Ethereum isn’t just the second most valuable cryptocurrency, it’s also perhaps the most active cryptocurrency ecosystem. While Bitcoin and its associated blockchain support a highly volatile but highly valuable currency that is obtaining more and more mainstream adoption, Ethereum underlies a wide range of applications, services, and ambitious plans that include financial systems based on smart contracts, virtual real estate, other coins and tokens, and more.
At less than 10 years old, Ethereum is in a constant state of flux. The cryptocurrency has gone through several “hard” forks, and may be having another one soon. Knowing what a hard fork is and how past ones have affected the Ethereum ecosystem is important before investing in Ethereum or working in the Ethereum space.
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What Is a Crypto Fork?
The first thing to understand about cryptocurrencies is that they are code. Computer code defines the protocols that blockchains run on. Code governs how crypto works at the deepest level. And these are open source projects, meaning that, generally, anyone can copy the code, distribute the code, or make suggestions for how to improve it.
That also means anyone can make a different version of it.
And that’s what a hard fork is. Blockchains are records of transactions and databases of who has “blocks” on the network. This database is maintained not by a central computer or user like in a bank, but by all the users who support it. A hard fork happens when this entire database is copied and the underlying code is altered such that it operates going forward in a different way.
After a hard fork, there are two different blockchains, two different networks, and two different cryptocurrencies. Typically holders of the original crypto get tokens in the new one and then they operate totally separately going forward.
Hard forks differ from soft forks. Think of a soft fork more like an upgrade — everyone accepts it, the status of the network and blockchain remains the same, and it operates going forward in much the same way as it did previously.
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What Are Ethereum Hard Forks?
Ethereum hard forks are the result of developers wanting a version of Ethereum that either operates more effectively or has features that the original Ethereum doesn’t have. In the debate of Ethereum vs Bitcoin, Ethereum’s ability to function more as a platform for different applications and services beyond just a currency or store of value also means there’s a lot of development activity around it. And that means many hard forks that create a new version of the network — with older versions often abandoned.
How Do Ethereum Hard Forks Work?
Ethereum hard forks happen when the Ethereum community (the miners) reaches consensus on a proposal to change the Ethereum blockchain. Consider, for example, the most controversial and noteworthy hard fork, the so-called DAO fork which created the split between Ethereum and Ethereum Classic. That fork went through after 97% of Ethereum users voted in favor of it.
History of Ethereum Hard Forks
Ethereum has had several hard forks. While it’s important to understand the technology and concept behind Ethereum forks, knowing more about these hard forks and why they happened is essential to getting a grasp on the wider crypto currency landscape.
Ethereum Classic Fork
The Decentralized Autonomous Organization (DAO) fork was one of the most ambitious projects in the history of cryptocurrency, let alone in the then-short history of Ethereum.
The DAO was a roughly $160 million fund (in Ether) for cryptocurrency projects that was launched in 2016. It was governed by a set of smart contracts, code that’s executable on a blockchain that supposedly removes the need for trusted third parties to enforce a deal. But this structure contained a vulnerability: if there was a security hole in the code that could be exploited by a hacker, the hacker could drain away tens of millions of dollars and there would be nothing The DAO could do about it.
And that’s exactly what happened — more than $50 million was stolen. This was not only a huge loss for the investors, but also a potentially fatal blow to Ethereum itself, which had just launched publicly the year before.
In response, Ethereum developers executed a controversial hard fork of the Ethereum blockchain to roll back the transactions caused by the hack — essentially resetting the blockchain to its pre-hack state. While the vast majority of Ethereum users supported this hard fork, it left behind a second blockchain, now called Ethereum Classic.
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Ether Zero Fork
The Ether Zero (ETZ) fork was a hard fork executed in 2019 with the promise of faster and cheaper transactions. Although millions of ETZ, the new cryptocurrency, were given to holders of ETH, the project appears to have largely floundered. By June 2021 the ETZ coin was the 1890th ranked coin on CoinMarketCap and individual tokens were worth less than one one thousandth of a cent.
Metropolis was part of a large-scale fork planned by Ethereum developers for general maintenance, rather than a rival or rebel project. It was so substantial that it was executed in several named steps, including Byzantium and Constantinople. The first parts of it went live in 2017, and overall changes included technical but substantial shifts in how smart contracts written on the Ethereum blockchain operated.
Serenity is a long planned and major overhaul of the network that’s also known as “Ethereum 2.0”.
The first part, Beacon, went live late last year. This updated blockchain is intended to process transactions faster.
Further Serenity updates are scheduled for 2021 and 2022. The goals of the updates include a reduction in the energy used for Ethereum mining, through use of “proof of stake” as opposed to “proof of work” technology.
The latter, which famously underlies Bitcoin, relies on computers to essentially solve math problems in order to maintain the network and generate new Bitcoin. This constant computer power expends huge amounts of energy — a drain on individual resources as well as environmental ones.
Proof of stake technology, on the other hand, allows users to validate the network by “staking” their own ETH tokens, i.e. putting enough ETH into a pool from which random users are selected to carry out the tasks previously done by miners.
In less than 10 years, Ethereum has experienced a number of notable hard forks — some controversial, some not, but all aimed at improving the cryptocurrency and its functionality.
The decisions around Ethereum hard forks are often highly technical and are largely guided by a small group of developers. But Ether holders are invited to vote on community decisions and participate directly in the maintenance of the network through staking.
You can trade Ethereum with SoFi Invest®, which also offers access to a number of other cryptocurrencies including Bitcoin, Litecoin, Bitcoin Cash, Ethereum Classic, and more.
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