user-friendly or is easy to handle. But it could be hard and challenging to handle. Because for the sack of safety of the data transfer and transactions made via the blocks it is made hard so that it could help in making more secure transactions against the hackers and unauthorized intruders. And for the users to get compatible with the new version of the program of the coin they must upgrade their applications so that they can use this coin. Otherwise, the user is unable to make any kind of transactions, even in the older version of the coin. The hard fork of cryptocurrency is like changing your mode of contact from Whatsapp to IMO. If both of you and your friend used Whatsapp to contact, and suddenly you install Imo and uninstall Whatsapp. Then you cannot contact with your friends and family members unless they will also install the IMO application in their smartphones. Because, you can’t make a contact with your friend if you have only IMO application and your friend has IMO.
Is fork good or bad?
The worst part of cryptocurrency is the time of forks. It is simply waste of everything, waste of time, previous applications used, previously available cryptocurrency, capital as well as whole setup. First of all, when forking occurs, there will be two separate routes created, one will be the older chain, the other is newly originated one. Thus, if any transaction made follows the inappropriate route; it can cause the destruction or wastage of the entire amount which supposed to be transferred. So, it can cause a great amount of loss to the user.
What adds fuel to the fire is that when the fork happens each and every user needs to upgrade his or her coin, otherwise he will not be able to use the new features and changes made in the coin. Even he cannot make transactions of the new coin if hard forks occur. Because he will be using outdated currency and it will not function with the new version of cryptocurrency. When the currency is frequently exposed to forks, it will lose its publicity and value among the users as they will be fed up by changing its coins to the changed ones.
But sometimes it can come out to be a good opportunity for the people who want to buy the coins. Because, during the times of fork the value of that coin usually falls, causing a good chance for the buyers to take advantage. And after some time, its value will increase if it becomes stable and stop frequent forks, ultimately benefiting to the buyers.
Types of hard forks
What actually matters is how the hard forks occur. It can be either controversial or planned hard fork. Why don’t we discuss that too?
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Planned forks
It is the upgrading of the existing chain of the coin so that its capabilities and performance can be improved. Either it is in the sense of security against any breach of code-chain or blocks or easiness in the mode of handling and processing the coin. We have come across many planned forks but here we will list only two of those.
First one is the Ethereum’s Byzantium: This upgrading occurred in the last quarter of 2017. This was done to increase the scalability of the transactions. Second is the MONERO: in the first month of 2017, this upgrading occurred to improve its security.
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Disputed hard forks
As the name explains everything, this fork occurs due to the disagreement between the different groups of the society who will change the codes of the coin and make a new chain which will have new and good characteristics and which will function more precisely and more swiftly according to them. In case of this fork, partial people will use the upgraded coins and the remaining people will use the older one because remember it has happened due to the disagreement of the people.
The examples of disputed forks are Bitcoin cash and ETC. The Bitcoin cash was created by the fraction of people who wanted to change the bitcoin from 1 MB to 8MB so that it will be fast and so that their customers need to pay less. This hard fork resulted in the formation of Bitcoin cash.
Addition to that, Etherium classic is also an example of a disputed hard fork. Etherium performed a hard fork when it encountered a massive attack by hackers. This hard fork was called DAO (Decentralized autonomous organization). This newly formed chain of blocks with new properties to efficiently overcome the hacking attacks was embarrassed by most of its users and its originators. They all upgraded their systems as it was providing shielding effect against any cybercrime. But some of the folks totally went against these changes made and preferred to continue mining with their older versions of Etherium called Etherium classic.
Conclusion
Forks of cryptocurrency may occur due to accident or due to intentional change in the codes of the blocks which alternates the chain, resulting in the formation of a new cryptocurrency. These forks may be soft forks or hard forks. If hard fork occurs, the newly made block-chains will not be able to function on the old version of the applications of the customers. But if soft fork occurs, unlike hard forks, the newly formed block-chains will be able to function on an older version of itself too.