A hard fork in cryptocurrency is when a blockchain changes in a way that’s incompatible with previous versions of the blockchain.
A change this radical necessitates all nodes on the blockchain network to upgrade or be unable to operate with the nodes that do upgrade. If some nodes fail to upgrade, the blockchain will split.
A number of cryptocurrencies have been formed by hard forks. Generally, anyone who owned coins on the pre-split network will also own the same amount on both the original network and the new network, created by the upgraded nodes – unless the upgrade is designed specifically to reverse transactions. Updates to the blockchain are undertaken for a variety of reasons, including mitigation of security issues, the addition of new functionality and the reversal of transactions that were the result of hacking.
Examples of hard forks
When the DAO (Decentralized autonomous organization) was hacked in the Ethereum blockchain, a hard fork was initiated in order to reverse the effects of the hack. Some nodes refused to take part in the upgrade. The nodes that failed to upgrade became known as Ethereum Classic, while the upgrade nodes continued to operate as Ethereum. The funds that had been hacked on Ethereum were linked to a new smart contract that would enable the original owners to withdraw them.
When the “New York Agreement”, or SegWit2x, failed to attain a consensus among the Bitcoin community for dealing with the scalability problems Bitcoin was facing, a coalition of various interests planned a hard fork to increase the block size from 1 MB to 2MB. These upgraded nodes became known as Bitcoin Cash, while the nodes that did not upgrade continued as Bitcoin. This split happened on August 1, 2017.
Hard forks represent a challenge as well as opportunity. Hard forks add diversity to the cryptocurrency landscape by allowing features that some in the community want, but are incompatible with the features already offered in the cryptocurrency environment. But they also weaken existing blockchain networks by splitting them in two.