Cryptocurrency has become incredibly popular lately, so more and more people are entering this industry every day. However, not everyone succeeds in making money on it, because, despite the prospects of this area, it is quite complex and requires some technical knowledge. Without this, it is impossible to sensibly assess the situation in the market, which means that it will not work out and correctly invest your funds.
In the crypto industry, there are a lot of terms that are incomprehensible not only to an ordinary person, but also to an experienced programmer. One of these is a fork. This is a fairly common and very important phenomenon for each cryptocurrency, therefore, what fork is worth talking about in more detail. But first, you will need to understand some technical points.
Blockchain
In order to understand what a fork is, and what is the essence of this phenomenon, it is necessary to start with how cryptocurrency generally works. The mechanisms by which it is regulated are fundamentally new in the financial world, but they have already proven their viability and effectiveness, and therefore deserve a more detailed study.
The technological basis of any cryptocurrency is such a mechanism as blockchain. The principle of this technology can be guessed by name. A block in this case is a certain amount of information about transactions in the system. The block has limitations, and in each cryptocurrency its size is different. Blocks are made up of completed transactions, recording them one after another in chronological order. A certain number of transactions made in a row is considered a complete block. “Chain” - literally means “chain”. It's not hard to guess that a blockchain is a chain of blocks that go one after another.
This is the main principle of the cryptocurrency. All transactions are written one after another in blocks, and blocks are included in one big chain. Thus, the chain continues, collecting new transactions. It is important to note that a transfer can be considered perfect only when information about this has been included in a large transaction chain. Prior to that, it is invalid.
The essence of the fork
Now that it has become clear on what principle the blockchain works, we can start talking about what a fork is.
The transaction chain is continuous and straightforward. This means that usually it does not fork. For the word fork, the translation literally sounds like "fork." This is the name of the phenomenon in the system, in which one large chain branches into two, and after separation they continue to work independently of each other.
How does the system work after that?
After the fork (fork), two cryptocurrencies are obtained from one, as now there are two chains of transactions. This happened in 2017 with the largest cryptocurrency in the world - bitcoin.
The chain was straightforward, but at the beginning of the year it received an offshoot. This does not mean that Bitcoin itself no longer exists. He continues to work independently of anyone, following the same rules as before. However, now another independent cryptocurrency has appeared, which is called "Bitcoin Cash". Thus, in the word fork, the translation very well describes the essence of this phenomenon.
The difference between soft fork and hard fork
In order to better understand this difference, let us return to the example of Bitcoin. What happened in 2017 is called hard fork. This implies that after the separation of the chain, a new, completely independent cryptocurrency appeared, which was completely separated from its "parent".
Bitcoin and fork of Bitcoin have completely different courses, different technical specifications and different development teams. In addition, this currency has different clients and wallets, which is fundamentally important in the crypto industry.
If we talk about soft fork, then the separation is softer, and its goal, as a rule, is to correct the system. Cryptocurrency technologies are developing, and developers sometimes decide to upgrade their system. To do this, they specifically create a fork, which is a more perfect clone of their currency. In this case, the user does not need to install a new client, and the system does not change the basic principles of work. This is just a technical upgrade to the Web.
Reasons forka
It is impossible to understand what a fork is and why it is needed if you do not know the features of the Network. The main reason for the emergence of both hard fork and soft fork, of course, is the development of technology. As a rule, branches are already more advanced from a technical point of view. They have a larger block size, greater bandwidth, lower commission.
However, in some cases, a conflict arises between developers. One part believes that the system should be left unchanged, the other insists on technical transformation. This happened with the second most popular cryptocurrency in the world - Ethereum.
A large number of developers and users of the Network were dissatisfied with the new characteristics of the system after its update in 2016. The cryptocurrency fork has become more convenient for smart contracts and crowdfunding projects, however, it has lost a number of advantages that existed before.
The new Ethereum was very successful and began to quickly gain a course. However, the developers decided to hold a hard fork to please all users and leave the old system unchanged. Thus, the Ethereum Classic currency appeared. The Bitcoin fork appeared for the same reason, but there the essence of the transformations was that the new currency received an extended block size and a large bandwidth.
What does this mean for miners?
In fact, whether the new fork will be successful or not, to a very large extent depends on the miners. They decide whether to support the new cryptocurrency or not. As for Bitcoin Cash, it started quite successfully, and many miners directed their capacities to support its work. However, its perspective today is a moot point.
This is an indicative situation for all currencies, because the new Bitcoin, although it received a larger block size, it also received a greater complexity of the Network, which means extra costs for miners. Thus, in the future they will only support the currency that will generate income. And no one knows how much the fork will help in this, until the sale of tokens begins and the rate is set.
Finally
Cryptocurrency is gaining momentum very rapidly, so now is the time to start exploring this area. At first it all seemed technically very complicated and confusing. It’s difficult for a person to understand what a fork in mining is and how a blockchain works, but over time it becomes clear that these are truly innovative technologies that are designed to simplify our lives.