The two types of forks that can occur on a blockchain network are hard forks and soft forks.
A hard fork means a permanent split in the blockchain. In practical terms, a hard fork means that a party issues an upgrade to blockchain software and upgraded software will not work with the previous version of the software. Nodes on the blockchain network that are running non-upgraded software will not be able to validate the blocks created by the new software. They will also not be able to add these blocks to their copy of the blockchain unless they download and install the upgrade. This means that the blockchain will split into two: new nodes will be creating new blocks and working with each other and old nodes would be creating blocks according to old rules. The old software will be deeming blocks created by new software invalid and will not be accepting them.
A soft fork is a temporary split of a blockchain that occurs because non-upgraded nodes stop being compatible with new rules. This means that while the original blockchain contains blocks that were created according to old rules, it would also accept blocks created by the nodes running on the upgraded software.
A hard fork enables a network to change rules very quickly. Implementation of a soft fork requires the majority of the nodes on the network upgrading to the new software. If this doesn’t happen, then the soft fork will fail because the majority of the nodes will keep creating blocks according to old rules and the network will remain unchanged
Most popular Bitcoin and Ethereum forks
Bitcoin had a number of forks over the years. This is the main reason why some people use a name of Bitcoin Core to separate Bitcoin from all of its forks, the most popular one of which has been Bitcoin Cash.
Bitcoin Cash came into existence on August 1, 2017 as a result of a hard fork from Bitcoin Core. The fork was a result of the Bitcoin scalability debate. Bitcoin Cash developers have increased the size of the block of the blockchain from 1 megabyte to 8 megabytes. The last common block for both Bitcoin Core and Bitcoin Cash was block #478558. Block #478559 was the first unique Bitcoin Cash block. Bitcoin Cash had a lot of supporters in Bitcoin community, including Roger Ver and Calvin Ayre. Eventually, many of the popular cryptocurrency exchanges, including Coinbase, Bitfinex, Kraken and other started trading Bitcoin Cash next to Bitcoin Core. Bitcoin Cash is also compatible with most hardware cryptocurrency wallets such as Ledger, Trezor and KeepKey.
Bitcoin Classic was another hard fork from Bitcoin Core that was trying to solve the scalability issue of the Bitcoin Core blockchain. Bitcoin Classic launched in February of 2016 by increasing the size of the Bitcoin block from 1 megabyte to 2 megabytes. In November of 2016, the developers of Bitcoin Classic announced that the blockchain network won’t have a limit at all and the decision about block size will be in the hands of miners. The Bitcoin Classic has never gained a lot of support, which is why the project ceased to exist in November of 2017 and has announced that Bitcoin Cash was the only hope for Bitcoin to resolve its scalability issues.
Bitcoin XT was a fork from Bitcoin Core that occurred in 2015. The proposal behind Bitcoin XT was to first double the size of Bitcoin block and then increase it exponentially over time. The issue of scalability was not a pressing one in 2015, which is why the fork did not gain a lot of support.
The most popular hark fork of Ethereum has been Ethereum Classic. Ethereum classic highlights the issue with the lack of finality with proof-of-stake blockchain networks.
The fork has occurred because of a project called “The DAO” (not to be confused with a dao, which is short for a decentralized autonomous organization). At the time, The DAO has become the largest crowd sale on the Ethereum platform. However, the project had an issue with its code and hackers were able to change it in a way that would have allowed them to divert about 30% of the funds that the project collected during the sale, or about USD$50 million at the time, in 30 days. A vote has occurred on the Ethereum network and the majority has decided to introduce a smart contract to the network that would prevent the hackers from diverting the funds. However, a certain percentage of members disagreed. They believed that irreversibility of transactions was a fundamental property of blockchain networks and once things happen, they should not be changed. They also believed that modifying an error once and putting a network through a hard fork was a slippery slope because in the future it would be easily possible to find reasons to introduce changes to other contracts after the problems occur. For both those who were supporting the fork and those who were against it, the value of the Ether currency was a major concern. Volatile fluctuations of value happen with most proof-of-work blockchains during the forks because of the high degree of uncertainty that comes from the absence of finality and the advantages that availability has over finality on the open-source blockchain networks.
In June of 2017, developers behind Ethereum Classic announced that the Classic Ether Wallet has been compromised. They have later worked with CloudFlare, an Internet security services company, to warn visitors of the compromised domain and users of the wallet.