Developers carefully consider all the nuances before launching the cryptocurrency blockchain into operation. But at the start it is impossible to foresee all the nuances and complexities. Therefore, as users use the blockchain, there is a need to update the code. As a result, a branch may appear and two (sometimes more) similar projects will continue to exist on the market. This is called a cryptocurrency fork.

A fork is an update after which two blockchains continue to exist. Before the “fork”, they have the same blocks, but after it they become completely independent of each other.

 

Why forks happen

 

Blockchain forks do not occur in a vacuum. As a rule, the reason lies in technical flaws and shortcomings that were discovered after the launch of the platform. That is, fork developers want to solve problems that hinder further development.

The most common causes of branching are:

  • The transition of the blockchain to work on a different consensus. Most often, there is a transition from the “proof of work” algorithm to the “proof of ownership” algorithm or others. This solves scalability issues. For example, now Ethereum is transitioning to 2.0 and 2 parallel chains are working.
  • Bug fixes and enhancements to platform features to improve it. Most often, the problem lies in the impossibility of further scaling due to the limitations of the underlying blockchain. This was the case when the Bitcoin Cash coin was created. The reason for the creation was the small size of the BTC block.
  • To eliminate the consequences of a hacker attack. This is what happened to ether. Hackers discovered a vulnerability in the blockchain algorithm and stole large sums of coins. Other attackers also found out about this vulnerability, after which they successfully took advantage of the “hole” in the protection. To eliminate these consequences, the developers carried out a hard fork, and also began the formation of a new branch of the block chain. But the old version remained working and is supported by enthusiasts. It is listed under the ticker ETC.
  • Launching a masternode. Such a fork led to the emergence of the DASH crypt. It is an offshoot of another digital asset – Litecoin. In the next update, the developers replaced the consensus with PoS and integrated the masternodes. As a result, the network has become more reliable, and its speed has increased significantly.
  • Create a new asset. Some forks are deliberately carried out in order to release a new cryptocurrency to the market. To do this, an existing chain is taken, forked and a new coin is obtained. Perhaps with some changes in the protocol.
  • Inability to make a decision. Owners of tokens in some blockchains have the right to participate in decisions about further development. If they cannot reach agreement with each other, a fork occurs. That is, the blockchain forks and new projects are formed.

Forking is a natural phenomenon for cryptocurrencies. Moreover, knowing some of the nuances, you can earn on this process.