Cryptocurrency has become incredibly popular lately, so more and more people are entering this industry every day. However, not everyone manages to make money on this, because, despite all the prospects of this area, it is quite complex and requires some technical knowledge. Without this, it is impossible to reasonably assess the situation on the market, which means that it will not work out and invest your funds correctly.
There are a lot of terms in the crypto industry that are incomprehensible not only to an ordinary person, but also to an experienced programmer. One of these is "fork". This is a fairly common and very important phenomenon for each cryptocurrency, so it’s worth talking about what a fork is 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 works in general. The mechanisms by which it is regulated are fundamentally new in the financial world, but they have already proven their worth and effectiveness, and therefore deserve more detailed study.
The technological basis of any cryptocurrency is a mechanism such as blockchain. About the working principle of thistechnology can be guessed by the 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 full-fledged block. "Chain" - literally translated means "chain". It is not difficult to guess that the blockchain is a chain of blocks that follow each other.
This is the basic principle of the cryptocurrency. All transactions are recorded one after another in blocks, and the blocks are included in one large chain. Thus, the chain continues, collecting new transactions. It is important to note that a transfer can only be considered completed when information about it has been included in a large chain of transactions. Until then, it is invalid.
The essence of the fork
Now that it became clear on what principle the blockchain works, we can start talking about what a fork is.
The chain of transactions is continuous and straight forward. This means that it usually does not branch out. The word fork literally translates as "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 a fork (fork) has occurred, two cryptocurrencies are obtained from one, since now there istwo chains of transactions. This happened in 2017 with the largest cryptocurrency in the world, bitcoin.
The chain was straight, but at the beginning of the year it received a branch. This does not mean that Bitcoin itself no longer exists. He continues to work independently of anyone, according to the same rules as before. However, another independent cryptocurrency has now appeared, which is called "Bitcoin Cash". Thus, the translation of the word fork very well characterizes the essence of this phenomenon.
Difference between soft fork and hard fork
To better understand this difference, let's go back to the example of Bitcoin. What happened in 2017 is called a hard fork. This implies that after the split of the chain, a new, completely independent cryptocurrency appeared, which completely separated from its "parent".
Bitcoin and a fork of Bitcoin have completely different rates, 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 a soft fork, then the separation is softer, and its purpose, as a rule, is to correct the system. Cryptocurrency technologies are evolving 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 principleswork. This is just a technical upgrade of the Network.
Reason for the fork
Understanding what a fork is and why it is needed is impossible 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, higher bandwidth, lower fees.
However, in some cases, a conflict arises between developers. One part believes that the system should be left unchanged, the other insists on a technical transformation. This happened with the second most popular cryptocurrency in the world - Ethereum.
A large number of developers and netizens were dissatisfied with the new features of the system after its update in 2016. The cryptocurrency fork has become more convenient for smart contracts and crowdfunding projects, but has lost a number of advantages that existed before.
The new Ethereum was very successful and began to gain momentum quickly. However, the developers decided to carry out a hard fork to please all users and leave the old system unchanged. Thus, the Ethereum Classic currency appeared. The fork of Bitcoin appeared for the same reason, however, the essence of the transformation was that the new currency received an expanded block size and greater bandwidth.
What does this mean for miners?
Basically, whether the new fork is successful or not, into 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 power to keep it running. However, its prospects today are debatable.
This is an indicative situation for all currencies, because the new Bitcoin, although it received a larger block size, it also received a greater network complexity, which means extra costs for miners. Thus, in the future, they will only support the currency that will generate income. And how much the fork will help in this, no one knows until the sale of tokens begins and the rate is set.
In conclusion
Cryptocurrency is gaining momentum very rapidly, so now is the time to start exploring this area. At first, it all seems technically very complicated and confusing. It is difficult for a person to understand what a fork in mining is and how the blockchain works, but over time it becomes clear that these are really innovative technologies that are designed to simplify our lives.
