- Hard forks in the cryptocurrency industry are critical to the rapid growth of the ecosystem.
- Despite this, the community is divided on whether or not they should be carried out.
We cannot deny that Blockchain technology is possibly one of the most interesting and intriguing advances that have happened in the world of technology in the last decade. The decentralization, transparency, security and immutability that it brought to the blockchain have changed absolutely everything and focused the path towards decentralization. But how do hard forks impact the cryptocurrency industry ? What does blockchain have to do with it?
By providing the opportunity for anyone to become part of the network's operations. Blockchain technology laid the foundations for a world managed by its community, where people are the ones who make the most important decisions. But, in a community managed system, there are always going to be some disagreements..
What happens if users start debating about two possible paths to follow? At first glance it seems like a complex situation to solve, although it is precisely for this that forks exist.
A fork is a situation in which new rules or changes are made to the blockchain network; there is a deviation from the previous version of the chain. There are two different types of forks: soft and hard forks. Whereas a soft fork is like a software update to an already existing network; A hard one divides the network from the blockchain and positions it on two different paths..
These hard forks of blockchain networks are essential to the creation of a diverse crypto ecosystem. A little further down we will take a closer look at hard forks and how some of the most popular ones managed to shape cryptocurrencies.
The implementation of a Hard Fork and cryptocurrencies
The nodes or participants of a blockchain network are responsible for running the system. These nodes, on some occasions, propose different changes to the network to obtain new functions or adopt new rules. If there is unanimous agreement on the changes, they are implemented and the blockchain continues as a single network..
But if the nodes start debating whether or not to implement these changes, the blockchain network splits and creates a new chain that implements the new features. This is what is known as a hard fork. However, sometimes the entire set of nodes in a blockchain also perform hard forks on purpose to abandon the old network and move on to a more efficient one.
In a nutshell, a hard fork is generated when code changes are so significant that new incoming blocks are no longer compatible with previous blocks. The network is divided into two chains, where one runs an old version and the other a renewed one with a native cryptocurrency.
Over time, forks in the industry have managed to diversify the space thanks to the introduction of new digital assets. Litecoin and Dogecoin are two great examples of this. They are Hard Forks of the Bitcoin network that make use of its underlying architecture and have their own characteristics that differentiate them. This allows the network to evolve far from where it started by adding new features and functionality.
Obviously, there is a downside and that is the risk of increased volatility thanks to hard forks. However, they can significantly improve the speed, performance and scalability of a blockchain network and give traders many options for digital assets to trade over time.
Are they necessary or not?
While hard forks have proven to be very important for crypto, the community is still divided on whether or not they need to be done. Some networks have made the decision to create non-forking blockchains in order to preserve the original principles of said network. However, forking gives users the power to control the direction of the network, if planned well, it may be a highly relevant factor in rapidly expanding the crypto ecosystem in the future.
