What is a hard fork?

Each blockchain works on the basis of a protocol-an application consisting of various components. The code of the protocol of most popular blockchain projects is open. This means that it is published entirely and it can be freely copied.

Code of blockchain protocols is constantly being finalized: the found errors and vulnerabilities are removed and improvement is added. Some of these changes can be quite large -scale. Then the developers make a hard fork: they do not change the current version of the protocol, but create a parallel copy of it, where they add a new code. And only then the validators or operators of the Bitcoin-Node switch to the new version of the protocol. Of course, if they agree with the proposed changes.

This approach allows you to maintain blockchain stability, because the current protocol remains unchanged and is not at risk of failures when updating.

This happened as a result of the same hacking of The DAO: the majority supported Vitalik Buterin’s proposal for compensation to the victims through the hard fork, but part of the community did not agree with this. As a result, Ethereum Classic appeared.

A similar case occurred with bitcoin: different views on Hardware wallets. scaling the first cryptocurrency through improving its protocol led to the fact that some developers and miners formed the Bitcoin Cash project in 2017.

Forks are also called third-party projects, the code of which was copied from some other protocol. So Sushiswap appeared, the creators of which brought only small edits to the source code of the decentralized exchange of Uniswap.

How hardform affects the cryptocurrency course?

This kind of events almost always affect cryptocurrency prices. If the hard fork is designed to solve some large-scale problems of the blockchain project, there is a consensus regarding its need and the community awaits it, then the price of the cryptoactive of this network will increase with a high degree of probability.

But if the hard fork leads to a split in the community, does not meet the tasks of the development of the project or does not go as planned, then it is likely that as a result, native cryptocurrency will lose in value. Most often this is due to investors’ doubts regarding the further prospects of this blockchain.

One way or another, the hard fork creates for cryptocurrency the risk of uncertainty.

How the software differs from the hard fork?

If the hard fork is a “tough” update that requires a transition to a new “branch”, then the software is “soft”, usually insignificant changes, for which there is no need to restart the network on the new protocol.