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What is a Hard Fork? A History of Bitcoin Hard Forks

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Hard Forks: Bitcoin Blockchain
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A ‘hard fork’ is one of the most significant changes that a blockchain protocol can undergo. Some of the most fundamentally transformative events in the history of cryptocurrency have come about as the result of a hard fork. Bitcoin’s very own hard fork created Bitcoin Cash in 2017, and Ethereum’s 2020 hard fork – which happened in reverse – created Ethereum Classic. 

So what is a hard fork? Why do they happen, and what purpose do they serve? Let’s dive in.

Defining Hard Forks

A hard fork occurs when a blockchain protocol’s network nodes undergo a software update that renders them completely incompatible with the existing blockchain. This results in a permanent split between the two networks, which now run in parallel. A permanent change in a blockchain protocol’s rules is now established, and each network will process and verify transactions solely on their side of the split. 

At the most basic level, the permanent separation of the two resulting chains is necessary because the software update will cause nodes on either side of it to be out of consensus – a major security and stability risk to the entire underlying protocol.

Hard forks are a huge deal for miners and node-runners who have to decide whether they want to implement the software update, or stick with the original protocol rules. Their choices can have major consequences for a blockchain network’s security, which is why hard forks are often seen as dangerous. If miners who secure a given network and the nodes which validate it split 50/50 in a hard fork, each resulting network gets wildly more vulnerable to attack. Both 51% attacks and replay attacks (CITE) are more likely to be successful if a network’s ability to reach consensus is diminished, which can result in double-spent funds, intercepted transactions, and network outages. 

Why Do Hard Forks Happen?

Hard forks can be risky, but the nature of blockchain technology means that its underlying code structure is always a work in progress. Evolution is necessary to increase efficiency and usability, keep the ecosystem competitive and secure, and drive mass adoption. 

The need for new features, functions and compatibilities in a network, or something as different as disagreements among developers in a given blockchain’s community about what the overall purpose the protocol should serve, are all situations that can lead to a hard fork. 

One of the most notable recent hard fork events would be Ethereum’s “reverse” hard fork, which occurred in 2016 on the back of something much more exogenous. This hard fork was the result of a $150 million DAO hack that exposed major security flaws in the Ethereum blockchain. To resolve this, the Ethereum network was effectively rolled back to before the DAO hack ever happened, and affected ether cryptocurrency was moved to a new smart contract where users could withdraw their funds. 

This hard fork, more than others, was controversial because it called into question one of the most fundamental aspects of blockchain technology: immutability and censorship resistance. 

Though this fork was eventually implemented, obviously not everyone was happy and a significant number of Ethereum network participants chose not to update and accept the rollback. Instead, they chose to continue on with the existing version of the blockchain, creating Ethereum Classic. 

Hard Forks Vs. Soft Forks

The major difference between hard & soft forks is that soft forks provide backward compatibility, and nodes that do not partake in the upgrade will still see the chain as valid. 

Soft forks can be used to add new features and functionalities to a blockchain network that will not fundamentally change the rules that must be followed by that blockchain. 

A good way to think about the difference between types of forks would be the difference between a company full of workers and their devices updating Microsoft Windows to a new version, versus that company switching to Apple’s Mac OS. After the Windows upgrade, all devices will continue to work and be compatible with all existing applications and data types, while a switch to a completely different operating system would cause that not to be the case. 

A History of Bitcoin Hard Forks

The most famous Bitcoin blockchain hard fork came in 2017, the result of which created Bitcoin Cash. It was initially a response to a proposal to help Bitcoin scale through the implementation of Segregated Witness and increase Bitcoin’s block size from 1MB to 2MB. SegWit would eventually be implemented via a soft fork.

This was controversial in the Bitcoin community, with detractors fearing that the difficulty spike in hosting a node due to a larger block size would centralize the blockchain, while those in favor argued Bitcoin’s transaction fees on a smaller block size will limit the cryptocurrency’s ability to scale in the long term. 

The dispute was settled (in a way) on August 2017 with the creation of Bitcoin Cash, which launched on a 8MB block size and is now operating at 32MB. 

But that wasn't the first Bitcoin hard fork.

Let’s roll back the clock to 2014 and Bitcoin’s very first hard fork: Bitcoin XT. This was another situation where users in favor of the fork wanted to increase Bitcoin’s transaction speed and lower costs. The fork launched with an 8MB block size and aimed for 24 transactions-per-second, but quickly lost user interest and is no longer operating. 

The next hard fork occurred in 2016 with the creation of Bitcoin Classic, a project that sought to increase Bitcoin’s block size yet again after Bitcoin XT faded into the background. This time, an increase to just 2MB was implemented, and at one point there were 200,000 nodes operating on the Classic network. Unlike XT, Classic is still available and in operation. 

Several other hard forks including projects like Bitcoin Gold (BTG) and Bitcoin – Satoshi’s Vision (BSV) still exist today with various levels of support and usership. 

Bitcoin Forks and Bitcoin Core

Hard forks are ways that cryptocurrencies can implement new features and functionalities, and continue to evolve in a rapidly diversifying environment that aims to compete for mass adoption on a global scale. They fundamentally change the rules a given blockchain must follow, and can arise as a result of major security breaches, community and developer disagreements, or exogenous evolutionary pressures. 

This includes Bitcoin. As the Bitcoin network has continued to expand and develop over the years, hard forks and soft forks have both occurred to address problems that have appeared with the Bitcoin blockchain over the past. 

We’ve seen hard forks across multiple blockchains that have achieved various levels of adoption and support, and we’ll likely see many more as the digital currency world continues to grow.