Working of bitcoin forks

Working of bitcoin forks

Bitcoin, a decentralized currency can be forked. Forks are created because of varying perspectives on the history of transactions. These forks vary in their goals and pricing too. Usually, these are of two types i.e. hard and soft forks.

Soft forks: this is a change to the protocol of Bitcoin, instead of changing the final product. The main difference between a hard and soft fork is that there is backward compatibility in the soft fork. So the old nodes would be recognized by the new protocol in the system. So there is no new product launch in this case.

Hard forks: in this method, a unique and new version of bitcoin is created that is split from the base version. There is no communication or transaction between the two created versions of bitcoin after the process of the hard fork. They are altogether separate and this change is irreversible.

old version of bitcoin software

If you are using the old version of bitcoin software then you will not be in a position to interact with the users that have got the new and upgraded version of the software and the same is vice versa. So now two different currency types are created, but now the currency cannot be interchanged.

In a real-world case, you can compare forks with splits in organizations that lead to the creation of two companies. These companies move in two separate directions with different teams and management. One example of the hard fork is Bitcoin Gold, Bitcoin, and Bitcoin Cash.

These separate currencies of the crypto world belong to the bitcoin family but have different rules and operate independently. Even their origin might not be the same original bitcoin.

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October 2021