A Fork in the context of cryptocurrency is a situation when a blockchain divides into two separate blockchains going forward, either due to a software upgrade or from a disagreement in the community. This is most commonly seen with public (open source) blockchains, and can result in two different versions of the same blockchain existing at the same time.
Forking a blockchain is a process that involves making a copy of the entire existing blockchain and its associated transactions, in order to start a new branch with different rules and/or software. This forked version of the blockchain is usually referred to as a “sidechain”, and it can be used to gain access to new features and services that are not available on the original blockchain.
Depending on the type and scope of the fork, there could be both technical and economic implications. For example, if a hard fork occurs, the nodes (the computers running the software) will need to update to the new version of the software. This is required in order to ensure they remain compatible with one another. What happens to the tokens in the split depends on the particular fork and if a token swap is needed to transition from the old chain to the new one.
A hard fork is a permanent divergence from the previous version of the blockchain, meaning the nodes in the network will no longer be in consensus and will need to use different protocols to achieve consensus. This kind of fork can also lead to the creation of two distinct cryptocurrencies, one based on the pre-fork blockchain and one based on the post-fork blockchain. It’s important to note that these two cryptocurrencies will share the same history up until the point of the fork.
A soft fork is a change to the software protocol where only previously valid blocks/transactions are made invalid. However, the older version of the software will still recognize the new blocks as valid. This kind of fork generally requires far less adoption to be successful and is usually much easier to implement than a hard fork. It is also less disruptive to the current users of the blockchain.
In any case, a fork is an essential part of the decentralized cryptocurrency landscape. It allows the cryptocoin community to make changes to the underlying technology and its associated cryptocurrency token. This can lead to potentially positive outcomes such as improved security measures, updated economic models, and enhanced privacy. Ultimately, forks provide an invaluable means of allowing the crypto community to experiment with new features without compromising the security of their investments.