Hard Fork in Cryptocurrency: What Is It?

What Is a Hard Fork and Why Is It Important? 

A hard fork is a radical change in the operating conditions of a network that can lead to a "fork" in the blockchain and the creation of a new cryptocurrency. It allows for fixing vulnerabilities or changing the course of a crypto project. 

Hard Fork in Blockchain: How Does It Work? 

Imagine that you have updated an application and now have two versions that cannot interact with each other. Some users have switched to the new version, while others have remained with the old one. This is roughly how a hard fork works in cryptocurrency. Developers propose new network rules, and the code is tested, but simply making changes is not enough — most network participants must agree to them. Without consensus, the blockchain splits, resulting in two independent "branches." Each continues to develop according to its rules without affecting the other.  

Why Is a Hard Fork Needed, and What Are Its Causes? 

A hard fork is carried out due to disagreements within the community or the need for technical changes. This may be a dispute about the project's development, block size, commissions, or emission rules. Sometimes, a hard fork eliminates vulnerabilities, speeds up the network, or adds new features. Individual groups may initiate a fork to create their version of the blockchain. 

Who Participates in a Hard Fork? 

The process affects the crypto project team and investors. Key participants include: 

• Developers — propose and write code updates. 
• Validators or miners — decide whether to work with the new version of the protocol. 
• Owners of nodes — choose which chain to continue servicing.  
• Users — monitor changes so as not to lose access to their funds while deciding which coin to support (new or old). 

Examples of Hard Forks in Cryptocurrencies 

Blockchain updates occur regularly and affect leading and lesser-known cryptocurrencies. Below are some of the most notable cases:

Ethereum hard fork 

The hack of the DAO investment project in 2016 led to the theft of millions of ETH. To return the money to investors, the network conducted a hard fork, "rewriting" the history of the blockchain. As a result, a new chain, Ethereum (ETH), appeared, where the hacker's transactions were canceled. Some community members remained on the old Ethereum Classic (ETC) chain, claiming that the update violated the principle of blockchain immutability. 

Bitcoin hard fork 

Disputes over transaction speeds divided the Bitcoin network in 2017. Bitcoin Cash (BCH) increased the block size from 1 MB to 8 MB (later to 32 MB) to speed up payments. Bitcoin (BTC) retained the original protocol, and both coins are developing independently. 

Cardano hard fork 

In Cardano, hard forks occur as part of a roadmap and are agreed upon in advance with the community. Among the key ones is Alonzo, which added support for smart contracts in 2021. This expanded the network's capabilities and paved the way for the creation of decentralized applications. Unlike conflictual hard forks, such updates in Cardano occur smoothly and without a network split.

How Does a Hard Fork Affect the Price of a Cryptocurrency? 

If a hard fork is associated with important improvements — performance, security, or scalability — the price may rise due to investor confidence. However, if there is no unity in the community and the hard fork causes a split, it can lead to a price drop. 

New cryptocurrencies that emerge after a blockchain split attract investors, resulting in a decrease in the market capitalization of the old cryptocurrency and a drop in its price. When a split occurs, users often receive new coins for free, which also affects supply and demand.

Hard Fork vs. Soft Fork: What's the Difference? 

There are two types of blockchain updates, the consequences of which are fundamentally different: 

• Hard fork — an update that can split the blockchain, creating a new cryptocurrency. It is irreversible, and users must choose which chain to continue working with. 
• Soft fork maintains compatibility, allowing old and new nodes to work together. For example, the SegWit update to the Bitcoin network added new features without disrupting the old version. If necessary, a soft fork can be reversed. 

How Do Hard Forks Give Rise to New Projects? 

If the network splits, a hard fork can create a separate cryptocurrency. The new project attracts developers, investors, and users who support its ideas. An active community, listing on top exchanges, and a clear strategy can make it successful. 

Conclusions About Hard Forks 

A hard fork is a significant turning point in the history of a crypto project. It can be a step forward, an attempt to fix mistakes, or the result of disagreements within the community. After a hard fork, new cryptocurrencies, projects, and ideas with different rules, teams, and goals may emerge. Understanding the nature of such updates helps you navigate the world of digital assets and invest your money more wisely. 

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