When a blockchain hard forks, a new blockchain is created from an existing one. Think of it like an off-ramp when driving on a highway: The interstate remains but a new road follows a different course.
Hard Forks and Bitcoin
Hard forks occur when a group of developers or members of a crypto community become dissatisfied with certain characteristics of the blockchain. Reasons vary, but some possible causes for a hard fork to take place could be to change the size of the blocks, increase security measures, add new features, or even reverse fraudulent transactions.
In order for a hard fork to take place, there must be a disagreement amongst the community and miners on the current protocol. Because the miners help facilitate transactions on the blockchain, they possess the power to implement a new protocol. If a large enough group of miners wanted to increase the size of Bitcoin’s blocks from 8 MB to 32 MB then they could initiate a vote. This is how the first hard fork of Bitcoin, Bitcoin Cash, was created.
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Miners who wanted to create a larger block size (which would increase transaction speeds and lowers fees) proposed a vote to increase Bitcoin’s block size. The vote was not favored by a majority of the current Bitcoin miners, so developers in favor of increasing the block size implemented a hard fork. Thus, Bitcoin Cash was born.
Most hard forks resemble the blockchain they originated from. Other than a few tweaks, Bitcoin Cash is extremely similar to Bitcoin.
Once created, miners and participants of Bitcoin Cash could exchange their Bitcoin for an equal value of Bitcoin Cash if choosing to embrace the new cryptocurrency.
Other Hard Fork Examples
Since Bitcoin Cash was created, more and more hard forks have come around. Even Bitcoin Cash hard-forked into Bitcoin SV.
Other notable hard forks include Ethereum and Ethereum Classic. Due to a hack, developers and community members introduced a hard fork proposal to refund those that lost money to the hacker and to erase the hacking from the blockchain’s history. The new fork is now known as Ethereum. Some decided to stick with the older, unaltered version which is now Ethereum Classic.
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Even more recently, another hard fork occurred in one of the world’s most valuable cryptocurrencies by market cap, Terra. Its native cryptocurrency Luna and its algorithmically backed stablecoin UST became battered as the result of a widespread selloff in crypto markets. The algorithm backing UST depegged from $1 and Luna subsequently lost value as well. Both lost nearly all their value.
In an attempt to save the original ideas and goals of the Terra blockchain, founder Do Kwon proposed a hard fork to give the blockchain a fresh start. Now known as Terra Classic, the new hard fork has introduced a handful of changes with the promise of avoiding another catastrophe like the one in early May 2022.
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It could help to think of hard-fork cryptocurrencies as cousins within the same family. For example, Bitcoin, Bitcoin Cash, and Bitcoin SV all share more similarities than differences. The same goes for Ethereum and Ethereum Classic or Terra and Terra Classic. All of these have a resemblance to their former blockchain, but, due to particular ideas, a hard fork was introduced to forge a new cryptocurrency.
