Welcome to the Litepaper’s Crypto 101! Here, we will dispel, explain, and simplify (if possible) the insane amount of technology, jargon, words, and information in cryptocurrency.
A word of warning, though – it’s difficult to summarize some topics, but we will where we can.
Let’s dive right in!
What Are Forks?
STOP
If you’re thinking about an eating utensil, that is the wrong visual to have bouncing around your head. When we talk about forks, think of forks on the road. Keep thinking of what a road looks like, what happens when you drive on the road, and anything else that happens when driving.
When writing this Crypto 101 content, the Ethereum ($ETH.X) ‘Merge’ is slated for a September 2022 release, and Cardano’s ($ADA.X) ‘Vasil’ upgrade is slated for release in late July 2022. The ‘Merge’ and Vasil are both forks of their respective blockchains.
Forks are often identified as soft or hard in the crypto space. Both are upgrades to a blockchain. For example, whenever you do a Windows Update, that’s a soft fork – a software upgrade. On the other hand, when I replaced my aged Nvidia GTX 1080 Ti with an RTX 3080 Ti, that’s like a hard fork. 💻
Wut Is A Soft Fork?
Imagine the road you drive on your commute to work or to drop kids off at school.
You take the same single-lane road every day and notice that traffic is increasing over time. And maybe the surface you drive on is concrete and cracking. It has potholes, and there’s no shoulder. The road works, but it could be better.
Then, magically, the next day, that same road is asphalt has shoulders on both sides of the road, and is no longer clogged with traffic because it is better and more efficient. That’s a soft fork.
It’s the same single-lane road you drive on, just smoother and cleaner. For blockchains, it’s essentially the same thing.
Soft forks are upgrades of an existing blockchain, like a Windows update.
Cryptocurrencies have a lot of soft fork updates, and if you’re just a normal investor/trader, you don’t really have to do anything. Hard forks, however, can be a much different animal. 🕰
So Wut Is A Hard Fork?
Taking the same road analogy above, imagine that the people in charge of the roads decide that upgrading the existing road isn’t good enough and needs a bigger update. But you can’t upgrade the current road; you need to connect a brand new section to it.
Double lanes, booya. No more single lanes, two on the left, two on the right, and an open median for turning. Hell ya.
The road you used to take now branches off or merges into a new section of road with double lanes on both sides. The new route is still attached to the old one, but from now on, people will be driving on this brand spanking new double-lane highway.
That’s a hard fork. Hard forks are major updates or, sometimes, a new cryptocurrency.
Bitcoin Cash ($BCH.X), Zcash ($ZEC.X), and Monero ($XMR.X) are hard forks of Bitcoin. The old road (Bitcoin) is still connected to BCH, ZEC, and XMR – but after the hard fork they became something new.
How does that affect cryptocurrency traders and investors? Free stuffs! Everyone who was driving on the old road gets the right to drive on the new one. Wallets that held Bitcoin when Bitcoin Cash was created received BCH on the new Bitcoin Cash blockchain.
Time for another analogy, and the easiest way I can explain this was when most of Europe transitioned to the Euro. You had your German Deutsche Mark, the Italian Lira, the Austrian Shekel, and many others that converted into Euros.
The Euro was a hard fork of all the other currencies. The difference between the Euro analogy and Bitcoin to Bitcoin Cash is that Bitcoin didn’t lose its value, and nobody lost Bitcoin – only gained Bitcoin Cash. In contrast, the old European currencies are now worthless. 🪓
Why Hard Fork?
Politics. Arguing. Bitching. Moaning. Whining. Groaning. I’m serious. Most of the hard forks from Bitcoin came down to reproductive anatomy measuring contests or arguments between groups or persons who thought they had the ultimate good intention. That’s where you see the ‘new’ cryptocurrency tickers pop up. Ethereum is a great example.
Did you know that Ethereum ($ETH.X) is a hard fork of Ethereum Classic ($ETC.X)? It’s not the other way around.
In 2016, the old Ethereum blockchain was hacked for around $50 million worth of Ether. A civil war of sorts broke out. One side wanted to reverse the hack if enough people voted for it. But another group of purists felt that blockchains should be immutable, that while the hack was bad, it’s worse to set the precedent of just ‘rolling back’ the event.
This conflict resulted in the old and unaltered Ethereum network being renamed ETC, and the hard fork with the rollback was called ETH, the Ethereum we know today.
In a similar fashion, the creators of Zcash and Monero felt there were not enough protections on Bitcoin’s blockchain to keep people anonymous. The result was two new cryptocurrencies which are hard forks of Bitcoin and now their own entities.
Again, not all hard forks of blockchains result in a newly traded cryptocurrency. For example, Cardano’s upcoming Vasil upgrade is a hard fork of its blockchain, but no new type of ADA is being issued.
There’s a little more to what happens and what you have to do if new crypto forms from a hard fork, but that will be discussed later in a future Crypto 101 over Airdrops.
Thank you for reading and we hope this answered some of your questions. Please feel free to let us know if you found this information helpful or if it sucked! ⚒