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Cryptocurrencies are powered by blockchains that are open-source and decentralised software made up of literal blocks. A block is essentially a collection of records, and the records can be anything, from a list of transactions to your network usage data. Since blockchains are open-source and decentralised, they heavily rely on the community to make changes or decide the future of the blockchain.
Significant changes in codes are called forks. In the world of programming, a fork is an updated or new version of the code. A fork can also be made when a community makes changes to a protocol and can refer to two separate ways that a blockchain can continue. These changes (or forks) can be categorised into soft or hard forks.
Forks in crypto can be categorised as soft forks or hard forks. Let's elaborate on each one.
A soft fork doesn’t affect the blockchain entirely since the changes don’t have a huge impact and are minimal. Therefore, they do not require participants’ agreements. In PoW blockchains, soft forks don't need miners to do anything different, i.e., change their software or the blockchain, and they can keep on mining like before the fork and don't need to do anything else.
In a hard fork, new blocks are so different from the old blocks that it requires the miners to change their software since they can’t work with the old ones anymore. The miner needs to change their system, change a few numbers, or install an entirely new system to keep contributing to the network. A hard fork also requires all the participating people to make a change to continue participating.
Many will think hard forks aren’t that secure since they vastly change the system. However, according to Ethereum’s founder Vitalik Buterin, soft forks can be more dangerous since they don’t require the participants to agree to a change.
Did you know the Ethereum blockchain, which ranks #2 in market cap rankings, is a hard fork of Ethereum Classic? Let’s take a look at some successful forked projects.
During Ethereum's early days, a DAO organisation of 11,000 investors had invested in the project. A DAO is a group of crowd-funded investors that invest in a specific protocol. The invested money would be used for the growth of Ethereum, which would then return with a profit and be given back to the investors. The DAO had invested more than $150 million in the project, but a hacker found a bug in the code and stole one third ($50 million) of the fund. It eventually resulted in the hard fork. The hard fork is now known as Ethereum, and the old code is known as Ethereum Classic.
Litecoin is a hard fork of Bitcoin, which has improved the speed and cost of blockchain transactions. A change they made in the original code is that they quadrupled the total supply. There can only ever be 21 million Bitcoins, but it was increased to 84 million in Litecoin. The block size also got bigger, which decreased the block time. These result in lower transaction fees and faster transaction processing.
Bitcoin Cash is also a fork of Bitcoin and is similar in many ways, but it was intended to be more scalable. Bitcoin is able to process only five transactions per second. With the fork, the block size was increased to the point that it enabled Bitcoin Cash to process up to 60 transactions per second.
Uniswap is one of the largest open-source DEX (Decentralized Exchange) platforms based on Ethereum. In August 2020, an anonymous developer called Chef Nomi forked the code of Uniswap to create SushiSwap. In October 2020, Uniswap’s code got forked again and resulted in the creation of QuickSwap. QuickSwap offers the same liquidity pool model built on the Polygon network. Moreover, it is also compatible with the Ethereum blockchain, allowing users to swap ERC-20 tokens.
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