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Sunday, August 7, 2022

Cryptocurrency Forks – Everything You Need to Know

The term ‘forking’ is frequently used in the field of cryptocurrency and blockchain. Forks are a common occurrence but are often misunderstood or poorly described.

A crypto fork occurs when a digital currency separates into two. Forks can happen as a result of conflicts amongst the currency’s software developers. In that case, some members of the development team will implement their own version of the project, resulting in the creation of multiple cryptocurrency types. For instance, Bitcoin SV emerged from the hard fork of Bitcoin Cash that occurred in 2018.

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In this post, we’re discussing forking, how it affects users, the difference between hard and soft forks, and more.

Cryptocurrency Forks Hard  Vs.  Fork

There are two main types of cryptocurrency forks: hard fork and soft fork.

In order to comprehend what a hard fork is, you must first comprehend blockchain technology.

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Blockchain is a collection of electronic data kept on a computer system and secured by a consensus technique, the most common of which are Proof-of-Stake (PoS) and Proof-of-Work (PoW). The blockchain is made up of individual “blocks,” each containing several transaction hashes. When a new block is mined, the hash of the previous block in the chain is combined with a new set of transactions to produce a hash for the current block.

A hard fork is a permanent divergence from a blockchain’s most recent version, resulting in the blockchain’s separation as certain nodes no longer reach consensus and two separate versions of the network are run.

This means that a fork occurs on the blockchain, with one path continuing to obey its existing set of rules and the other adopting new ones. Because a hard fork isn’t backward compatible, the old version doesn’t recognize the new one.

Because of the frequent chain split, hard forks are typically regarded as unsafe. The network becomes less secure and more prone to assaults if there is a split between the miners who secure the network and the nodes who help validate transactions.

Besides the above-mentioned Bitcoin SV, Bitcoin Cash and Bitcoin Gold are the two most popular bitcoin hard forks, but there have been a few more. The split between Bitcoin and Bitcoin Cash, which happened in August 2017, was a result of a fundamental disagreement on whether SegWit was the optimal method for increasing the number of transactions handled per block. Bitcoin XT, created in 2014, was the first notable bitcoin fork.

Soft forks are seen as a safer, backward-compatible solution, meaning that nodes that don’t update to later versions will still consider the chain to be valid. A soft fork can be used to add new functions and features without changing the rules that must be followed by a blockchain.

Can Both Cryptocurrency Forks Exist at the Same Time?

Throughout the history of cryptocurrencies, forks have occurred frequently. When a hard fork occurs, two sides usually emerge, each with extremely distinct goals and ideas. In such situations, the communities usually support one of the two branches. Both chains may stay operational for a long period, or one of them can completely vanish.

For instance, as a result of a fork in 2014, Ethereum Classic, and the fork that took place was dubbed The DAO, coexisted on their network before splitting off into separate businesses.

How to Stay Up to Date on Cryptocurrency  Forks?

There are several methods to stay up to date on upcoming crypto forks, but the best way is through social media or participating in forums. Twitter and Reddit are excellent resources when it comes to staying on top of what’s going on with potential forks.

People that are part of these online communities will share plenty of information when a fresh crypto fork is disclosed, including the date of the fork and where to find the new coin’s wallet to claim your tokens.

Final Thoughts

There are a plethora of forked cryptocurrencies to select from, but their worth and utility are debatable. Litecoin is the most well-known, having established itself as a useful commodity for microtransactions, making it easier for individuals to transmit payments without incurring exorbitant costs. So, before you buy in a forked cryptocurrency, it’s best to do your research. And, like with any other investment, never put more money into it than you can afford to lose.

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