When a blockchain forks, a new blockchain is created based on an existing blockchain. Think of it like an exit when driving on a highway: the highway remains, but a new road follows a different course.
Hard Forks and Bitcoin
Hard forks occur when a group of developers or members of a crypto community are dissatisfied with certain features of the blockchain. The reasons vary, but some possible causes for a hard fork to occur could be changing block sizes, increasing security measures, adding new features, or even undoing fraudulent transactions.
For a hard fork to happen, there must be disagreement between the community and the miners over current protocol. Since miners help facilitate transactions on the blockchain, they have the power to implement a new protocol. If a large enough group of miners wanted to increase Bitcoin’s block size from 8 MB to 32 MB, they could cast a vote. This is how the first Bitcoin hard fork, Bitcoin Cash, was created.
Miners who wanted to create a larger block size (which would increase transaction speed and reduce costs) suggested voting to increase Bitcoin’s block size. The vote was not approved by the majority of current Bitcoin miners, so developers who were in favor of increasing block sizes went ahead with a hard fork. Thus Bitcoin Cash was born.
Most hard forks resemble the blockchain from which they originate. Apart from a few tweaks, Bitcoin Cash is very similar to Bitcoin.
Once created, Bitcoin Cash miners and participants could exchange their Bitcoins for an equal value of Bitcoin Cash if they chose to adopt the new cryptocurrency.
WHAT IS A “BLOCKCHAIN”?
Other examples of hard forks
Since the inception of Bitcoin Cash, more and more hard forks have emerged. Even Bitcoin Cash turned into Bitcoin SV.
Other notable hard forks include Ethereum and Ethereum Classic. As a result of a hack, developers and community members came up with a hard fork proposal to pay back those who lost money to the hack and erase the hack from blockchain history. The new fork is now known as Ethereum. Some have decided to stick with the old, unmodified version, which is now called Ethereum Classic.
More recently, another hard fork took place in one of the world’s most valuable cryptocurrencies by market cap, Terra. The native Luna cryptocurrency and algorithm-backed stablecoin UST took a hit after a widespread decline in crypto markets. The algorithm that supports UST lost $1 and Luna also lost value then. Both have lost almost all of their value.
In an effort to salvage the original ideas and goals of the Terra blockchain, founder Do Kwon proposed a hard fork to give the blockchain a fresh start. Now known as Terra Classic, the new hard fork introduced a handful of changes with the promise of averting another catastrophe like the one of early May 2022.
It can help to think of hard-fork cryptocurrencies as cousins within the same family. For example, Bitcoin, Bitcoin Cash and Bitcoin SV all have more similarities than differences. The same goes for Ethereum and Ethereum Classic or Terra and Terra Classic. They all have a resemblance to their old blockchain, but certain ideas have introduced a hard fork to forge a new cryptocurrency.