Anyone familiar with cryptocurrencies and blockchain technology will often run into the concept of "forks". These can take the form of either soft forks or hard forks. However, what is a hard fork really? What's more, why do these forks even matter - and why are they important to keep in mind? Read on for a full breakdown of what a hard fork is and everything you need to know about it!
A hard fork is a phenomenon that changes the existing code that a cryptocurrency runs on, thus creating two versions of the code that are incompatible with each other. It is a permanent divergence of a node's consensus. This means that the new blocks created after the fork will be considered invalid by the old consensus, and the new consensus considers the old blocks invalid.
One of the most popular hard forks in the crypto space was that of Ethereum. What led to this was the infamous DAO hack. The DAO or a Decentralized Autonomous Organization was meant to be operating as a venture capital fund for the crypto industry. Because there wasn't any centralized authority in play, there was a significant reduction in costs, and the investors had more control over their funds.
The organization was launched in may 2016 and was backed by the members of the Ethereum community. During the development process, everyone was allowed to send Ether to a unique wallet address to exchange them for DAO tokens. This was a monumental success as the organization managed to collect 12.7million Ether, naming it the biggest crowdfund in the crypto industry.
The idea behind this was that anyone with a good project could receive a substantial amount of funding if voters backed the project from DAO token holders. The voters would earn rewards if the project turned out to be profitable.
On June 17, 2016, one hacker was able to exploit a gap in the security of the smart contract and was able to loot 3.6 million worth of Ether. This was done through modifying the smart contract to give the Ether back multiple times, before it could actually update the balance and verify it with other nodes.
The main reason behind this breach in security was the fact that when the smart contract was created, the developers did not take into account the possibility of a recursive call, which could be initiated. The smart contract was also designed first to send the funds and then update the token balance on the ledger, and this ultimately was used against it by the hacker. The funds, however, were subject to a 28-day holding period, and thus the hacker couldn't transfer the funds.
In July 2016, after a vote among the community members, it was decided that a hard fork would be implemented in the Ethereum code, which would move the funds to a new smart contract that would send the Ethers back to them those from which they had been taken.
Some community members rejected the hard fork idea because the blockchain shouldn't be tampered with, so they decided to continue mining the original Ethereum, and the 1,920,000th block was the first one not included in the forked Ethereum chain and came to be known as Ethereum Classic. Classic miners mined the block on July 20, 2016. ETC has continued to survive since then but faced a double-spending attack again in January 2019. The project is, however, not backed by the pro-fork side Ethereum foundation.
The battle between Ethereum Classic and Ethereum has been an ongoing one ever since the hard fork happened. It remains a mystery why many of the investors chose to stay on the old chain even after the Ethereum founders relocated to the new one. They argue that the hard fork goes against blockchain's core feature, which is immutability. The Ethereum enthusiasts who were against the hard fork pointed out that it defied the 'code is law' argument, which is the basis of blockchain technology.
Miners who remained on ETC continue to face one major problem. In fact, the hard fork that gave birth to Ethereum Classic prevents backward compatibility. What this means is that anyone who remained on ETC wouldn't be able to receive any new updates on the blockchain. They would also not be able to communicate with anyone on the new chain. An excellent example was the move from Proof of Work (PoW) to Proof of Stake (PoS) consensus.
Both ETC and ETH run on the same protocol. There are not esepcially many notable differences between the two, besides the debate on the ethics behind the hard fork. Ethereum was solely created to help return the stolen DAO to the investors. Since then, the technology has undergone several changes and updates that have helped cement its position in the crypto space. Today, ETH, Ethereum's native token, is the most popular altcoin, second to bitcoin only.
Ethereum's objective is to provide a platform for developers to create other cryptocurrencies. The highly anticipated move to Proof of Stake will help solve the scalability issues with the network. As a result, the network will be better placed to allow developers to deploy other DApps on Ethereum.
Similarly, Ethereum Classic provides a platform that allows developers to run smart contracts and create their own decentralized applications. However, ETC plans to remain running on the PoW consensus, which could hinder the network's scalability.
Another significant difference between these two networks is in the supply of tokens. ETC placed a hard cap on the supply of its tokens, just like Bitcoin. With the total supply pegged at about 210 million tokens, ETC introduced a scarcity element, which plays a crucial role in a cryptocurrency's value. ETH, on the other hand, has no hard cap and keeps generating new Ether tokens. No one knows for sure when Ether tokens will not be available for mining anymore.
For most crypto enthusiasts, choosing between ETC and ETH is not a debate. Many will go for ETH, thanks to its impressive performance over the last few years, and the network receives constant updates, and the rallying community behind Ethereum.
Ethereum also poses other advantages over ETC. For example, the DAO hacker's attack served as an eye-opener. ETH does not tolerate hackers now and has more robust security measures in place. As such, it is more secure than the Ethereum Classic. Besides, Ethereum has a higher hash and will complete transactions on the network faster than ETC. With Ethereum, you will also access any future updates made to the network. You also get the thrill of being a part of a vibrant and supportive community that is behind the network.
Besides the immutability property, ETC doesn't present many advantages over ETH. The one reason as to why you should seriously consider buying it is because of its current low prices. ETC is currently trading at $7.17 against ETH's $220 (at the time of writing). The fact that Ethereum founders are not behind Ethereum Classic has played a crucial role in its stagnant growth. That said, ETC is a much better deal than newer altcoins that are just getting into the scene.
ETH holds so much more promise than ETC, despite its higher prices. Whether you are looking to trade in high volume or hold some cryptos in your wallet, it would be a better investment.
The debate between ETC and ETH is merely based on ethics and ideology. Based on these two tokens' performance, it is clear that Ethereum's platform provides better ground for future decentralized applications. While we cannot ignore the hard fork, we also must acknowledge that ETH made a great comeback from a huge disaster. The community behind Ethereum powers the network, and it is this support that could revolutionize just about any industry and the blockchain technology at large. Just like reading up on the advantages of decentralized finance or the best ways to increase your software engineer salary, Ivan on Tech Academy is the one-stop-shop and best online blockchain academy for all your blockchain needs!
Author: Rony Roy
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