Forking in the Crypto Space: Is it a good idea?
The Crypto Space is obviously still shaken with the case of Terra Luna, an ecosystem that was thriving in the run up in 2022 but ended up crashing heavily in the space of 48 hours. Although the coins UST and Luna are left with no value, there is a revival plan proposed by its founder that involves a system called forking. Forking is not a new theory as a lot of networks implement it to keep up to date with the changes needed for future sustainability and regulations but what is forking exactly? And is it a good idea to implement in the ecosystem?
Forking and its role in the Crypto Space
The cryptocurrency space may only just be 13 years old but it has continue to evolve to keep up with the new regulations and sustainability issues. Thousands of new coins keep on emerging every day with the promises of a better technology than its older predecessors like Bitcoin or Ethereum, while some of them have failed miserably along the way but the others have emerged as serious potential. This is why some of the networks you find out there need to adapt with the latest development in order to ward off these competitors.
If every record in the blockchain network is permanent, how do you make changes then? They use a system called Forking which was a move first adopted by the Bitcoin Cash incident which is an attempt to improve the Bitcoin network by increasing the size of each block from 1MB to 8MB to boost the amount of transactions the network can process. This although it gained some major traction initially within the Bitcoin community but fail to really make an impact as people preferred to go back to the original Bitcoin network.
So what is a Fork? A fork happens whenever the developer or community in the network makes changes to the blockchain’s protocol or the basic set of rules. These changes could be minor like changes in the token’s burning mechanism or major changes like changes in its consensus algorithms resulting in a separate blockchain network. These changes are done automatically by changing the codes in the blockchain network and will be applied to everybody involved in the ecosystem.
These minor changes are called Soft Forks and they usually don’t impact much to the validators as it could be directly applied to all the users it within the ecosystem, You can think of these Soft Forks just like a software upgrade in your smartphones, because the end result is a single blockchain network as the pre fork blocks are compatible with the new set of rules. Soft Forks are usually done to bring in new features or upgrades within the blockchain networks, with the recent example being the taproot upgrade on the Bitcoin networks which adds new features such as Schnorr Signatures and Lightning Network.
There are also Major Changes that impact the whole ecosystem and these are called Hard Forks, which is what happened with the Bitcoin Crash incident. You can think of these hard forks as getting a new smartphone as your older smartphones no longer support the new operating system. This happens when there are massive changes to how the blockchain network operates that the old blockchain can no longer operate with the new set of rules, resulting in 2 separate chains within the network. This is usually done when there are massive issues within the network that it needs a new totally different network, like the recent case with the Terra Ecosystem which had to Hard Fork its network abandoning its UST project.
So how do forks actually work? This is where forks are different to software or OS upgrade as staying true to the decentralized nature of blockchain, forks require consensus from its community. The validators or developers of the network can then put forward a proposal to the community for changes that it deems necessary and this proposal will then be voted upon by the community. Of course whether it’s a hard or soft fork, the process is the same and the changes will then be implemented if it receives majority of the hashing power or votes within the network.
For a soft fork, these changes will then be updated to the new software and miners/validators can opt to either upgrade it or not. For a hard fork it will require all the miners/validators to upgrade their software to a new one creating a totally new network from an older one. There is usually a snapshot date of where the old network is forked at and the first block of the new network becomes the new genesis block. Of course these changes need to be adapted by the majority of the community, otherwise it resulted in people still using the old network while the new one is abandoned.
Does forking result in a new coin being produced? Yes forks does result in a new coin being created within the network as even though it’s a totally new network but the data is based on the old on so everybody who have coins in the old network will receive an equal amount of coins in the new network as airdrops, of course this depends on the programs implemented by the developers.
It’s also a point to be noted that Forks can only occur for cryptocurrencies that are run on its network/mainnet and not for tokens that are created using other networks so don’t worry you will not see SHIB or Squid Game token being forked. Forks also has seen its role becoming more common throughout the years, as back then it would be really strange to see the networks being forked but right now it’s quite common for soft forks to happen every year just like a software upgrade.
Forks has also been a solution to address the major issues within the network which is Scalability, Sustainability and Compatibility that usually faced many of the older networks such as Bitcoin or Ethereum. As what we have seen with the market crash in mid of 2021 which is centered around sustainability of these networks and we can see that the solution has been addressed with soft forks like Metropolis or hard forks like Ethereum 2.0 which both aims at increasing the scalability and sustainability of the Ethereum Networks.
Forks can also be planned like Ethereum 2.0 that arises with the support from the majority of its community but it could also arise from disagreements within the community that results in contentious forks. With all this in mind, is forks generally a good idea? Should you be worried when a fork occurs?
Is it a good idea?
The idea of forks or changes within the community is generally good as it shows that the stakeholders in the ecosystem are committed to improving the networks but it again depends on the reason behind the changes itself. While some generally see it as an improvement, some also see it as an opportunity to misuse their ability to make changes as mentioned before that forks generate new “Spin Off Coins” which could be traded later on.
Of course there is a less chance this will occur as all forks need to be voted upon which is why forks are generally a good idea. Forks also yields mix success for the network who adapt it as we can see with Bitcoin which has 27 forked version of it but the original Bitcoin network still reigns supreme in the market while we also see the case with Terra which recently forked its network but so far failed to regain people’s trust due to its failed UST’s project.
Despite its poor traction so far in Luna 2.0 it was the necessary thing to do as although its native token has fallen from grace, there is still a huge ecosystem filled with stakeholders that needed saving. In this context forks also play a huge role in people’s trust within the network as forks when done right could help regain trust in the crypto project and eventually save it as this world of cryptocurrency continues to evolve from time to time.
As trust always pan out in the market, forks could also play a major role in the price of the cryptocurrency itself. When faith in the ecosystem is restored and people’s expectation for the future is high, forks could also boost the price of the crypto asset itself. With all this in consideration, forks is a good and welcomed idea as changes are always needed for the ecosystem to stay ahead of its competitors and continue to adapt into the future but the point of consideration should be on whether the fork is done with the right reasons or not?
We in Nagaya Technologies Pte. Ltd are excited to see the development that is going on in the crypto space and we hope that our hybrid crypto asset Nagaya could provide the benefit to all our holders worldwide. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at nagaya,io
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