What are blockchain forks and how do they work?

A blockchain is a digitally distributed ledger that records transactions and information across a decentralized network and the “chain” part of a blockchain is a series of consecutive blocks linked together, forming an immutable ledger. 

A blockchain fork is a fundamental concept in blockchain technology during which a single blockchain splits into two or more separate chains, each with its own transaction history and, occasionally, different rules or protocols. Forks can occur for various reasons and can be categorized into two main types: hard forks and soft forks.

Forks are a natural part of the blockchain development process, and they serve as a mechanism for innovation and evolution within blockchain ecosystems. However, in some circumstances, they can also create confusion and challenges for users and developers, so understanding the differences between hard forks and soft forks and their implications is crucial for participants in the blockchain space.

It's essential to note that not all forks result in the creation of new, vibrant ecosystems with corresponding cryptocurrency tokens. Some forks have minimal impact or are short-lived, while others can lead to the establishment of entirely new blockchain networks with unique features, communities, and value propositions.

What is a hard fork?

A hard fork is a significant and irreversible divergence in a blockchain's protocol rules. It results in two distinct and incompatible chains that no longer share a common transaction history beyond the point of the fork.

Hard forks often involve changes to the blockchain's consensus rules, such as altering the block size limit, modifying the hashing algorithm, or introducing new features. An example of a prominent hard fork is “the Merge,” which occurred when Ethereum transitioned from a proof of work (PoW) consensus mechanism to a proof of stake (PoS) consensus mechanism. After the transition to PoS, some devotees of the previous Ethereum model forked out a new chain they dubbed EthereumPoW that resembles the main Ethereum blockchain, but still uses a PoW consensus model.

Users, miners, and nodes must upgrade their software to the new protocol to continue participating in the updated, canonical chain. Those who do not upgrade will likely remain on the original chain and not be able to interact with users on the new chain, missing out on the advantages offered by participating in the ecosystem that accepts the upgrade.

What is a soft fork?

A soft fork is a backward-compatible update to a blockchain's protocol, allowing different nodes and endpoints to interact with each other even though they may be operating on different versions of the blockchain code, though with limited functionality. Soft forks generally don’t produce new cryptocurrency tokens, but hard forks usually do.

In a soft fork, nodes, whether miners or validators, running the updated software will still accept blocks and transactions from nodes running the old software. However, nodes running the old software may not accept blocks and transactions created using the new rules. Nodes on the older blockchain version will need to upgrade to the latest version of the protocol to begin accepting new blocks on the upgraded version.

Soft forks are designed to maintain compatibility with the existing network while implementing changes to the blockchain’s protocol. They typically only require a majority of nodes to upgrade to enforce the new ruleset across the chain’s ecosystem. A blockchain will often deploy soft forks to deploy intermediary updates on the way toward bigger ones that are likely hard forks.

How do blockchain forks happen?

Most often, blockchain forks arise from community proposals that spell out the reasoning for the request, the expected costs and effects, and information about the technical architecture and code changes needed for implementation. The proposals will also justify the choice between a hard or a soft fork and the impact that choice may present to the community of node operators.

From there, the proposal is typically put up for a community vote or through a similar approval method with a public comment period for community members to make suggestions and express their approval or dissent regarding the proposal.

For blockchains using a PoW consensus mechanism, the process for making changes is usually determined by a vote among the miners. If enough accept the upgrade, then the blockchain will be updated. Miners who don’t agree with the change may stop mining blocks and divert their resources to a fork of the previous version of the chain.

PoS-driven blockchains can govern their forking process as one validator, one vote process or weight the voting power according to the value of the validators’ stakes, with room for experimentation in the precise voting mechanisms. Validators who don’t approve of a blockchain upgrade will need to withdraw their stake from the staking contract if they want to proceed with a new fork of the blockchain and commit their tokens to a new staking contract.

Why do blockchain forks happen?

All software needs updating, and blockchains are no different. Successful blockchains need to build in mechanisms for making upgrades, which is what forking is meant to accomplish.

There are a variety of reasons for a blockchain to fork and they vary widely.

When a blockchain’s community wants to improve scalability, security, decentralization, or add new functionality, it will likely need to fork the chain to accomplish that goal. Every chain grapples with the blockchain trilemma and in order to prioritize one element, will occasionally fork its way to a new position that better suits its purpose. A prime example of this motivation in action is the Bitcoin Cash hard fork that aimed to make the blockchain more scalable for everyday transactions.

Sometimes emergency situations arise that require a blockchain’s community to respond quickly, such as a system-breaking hole in a blockchain’s security and this would likely result in a hard fork to prevent the initial issues from ballooning. In the event of a security issue, blockchain communities want to avoid nodes operating on bad code and committing transactions that contain potentially exploited data and harm the network’s integrity.

Disagreements within a blockchain’s community of developers and node operators can also lead to forks, especially when concerned with how a chain should evolve. These departures can spring from preferences for certain technical nuances or develop on ideological grounds — it all depends on the community members’ positions and their responses to popular proposals.

Regardless of the reasoning, it’s crucial that communities who choose to pursue an offshoot of a blockchain understand the technical resources needed to maintain and improve the chain, lest it fall into disrepair and leave the branched community without a viable chain for coordination.

Examples of blockchain forks

Most popular blockchains have had dozens, if not hundreds, of forks, as they’ve made improvements and changes fueled by community sentiments.

The Merge, Ethereum

Ethereum, the first blockchain to popularize the use of smart contracts and the top blockchain for developers, has undergone a number of forks that made headlines in the web3 space

The biggest change took place in September 2022 with the aforementioned “Merge” that saw Ethereum transition from a PoW to a PoS consensus model. The Merge required years of effort from Ethereum developers and ultimately enabled the chain to reduce its energy consumption by over 99.9%. Instead of miners competing to process blocks in exchange for gas fees, Ethereum blocks would now be processed by validators who staked significant quantities of ether tokens (the native cryptocurrency token of the Ethereum blockchain) and were randomly selected by the consensus algorithm. Bad actors found passing faulty transaction data in the blocks could risk losing their staked tokens, while validators would be rewarded a portion of gas fees after successfully processing accurate transaction data. The Merge was a hard fork.

The Shapella fork, Ethereum

Since the Merge, Ethereum underwent another major upgrade in April 2023, colloquially known as the “Shapella” fork, a portmanteau of the Shanghai and Capella hard forks which, when combined, permitted validators who staked ether tokens to withdraw and access their funds. This ability to withdraw allowed validators securing the network with their stakes to have more liquidity, no longer bound to the year-long lockups previously required.

The DAO fork and Ethereum Classic, Ethereum

In Ethereum’s early days, a project called “The DAO” raised about $150 million in ether in 2016 and lost a good chunk of those funds due to hackers exploiting flaws in its codebase. The Ethereum community responded with a hard fork that reverted the history of the blockchain to the block before the hack, essentially returning the funds to The DAO.

While most of the Ethereum community at the time supported the move, a significant number of detractors felt that reverting transactions wasn’t justifiable and violated the principles of immutability that blockchains promise. In response, they forked a version of the Ethereum blockchain from right before the reversion and dubbed the new chain “Ethereum Classic.”

Bitcoin Cash fork, Bitcoin

The world’s first blockchain, Bitcoin was launched in 2009 as the first known use of decentralized computing and cryptography to create a verifiable public ledger, using a PoW consensus model. Bitcoin’s native cryptocurrency token is known as Bitcoin.

In 2017, the Bitcoin community had a split over the standard block sizes, which would determine how the network could scale. A faction of the community wanted Bitcoin to become more of a medium of exchange, while the community at large preferred using the chain as a store of value. The splinter group forked Bitcoin into a new chain it dubbed “Bitcoin Cash” that had a larger block size and could theoretically process more transactions per second.

Another split developed in the Bitcoin Cash community in 2018, again over block size. Bitcoin SV emerged and hard forked from Bitcoin Cash to quadruple its block size.

Taproot fork, Bitcoin

In 2021, the Bitcoin blockchain made a major hard fork upgrade known as Taproot, which improved the efficiency and privacy of transactions and prepped the chain for smart contracts and layer 2 support for the Lightning network that seeks to make Bitcoin more scalable. The Taproot fork is the upgrade that makes Bitcoin Ordinals a possibility.