A “hard fork” describes the process of dividing a company’s blockchain. The practice has pragmatic roots: It addresses differing views among developers and miners about how a blockchain should evolve.
Hard forks may allow developers to solve security vulnerabilities and gridlocks and quickly course-correct problems. For example, bitcoin cash’s (BCH) launch as a hard fork from bitcoin (BTC) in late 2017 met the needs of two constituencies who had fundamentally different views on bitcoin’s direction. A subsequent bitcoin fork spawned bitcoin gold (BTG).
Some blockchain observers see the use of hard forks increasing as the technology becomes more common and users pinpoint its application.
In a Forbes.com interview last month, Marouane Garcon, managing director of Amulet, a crypto-to-crypto derivatives platform, predicted that “we’ll enter a period” in which there will be “an influx of forked crypto projects.”
To be sure, hard forks can create new challenges because they diverge from established protocols. Some changes can disrupt a blockchain’s core strengths of accountability, visibility and traceability.
“Perhaps one of the greatest virtues of blockchain trust mechanisms is that they provide a continuous form of accountability,” explains Tiffany C. Li, attorney and resident fellow at Yale Law School’s Information Society Project. “Hard forks break that continuity and create confusion, leading to less trust in the systems.”
Yet these decentralized systems offer smart solutions as long as users discuss technical and other issues. “They are useful if they solve inherent problems with the parent they derive from and if the fork becomes embraced by a large majority,” says Stuart Duncan, CEO of Vice Industry Token, a software fork for Steem. “Periodic forking may ultimately benefit the growth of cryptocurrencies as it has with Bitcoin.”
Bitcoin cash solved a disagreement within the bitcoin network about whether bitcoin should remain an investment currency or play a larger role in transactions.
Duncan sees a continued increase in hard forks, as users look to address new problems securely. “There will be more forks, he says.
However, Duncan adds that “like crypto companies as a whole, some forks will fail and be revealed as scams, and others will be supported.”
Companies and projects have found that transparent communication about hard forks is critical. They must advise users and investors about how changes may impact them, said Patrick Gray, founder at CEO at HashChain Technology, which is publicly traded on the Toronto Stock Exchange.
For example, Gray said that monero (XMR), has made clear its plans to change their proof-of-work algorithm (POW) and block rewards “to dissuade people from building specialized hardware.”
“Specifically, monero uses ‘flag-day activation,’ which is the process through which all nodes and miners switch to use a different code for each block. Flag-day activations create “soft forks” that strengthen the blockchain and make it more scalable, but do not cause new coins to be created the way ‘hard forks’ do.”
Gray adds: “Forking a blockchain involves upgrading the blockchain to new protocols.”