We will use Bitcoin as a primary example, but all these concepts apply for all other cryptocurrencies as well.
Bitcoin is implemented with a lot of software. The software is called the Bitcoin protocol, and it establishes the rules that everyone should agree if they want to use Bitcoin.
This includes how large the block is, what rewards miners get, how fees are calculated.
However, just as any other software project, development will never be fully finished.
There is always room for improvement.
The Bitcoin developers regularly push out the updates to fix the issues or to increase performance.
Some of those improvements are small, but some of them fundamentally change the way bitcoin works.
What happens in there is disagreement in a community?
Sometimes it happens that a group of developers disagrees with the direction bitcoin is taking.
Miners can also disagree because the updates to the bitcoin protocol reduce their profits.
Bitcoin consists of its protocol and Blockchain.
First, they have to do is to copy Bitcoin’s s protocol.
They can do this because Bitcoin’s s protocol is completely open sourced.
After they’ve implemented their desired changes, they define a point of time in which their fork is going to become active.
How do they launch their own version?
This is done by specifying the block number.
For example, you can say that your fork will go live on block 480 000.
When that block number is reached, the community is splitting in two.
Some people are going to support the current protocol while others are going to support the new one.
Each group is now going to add the new blocks to their blockchains.
At this point, both the blockchains are incompatible with each other.
Because the fork is based on the original blockchain, all transactions that happened on original blockchain also occurred on the fork.
That means if you had a certain amount of the coins before the fork, you would also get the same amount of the new, forked currency.
Some call it free money, but it depends if the forked coin attracts the value.
An example is Bitcoin cash that happened on August 1st, 2017.
The miners couldn’t agree on the block size.
Some of them wanted to stay at the same size of 1MB while others wanted an increase.
If you had 5 BTC on your wallet before the hard fork, you would receive 5 Bitcoin Cash coins after the fork.
Because of its open-sourced nature, everyone can see and get its code, make the changes and launch its coin.
This is not going to be Bitcoin fork but rather a new cryptocurrency that is created from Bitcoin’s protocol as the basis.
An example is Litecoin that was made from Bitcoins code with few changes.
The bigger coin supply and faster block confirmation time are one of the differences between Litecoin and Bitcoin protocol.
Also, the mining algorithms they are using for mining are different.
Milos is an independent trader, with a background in journalism and publishing. Nomadic by nature, he’s lived in four different countries this decade. He’s fascinated by Blockchain technologies’ potential to reshape all aspects of our lives. Milos got into Bitcoin while completing his degree and hasn’t looked back since, writing about anything crypto-related. He is the co-founder of the Cryptoaims and he has a strong passion to educate people about this revolutionary technology.