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Fork

A fork, in the context of blockchain and cryptocurrency, refers to a situation where a blockchain splits into two separate chains. Forks generally happen in the crypto world when new governance rules are built into the blockchain’s code.

Types of Forks:

  1. Soft Fork: A change to the software protocol where only previously valid transactions are made invalid. Since old nodes recognize the new blocks as valid, a soft fork is backward-compatible. This type of fork doesn’t require any action from the user or node operator.
  2. Hard Fork: A radical change to the protocol that makes previously invalid transactions valid, or vice-versa. This type of fork requires all nodes or users to upgrade to the latest version of the protocol software. It can result in two separate versions of the blockchain if not all parties agree to the change.

Reasons for Forking:

  1. Software Upgrades: Developers might want to add new features to the blockchain or change the core rules of the protocol.
  2. Security Reasons: If a vulnerability is discovered, developers might fork a blockchain to bolster its security.
  3. Governance Disputes: Sometimes, disagreements arise in the crypto community about the direction a particular project should take, leading to a fork.

Real-World Examples:

  1. Bitcoin and Bitcoin Cash: One of the most notable hard forks occurred in 2017 when disagreements over scalability issues led to the creation of Bitcoin Cash (BCH) from the original Bitcoin (BTC).
  2. Ethereum and Ethereum Classic: In 2016, after the DAO attack, the Ethereum community had differing opinions on how to handle the situation. This disagreement led to a hard fork, resulting in two separate chains: Ethereum (ETH) and Ethereum Classic (ETC).

Implications for Investors:

  1. Double Coins: Typically, when a hard fork occurs, holders of the cryptocurrency before the fork will own coins on both the original and the new blockchain. For instance, Bitcoin holders received an equivalent amount of Bitcoin Cash after the Bitcoin-Bitcoin Cash hard fork.
  2. Value Fluctuations: The value of the original cryptocurrency and its forked version can be volatile post-fork as the market decides which version has more perceived value.
  3. Security Concerns: Forks can sometimes lead to security vulnerabilities if not executed properly.
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CryptoCurrencyUSDChange 1hChange 24hChange 7d
Bitcoin67,851 0.06 % 2.26 % 3.34 %
Litecoin85.87 0.24 % 0.81 % 4.65 %
XRP0.5299 0.09 % 0.24 % 2.55 %
Ethereum2,197.2 0.23 % 0.67 % 2.46 %
Dogecoin0.1548 0.37 % 0.09 % 7.69 %
Solana171.33 0.79 % 4.02 % 5.62 %
USDC1.000 0.10 % 0.02 % 0.08 %
Cardano0.2543 0.15 % 1.68 % 3.38 %
Tether0.9990 0.10 % 0.04 % 0.02 %
Binance Coin (Wormhole)222.47 0.38 % 4.71 % 3.08 %