What is 'Hard Fork'

A hard fork (or sometimes hardfork), as it relates to blockchain technology, is a radical change to the protocol that makes previously invalid blocks/transactions valid (or vice-versa). This requires all nodes or users to upgrade to the latest version of the protocol software. Put differently, a hard fork is a permanent divergence from the previous version of the blockchain, and nodes running previous versions will no longer be accepted by the newest version. This essentially creates a fork in the blockchain: one path follows the new, upgraded blockchain, and the other path continues along the old path. Generally, after a short period of time, those on the old chain will realize that their version of the blockchain is outdated or irrelevant and quickly upgrade to the latest version.

BREAKING DOWN 'Hard Fork'

A hard fork can be implemented to correct important security risks found in older versions of the software, to add new functionality, or to reverse transactions (as in the case with the hard fork to reverse the hack on the DAO (decentralized autonomous organization) in the Ethereum blockchain).

Graph that represents a Hard Fork process.

A hard fork involves splitting the path of a blockchain by invalidating transactions confirmed by nodes that have not been upgraded to the new version of the protocol software. Following the hack on the DAO, the Ethereum community almost unanimously voted in favor of a hard fork in order to roll back transactions that siphoned off tens of millions of dollars worth of digital currency by an anonymous hacker. The hard fork also allowed DAO token holders to get their ether funds returned to them.

The proposal did not exactly unwind the network’s transaction history. Rather, it relocated the funds tied to The DAO to a newly created smart contract with the single purpose of letting the original owners withdraw them. DAO token holders will be able to withdraw ETH at a rate of approximately 1 ETH to 100 DAO. The extra balance and any ether that remains as a result of the re-entrancy exploit and the splitting mechanism will be withdrawn and distributed by the DAO curators, or individuals selected prior to the collapse of the DAO to provide "failsafe protection" for the organization.

Hard Forks vs. Soft Forks

Hard forks and soft forks are essentially the same thing in that when a cryptocurrency's existing code is changed, an old version remains while a new version is created. However, with a soft fork, only one blockchain will remain valid as users adopt the update. Both forks create a split, but a hard fork creates two blockchains, and a soft fork is meant to result in one. 

RELATED TERMS
  1. On-Chain Governance

    On-chain governance is a governance system for blockchain in ...
  2. Bitcoin Core

    Bitcoin Core is software that includes a wallet, and helps keep ...
  3. Ethereum Classic

    Ethereum Classic is a decentralized, blockchain-based distributed ...
  4. Full Node

    Full Nodes are computers on a blockchain that maintain the core ...
  5. Blockchain

    A blockchain is a public ledger of all cryptocurrency transactions. ...
  6. Bitcoin Cash

    Bitcoin cash is a cryptocurrency is a fork of Bitcoin Classic ...
Related Articles
  1. Tech

    Ethereum Reaches Consensus to Hard Fork, Fixing DAO Hack

    The Ethereum community made the controversial decision to "hard fork", i.e. to burn the village to save it.
  2. Tech

    Ethereum Classic, Which Resulted from a Hard Fork, Itself Hard Forks

    Ethereum Classic, Which Resulted from a Hard Fork, Itself Hard Forks.
  3. Tech

    Ethereum Reveals Metropolis Hard Fork to Occur in September

    Ethereum's hard fork will occur late in the month, according to developers.
  4. Tech

    The November 2017 Bitcoin Hard Fork is Huge, But Not Universally Welcomed

    The result of a 3-year battle over how to increase bitcoin’s capacity is that the currency will split this month.
  5. Tech

    The Ethereum DAO is Born

    DAO, built on smart contracts encoded into the ethereum blockchain has already raised $41 million, making it the 2nd most successful crowd-funded project.
  6. Tech

    Why are There Now Two Ethereums?

    Damage control over a huge Ethereum theft led to a radical solution: Split Ethereum into two.
  7. Tech

    $150 Million+ in Ethereum Accidentally "Frozen", May Need Hard Fork

    The freezing of accounts was an inadvertent error and could possibly result in a future Ethereum hard fork.
  8. Tech

    DAOs, Blockchain, and the Potential of Ownerless Business

    DAOs are possibly the most cost effective and fair business model ever conceived.
  9. Tech

    Bitcoin Price Hits New Record After November Fork Is Called Off

    Bitcoin's controversial hard fork was canceled, to the relief of many investors and traders.
  10. Tech

    We Invested in the DAO: Here's How You Can Too

    The Decentralized Autonomous Organization (DAO) has captured the imagination of the cryptocurrency community.
RELATED FAQS
  1. What is the difference between "hard money" and "soft money"?

    Hard money and soft money are terms that are often used to describe coin money and paper money, respectively. However, these ... Read Answer >>
  2. Why would a company perform a reverse stock split?

    Understand what a reverse stock split entails, and learn what the common motivations are for a company to perform a reverse ... Read Answer >>
  3. Is an individual/independent 401(k) a qualified plan?

    Surpassing the SEP IRA plans previously popular with self-employed individuals, the individual 401(k) plan is a qualified ... Read Answer >>
  4. What are soft dollars?

    The term soft dollars refers to the payments made by mutual funds (and other money managers) to their service providers. ... Read Answer >>
Hot Definitions
  1. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  3. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  4. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  5. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  6. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
Trading Center