In the pre-blockchain days, copying a company’s intellectual property and software was illegal. Still, for every successful company, there were competitors trying to copy their success: Coke and Pepsi, Nike and Adidas, Apple and Samsung, etc. The blockchain revolution changed all of these rules when it by and large adopted as its ethos the open sharing of source code, which made copying both legal and easy.
What are blockchain forks?
What is a fork in crypto? By design, blockchains work by keeping a record (usually public) of every single block and attaching each new accepted block to this chain. If part of a particular blockchain’s community doesn’t like the direction that blockchain is taking, they can do so by “forking” that blockchain and thus creating another blockchain with the exact same past but an independent future. That’s called a crypto fork, when the blockchain splits in two. In this way, crypto is a much more open system than the earlier ones.
Why do forks occur?
Crypto forks occur for many reasons. One early famous case of blockchain forks happened when the Ethereum foundation made a decision on The DAO hack that part of the community didn’t like and so they forked ETH to create ETC (Ethereum Classic). The Bitcoin Cash blockchain fork was a result of a disagreement on a decision not yet made regarding increasing block size and other measures to make the bitcoin network more scalable.
Forking crypto can also happen when people want to replicate the success of a project by creating a rival with much of the same code. This was the case of Sushiswap’s decision to fork blockchain of the market-leading Uniswap and trying to win over much of its customer base.
Soft forks and hard forks
What is a hard fork in cryptocurrency? What is a soft fork? What is a hard fork can best be understood by learning about soft forks too. There is an important distinction between hard forks and soft forks. When you hard fork crypto, you get two blockchains running in parallel (though each with different parameters since a change was made to one of them). However, in a soft fork, everyone adopts the new blockchain and the old one dies for the lack of new blocks added to it and nodes maintaining it. Soft forks occur all the time when a blockchain needs to be updated with new code to implement changes. Essentially, a clone is created with each update or upgrade and the “original” is discarded. In contrast, a crypto hard fork keeps both versions if enough of the community supports each. That’s the basic difference between a soft fork vs hard fork. And both are certainly valid options.
Accidental and intentional forks
In a typical PoW (Proof of Work) blockchain, such as the bitcoin network, the first miner to solve a mathematical problem gets awarded with payment (in this case, Bitcoin) and that block is added to the blockchain. Yet, sometimes, two or more miners solve the problem nearly at the same time and both get to add it to the blockchain. This creates an accidental fork that gets resolved with the next block — once that block by consensus is added to one of the versions of the forked blockchains which then becomes the permanent one, while the others are abandoned.
Forks in practice
Because many blockchain-based projects keep their code open source, there are hundreds if not thousands of crypto forking instances happening. People make a hard fork meaning to benefit from the original code. Sometimes, a fork is made to try salvaging a project that fell on hard times, like what happened recently with LUNA. At other times, a fork is used as a massive shortcut to coding your project from scratch. If you have a lending protocol you want to run on the blockchain, why spend months and massive amounts of money coding it from scratch when you can fork COMP or AAVE? No matter how many times Uniswap is cloned, there are always more teams popping up ready to fork its code and try something a bit different.
How are forks continuing to change the crypto landscape?
Besides giving more variety to the crypto landscape and pushing crypto development cycles into hyperspeed, forks are a powerful mechanism for creating entire ecosystems in crypto. But it’s not enough to fork crypto blockchains. For example, most DAOs are forked from Maker DAO’s code. Many NFT collections are forking thrones that worked before, both in code and in concept. Once people learn how to fork a cryptocurrency, it’s pretty easy to do. This may change as the industry matures, but so far massive open copying is leading to massive development pushing each other to go bigger, innovate faster, and take on bigger risks in order to find what works for the market, not just technically.