Forking in Blockchain: A Double-Edged Sword for Security and Innovation

Forking in the context of blockchain refers to diverging a blockchain’s history into two or more separate paths

It occurs when a group of participants in a blockchain network adopts a different set of rules or protocols, creating a new branch of the blockchain.

There are two types of forks: hard forks and soft forks. Both these types have different impacts on the compatibility of the blockchain network.

Soft Fork

• A soft fork is a backward-compatible upgrade to the blockchain protocol. It introduces new rules that are more restrictive than the existing rules.
• Soft forks aim to implement changes compatible with the previous protocol, allowing the network to maintain consensus among all participants. It means that nodes running the new software can still communicate and validate transactions with nodes using the old software.
• In simpler terms, during a soft fork, those who upgrade their software can handle the changes and continue their usual tasks. But those who don’t upgrade can still accept the new blocks, even though they might not fully understand them or comply with the new rules.
• Soft forks generally require a majority of the network’s hash power to adopt the new rules. If the majority does not upgrade, the main chain will consider the soft forked blocks invalid, and the forked blocks will eventually be orphaned.

Let’s dive into soft forks with a couple of examples to help illustrate how they work:

Segregated Witness (SegWit) Soft Fork in Bitcoin

Segregated Witness, known as SegWit, is a notable example of a soft fork implemented in the Bitcoin blockchain in 2017. The primary goal of SegWit was to address certain scalability and transaction malleability issues in Bitcoin.

To get an in-depth understanding of what SegWit is, I have written an article you can refer to.

SegWit: What Is It and How Does It Make Bitcoin Faster and Cheaper?

Segwit is derived from Segregated Witness and is an upgrade to the Bitcoin network that aims to solve several issues, such as scalability, transaction malleability, and block size.

Gas Limit Adjustment in Ethereum

Another example of a Soft fork is a gas limit adjustment in Ethereum.

The gas limit determines the maximum computational work a block can handle. Participants coordinate to modify the gas limit through software upgrades.

Miners and nodes using the updated software mine blocks with the adjusted limit, while nodes running older software still accept these blocks. Soft forks like gas limit adjustment optimize network performance and address congestion or increased computational needs in Ethereum.

Hard Fork

• A hard fork is a non-backward-compatible upgrade to the blockchain protocol. It introduces new rules that are incompatible with existing ones, resulting in a permanent divergence of the blockchain history.
• In a hard fork, nodes and miners must upgrade their software to continue participating in the network. Nodes running the old software will not be able to validate or mine blocks according to the new rules.
• Since hard forks create a permanent split in the blockchain, they often result in the creation of a new cryptocurrency, with the original blockchain continuing as one cryptocurrency and the newly forked blockchain creating another cryptocurrency.
• Hard forks can be intentional, where the community and developers plan and execute the fork, or they can occur unintentionally due to a disagreement in the network, software bugs, or other factors.

ETC: Ethereum Classic. Image Credit: Wikipedia

Case Study: ETC

The Ethereum (ETH) and Ethereum Classic (ETC) split is one of the most notable hard forks in the cryptocurrency world. It occurred in 2016 following a significant issue known as the DAO attack.

The DAO (Decentralized Autonomous Organization) was a complex smart contract on the Ethereum network designed to revolutionize how Ethereum projects were funded. The DAO raised a massive amount of Ether during its ICO (around $150 million), but it was soon attacked by an anonymous hacker who exploited a loophole in the DAO’s code to siphon off one-third of the DAO’s funds (around $50 million at the time).

This attack sparked a lot of controversy in the Ethereum community on how to handle the situation. Two immediate solutions were proposed:

1. Do nothing and let the hacker keep the funds. It was based on the principle of immutability, where once something is written in the blockchain, it should never be changed.
2. Perform a hard fork to revert the illicit transactions and return the stolen funds. It was based on the principle that code is not law and that the Ethereum community should not let a hacker profit from an apparent exploit.

The community was split, but the majority decided to go with the hard fork. This resulted in splitting the original Ethereum blockchain into Ethereum (ETH) and Ethereum Classic (ETC).

Ethereum (ETH) is the result of the hard fork, and it’s the blockchain that reversed the DAO hack transactions. It’s also the version of Ethereum that’s more widely used and recognized today.

On the other hand, Ethereum Classic (ETC) is the original Ethereum blockchain that decided to stick to the principle of immutability, meaning it’s the version of Ethereum where the DAO hack transactions were not reversed.

This event was significant because it highlighted the philosophical differences within the crypto community about how to handle attacks and the principle of blockchain immutability.

Forks are a common phenomenon in cryptocurrency and represent a way for blockchain-based systems to evolve. However, they can also lead to significant volatility and uncertainty within the market, mainly if the community is divided over the fork.

It’s worth noting that not all forks result in the creation of a new cryptocurrency. Some forks may be implemented to introduce new features, fix bugs, or address security vulnerabilities without intending to create a separate chain.

When a fork occurs, participants in the blockchain network must choose which chain they will support. This decision can lead to a split in the community, with different factions supporting different chains based on their preferences, ideologies, or objectives.

Final Thoughts

In summary, forking in blockchain refers to the process of splitting the blockchain’s history into separate paths due to the adoption of different rules or protocols. Soft forks are backward-compatible upgrades, while hard forks are non-backward-compatible upgrades that often result in the creation of a new cryptocurrency. Forks can have significant implications for the blockchain community and its participants, leading to consensus, governance, and network dynamics changes.