What is Blockchain Fork?

A fork occurs when the software governing a blockchain network is updated and the new rules are not fully backward-compatible with the old rules. There are two main types:

• Soft fork: A backward-compatible upgrade where new rules are a subset of the old rules. Nodes that have not upgraded can still participate and accept blocks produced by upgraded nodes, though they cannot produce blocks under the new rules. The network converges on a single chain. Bitcoin’s SegWit upgrade in 2017 was implemented as a soft fork.
• Hard fork: A rule change that is not backward-compatible. Upgraded and non-upgraded nodes disagree on which blocks are valid, causing the chain to permanently split into two separate chains if both sides have enough support. Each chain has its own history from the fork point forward.

Notable hard forks that created independent networks:

• Bitcoin Cash (BCH): Split from Bitcoin in August 2017, increasing the block size limit to allow more transactions per block.
• Ethereum / Ethereum Classic: Split in 2016 following the DAO hack, with the majority chain reversing the hack’s transactions (Ethereum) and the minority preserving the original history (Ethereum Classic).

When a hard fork creates a new coin, holders of the original asset typically receive an equivalent amount of the new coin at the time of the split. The two assets then trade independently.

Not all forks are contentious. Many are planned network upgrades coordinated among node operators, miners or validators, exchanges, and developers, resulting in a smooth transition without a permanent chain split.