In the past year Ethereum went through two forks – soft and hard. One was intentional, the other – unintentional. Now rumor is that the biggest cryptocurrency on the market faces a possible hard fork and an uncertain future. While traders are worried and prepare for the worst case scenario by choosing to invest in rival cryptocurrencies, the community fails to agree whether a potential hard fork would be a good solution.
What is a “fork”?
When a problem in the blockchain is noticed by the community of miners and developers, it can be solved by a fork, i.e. by changing the consensus rules in the blockchain. This change can be done in two ways – soft or hard fork. While the soft fork can fix small issues, the changes in consensus rules made by applying a hard fork proved to lead to risky and uncertain outcome like in the Ethereum case. Recent developments point out that the first, pioneer cryptocurrency could now be facing a hard fork that caused a major discussion and left its community at odds. So, why a potential hard fork causes so much unrest?
The difference between the “soft” and “hard” fork is that when the fist one is implemented the majority of hash power must support the change and the blocks produced during the new rules are valid under the old rules too. However after a hard fork – the consensus rules change would remove rules from the protocol thus making all previously invalid blocks – valid.
That means that when a soft fork is implemented, even the nodes that did not upgrade to the new rules will continue to follow the longest chain but under the hard fork – any node that does not implement the change to the new rules would remain invalid and stay on the “old” blockchain. Therefore under the hard fork the blockchain splits in two – old and new, with no clarity which one of those blockchains would be preffered by the community of miners and developers. Hence the outcome of a hard fork is a new blockchain that might or might not be supported by miners and developers, because the decision which blockchain to be maintained depends on too many peers.
Hard fork – lessons from Ethereum
That was the case with the Ethereum’s hard fork, when the community disagreed which blockchain to support and as a result – two coins came to existence – the classic ethers (ETC) and the alternative ethereum coin (ETH). The Ethereum classic is a replica of the original Ethereum blockchain that should have been discontinued. The existence of two blockchains and coins subsequently affected the price of the coins and the way exchanges treated them.
What led to the Ethereum hard fork was the hacking of their DAO project in 2016, i.e. the distributed autonomous organization of Ethereum that raised $150 million in Ether during a public crowdsale. However the DAO project was compromised when someone used a valid action in the code to move the funds to another DAO. As a result the community voted to change the code so that the funds are moved away from the attacker. The result was a hard fork.
Industry experts believe that from a technology perspective, the Ethereum hard fork is not a bad thing. Despite the fact that a minority of developers continued to use the so called now Ethereum Classic, experts believe that this is a unique development that would be interesting to follow, especially in case a potential hard fork affects other blockchains and cryptocurrencies.
SOURCE: OneCoin Ltd.