Fork

A “fork” in the context of cryptocurrency refers to a situation where an existing blockchain splits into two different paths. This usually occurs when new governance rules or significant software changes are being implemented, which are not compatible with the older version. There are two types of forks:

1. Soft Fork: This is a backward-compatible change, meaning that non-upgraded nodes are still able to process transactions and push new blocks to the blockchain. However, blocks created by nodes using the old version will not be valid according to the new version. Over time, as more nodes upgrade to the new version, the probability of old version blocks becoming dominant decreases.
2. Hard Fork: This is a non-backward-compatible change to the protocol, creating a permanent divergence from the previous version of the blockchain. Any nodes not upgraded to the new software will not be able to validate blocks created by nodes that have upgraded. In the case of a hard fork, if not all nodes agree to the update, the blockchain can split into two separate chains – each running a different version of the protocol.

Forks are important events in a cryptocurrency’s development as they often involve improvements or changes in the blockchain’s protocol. Bitcoin, for example, has undergone several forks leading to the creation of Bitcoin Cash, Bitcoin Gold, and others. Ethereum also had a significant fork leading to the creation of Ethereum and Ethereum Classic.