Explained: Ethereum Hard Forks
What Is a Fork in a Cryptocurrency?
The world of cryptocurrency is still in its infancy, and it is rapidly changing. All transactions in cryptocurrencies are recorded in the blockchain, which is a unique property. On the one hand, this allows for the tracking of all transactions and the assurance of their security. On the other hand, changing or rewriting cryptocurrency code is impossible. Cryptocurrency users occasionally discover problems in the coding or in the system's operation while working. Forks come to the rescue in this situation.
However, before we get into the details of the Ethereum soft and hard forks, let's go over some technical terms.
A fork is a change or alteration to the cryptocurrency's programme code or to the blockchain system's operating principles, according to which transaction data blocks are regarded authentic and added to the global network. The code for the Bitcoin software has been made public, and anyone can interact with it. Because it's open to the public, anyone can spot flaws and defects that the developers didn't notice and provide solutions to fix them. Of course, no one may make changes to the global blockchain network because they will be rejected by other participants. It is feasible to propose a solution and submit it for coordination with the most powerful market participants, who have concentrated the majority of their manufacturing capacity in their own hands and handle the great majority of transactions.
Forks are divided into two categories:
A soft fork entails minimal changes to existing technology and will only have a little impact on the asset. A soft fork adds new features to an existing protocol. Its earlier versions can still be utilised, however the current version has new functionality. If you don't upgrade Skype, for example, you can still use it but without the additional features. Your contact list will not be lost. The Ethereum soft fork follows the same logic.
Soft forks are most commonly utilised by bitcoin developers or top mining pools who want to make modest network adjustments. The software nodes do not need to be updated for this. Typically, the network simply “rolls” back a few blocks and makes the necessary code changes. A majority of Ethereum network participants must agree to the soft fork's implementation.
Users who oppose the innovation can continue to use the old chain.
A hard fork is a major reorganisation of the asset's software code that impacts the asset's core functionality. This has repercussions all the way up to the mining concepts and regulations that govern transactions. In simple words, a soft fork implies a code modification. After the network was changed, new units of the blockchain network were issued that do not contradict the existing blocks of information and may interact with them through a single mechanism.
A hard fork modifies the rules so drastically that it splits the old asset into two pieces, one of which follows the old principles and the other does not. The other functions in accordance with the hard fork's initiators' rules. A hard fork can be said to result in the creation of a new asset on the market based on the older one, but their working principles are different. Despite the fact that their operating principles are similar, the assets are unable to communicate with one another since the systems on which they are built are incompatible. Hard forks are uncommon, but when they do occur, they draw widespread attention since consumers will be forced to choose a side.
A hard fork results in a significant change in the source code that is incomparable to the previous protocol and software. A new chain is isolated from the previous one in this situation, and it no longer interacts with it. The prior chain's transactions are not recognised by the new chain. Hard forks require the permission of network participants; nevertheless, if some miners vote against it, the network would split. That is, two distinct chains will emerge from a same source code. They can coexist; the chain chosen by the users is usually the one that endures. The second quickly fades away or remains stagnant for a long time.
A third sort of network fork has recently been discussed in the bitcoin community: the user soft fork. The concept is that bitcoin exchanges and ordinary coin holders will change network regulations, rather than developers or miners. However, there is currently no clear plan for implementing such a scheme, nor is there a clear understanding of how it will work.
Forks can result from a variety of causes and conditions. For example, a flaw in the source code of a cryptocurrency could be discovered, weakening its security. Developers update the source code in order to close the gap. This improves the asset's dependability and the safety of other market participants' use of it. In a separate situation, the cryptocurrency and the system in which it operates are unable to handle the demand, causing transaction speeds to decrease, commission fees to rise, and miners to be overworked. All of this has a negative impact on the cryptocurrency's demand indicators, and because this is the only way to determine its price, a fork may become essential to help an asset maintain its market position.
In truth, a fork can be caused by a variety of circumstances. In general, forks can be considered a beneficial phenomenon because they can strengthen an asset, making it more competitive and responsive to market demands.
As a result, a fork is the use of a software project's source code to establish a new project based on it. Anywhere programme code is employed, a fork is conceivable. The concept of a fork is relevant to most cryptocurrency networks because the blockchain is based on software code. This simply implies that the rules for determining whether or not a block is valid change.
The blockchain's working mechanism is dependent on the verification of block validity. There are basic criteria that govern which blocks are regarded legitimate in any blockchain network. These rules are enshrined in the program's source code. During a fork, they can be altered, resulting in a branch from the main chain. This is done for the following reasons:
make modifications to the network (for example, to introduce new data encryption or a new mining algorithm)
Increase scalability or address network issues and weaknesses.
develop a new product based on existing technologies
Is Creating a Fork Difficult?
A fork can theoretically be made by anyone. All that is required is a copy of the Ethereum blockchain's source code. However, the project's implementation and development are labor-intensive operations. To begin, you must generate enough demand for new coins; else, they will be useless. Second, there must be a solution to the problem of mining complexity. Remember that the level of difficulty should supply a solution to the puzzle network for a specific period of time (10 minutes on the Bitcoin network). If the community cracks by 90% BTC and 10% BCH (like it did with BTC and BCH in 2017), statistically, you will have to look 10 times longer for a fresh block in BCH (100 minutes). The amount of remuneration is still up for debate because the cost of electricity and equipment stays unchanged. BCH was challenging at first, and if it weren't for a number of political and economic considerations, it, like 99 percent of all other forks, might have vanished altogether.
Aside from the fact that a fork is a difficult event in and of itself (you must cope with the principles of both projects before pulling funds into your cold wallet), network attacks are also possible. Because the code is entirely open, someone is always attempting to break it using increasingly advanced approaches. In order to combat this, a development team improves the software product's code. Replay attacks, for example, occur when someone copies/repeats a transaction from one chain to another after a fork.
Because you sign a transaction with your private key, which generates a unique transaction identifier (a piece of the puzzle), you must go to another chain, duplicate the identification (which will not change), and repeat the transaction. This can happen if you made a transaction in one blockchain after the fork. Anti-replay protection is a good way to safeguard oneself. This is a type of code update, however it takes a while to complete. It took a couple of weeks for the Ethereum Classic fork to remedy the problem.
As a result, if your coin forks, the most important thing to remember is not to transfer funds anyplace. Wait for replay protection to be enabled.
The DAO Experience on Ethereum Classic
The DAO initiative, which was launched on May 16, 2016, by the Slock.it firm, had a massive fundraising drive. They were able to raise more than $120 million in less than four weeks. By using an address that was not controlled by community members, the hacker was able to waste a third of The DAO's capital due to a flaw in the system.
Let's take a closer look at this scenario.
In June 2016, one person (or a group of people) exploited a smart-contract programming vulnerability in the DAO, an autonomous decentralised organisation tasked with raising cash for Internet projects (IOT). In the end, the harm amounted to about a third of the $168 million collected: around $50 million. The attacker followed The DAO's (informational) code and was thus "legally" untouchable. Because there is no central authority deciding what action should be taken in such a case, the DAO miners should have voted by July 14, 2016 to make a definitive judgement. Otherwise, this individual may harm investors by pursuing his prey. To address the issue, Ethereum used a hard fork, which involved altering the blockchain code in order to retrieve the stolen funds and return them to their rightful owners.
To reset the system, withdraw smart contracts connected to the ICO, and repay stolen funds to investors, Vitalik Buterin's team held an Ethereum hard fork. Although the payments could be returned, not all users were pleased with the system's adjustments. Opponents said that the Ethereum fork went against the decentralisation policy. They stuck with the previous chain, renaming it Ethereum Classic.
Ethereum was retained as the name of the new chain. The DAO was the lone target of the hack, and the Ethereum network was unaffected. Nonetheless, this was enough to make investors very wary of the Ether. Vitalik Buterin decided to roll back the system till the money were still in the account in order to restore the funds. As a result, Vitalik was able to restore 100% of the stolen monies while also implementing system adjustments to prevent future incidences.
We might suppose that in traditional systems, system weakness is centred mostly in management, which either does not exist or is unreliable. Since the security, control, and organisation of rights is implemented by a central authority in non-public blockchain (consortium blockchain or private), this question will not even arise (legal entity). This is passed on to management, who is responsible for the overall situation. The organization's charter and regulations will regulate all of its activities.
The DAO hacking incident revealed the necessity for private (or exclusive) blockchain systems to adapt. If someone tries to modify a block in the “usual” blockchain technology, it “breaks the math” of the chain of algorithms supporting the entire set of blocks. Except in cases when participants agree to the alterations, the system fails, reverting the blockchain to its prior state and creating a traceable confirmation of the tampering. If a large enough group of people thinks that changes are necessary, you can add a branch (as happened with Ethereum in July 2016). The branch that leads to the faulty unit comes to an end, whereas the other branch leads to the rectified unit. Following the repair of the first block, all succeeding blocks must be restored. This can be both harmful and costly — and in some situations, simply impractical.
Zero-Fork Ether
Ether Zero (ETZ) is a hard fork of Ethereum that uses a bi-level blockchain model. It has evolved into Ethereum's third type.
Ether Zero is an Ethereum fork that was created with the goal of interacting with DApps on a daily basis. It will incorporate the key features that most projects are looking for right now: zero-cost commissions, instant transactions, and a blockchain with a lot of capacity. It also implements a two-level network system. The network community owns all management.
For the first time in December 2017, developers began discussing the new Ethereum hard fork release date. It was expected that a brand new platform for creating smart contracts will be unveiled. The platform was created by real experts who specialise in developing decentralised, self-contained applications. Even before the coin was released, there were reports that the new fork will outperform the Ethereum network in terms of functionality.
The new network is based on the Ethereum blockchain, although it differs from other Ethereum forks in the following ways:
Structure of the PoW node and master node. The PoW node is required for data synchronisation, while the master node is required for transaction monitoring. In this network, the extraction of new currencies is done separately from transaction verification.
Management of a self-contained community network
There is no charge for completing transactions.
Transfers are made instantly.
Instant payment function
A significant number of transactions per second, starting at 10,000.
Scalability of the network has been improved (higher than the Ethereum).
What's the difference between Ether Zero and Ethereum, and how do you tell the two apart? The primary distinction is the time it takes to generate new blocks. A user on the Ether network takes 15 seconds, whereas the new version takes only 10 seconds. There are also changes in how the complexity of producing new blocks is recalculated. After the introduction of a new unit, Ethereum's complexity is recalculated online. Complexity is dynamically recalculated in ETZ. The size of an ETZ block is identical to that of its "parent" block. The block size remains at 2 megabytes. There's also a feature that prevents payments from being duplicated.
The ETZ coin's price has only risen above $200 once in its short lifespan. The ETZ cost roughly $40 when it was released. Its price soared to $233 in just a few hours on January 21, and remained there for 12 hours. Its value began to dwindle over time. On June 14, the value of one Ethereum Zero currency fell to $1.91, the lowest it had ever been. Following that, the price began to rise steadily. It was already at $2.40 on June 19th.
The project's development team has big hopes for it. They intend to increase the market value of their coin to 10% more than the price of Ether. Developers hope to establish Star DAPP's long-term developer reward scheme by the end of 2019 to motivate them to work and contribute to the community's growth and success.
Ether Zero uses the same mining algorithm as Ethereum. It's known as the Ethash. Finding a nonce-input to achieve an indicator below a specific limit is one of the algorithm's primary features.
Metropolis
The goal of this Ethereum fork was to move protocol functions to a new layer of abstraction. Byzantium and Constantinople are the two sections of the update.
The introduction of new cryptographic tools known as zk-SNARKs was the most significant change made during the deployment of Metropolis. These allow network users to conduct transactions with far more anonymity than in the prior version. It is implemented by removing the requirement for all data to be disclosed in order to establish that work has been completed.
The developers sought to make the smart contract's work easier to understand by simplifying it. A better security system was implemented on the network as a result of this update. This Ethereum hard fork includes nine protocols aimed at making the system better. The update is totally functional and error-free. The Ethereum blockchain's operation has been sped up as a result of this.
The fundamental innovation of this Ethereum hard fork is a sophisticated and scalable understanding of the EIP 86. This fork has been dubbed "revolutionary" by several users since it ensures a higher level of platform security.
The Metropolis Ethereum hard fork's main purpose is to move a number of protocol functionality to an abstraction layer. Instead of a complex collection of rules controlling the generation of contracts, transaction confirmation, mining, and other elements of system behaviour at the level of the main protocol, the Ethereum protocol logic will be transferred to ETM and become a set of contracts.
Byzantium
Byzantium was the initial stage of a larger makeover known as Metropolis. The Byzantium hard fork was a change to Ethereum's blockchain that took place at block 4,370,000. The new Ethereum hard fork is scheduled to take place in October 2017. It included nine Ethereum Improvement Protocols (EIPs), which were developed to improve Ethereum's privacy, scalability, and security.
The Byzantium protocol has the following characteristics:
Simplified protocol code and faster synchronisation for primary clients; better security; developer updates for light clients
generated and embedded contracts for operations with elliptic curves and large-integer arithmetic; ring signatures and RSA cryptography simplify application development
a series of minor tweaks to boost transaction speed
The impact of the "complexity bomb" has been postponed, but not cancelled.
The Byzantium hard fork was created with the intention of expanding and popularising Ethereum and its smart contracts.
Constantinople
The following elements will be included in the Constantinople Protocol:
Transferring the whole mechanism of confirming signatures and one-time codes from the main protocol code to contracts allows developers to experiment with new signature schemes, privacy technologies, and other changes without needing new hard forks or basic protocol support.
reduction in the miner's incentive to 3 ETH every block, resulting in a reduction in the annual emission of new coins from 14.75 percent to 8%.
The update will be irreversible, as will the improvements it will bring to the Ethereum ecosystem. Its primary purpose is to improve network efficiency and overhaul the commission system. Furthermore, the Ethereum hard fork's purpose is to make the Ethereum blockchain more scalable. Speaking of scalability issues, Vitalik Buterin, the founder of Ethereum, has guaranteed the public that the largest network for decentralised apps will be able to complete up to a million transactions per second sooner or later.
This Ethereum hard fork was created to alter the entire blockchain's economy, mostly by delaying the "complexity bomb" by around a year. It's already been dubbed the "Ethereum Ice Age" by some academics.
Homestead – Frontier
In July 2015, Ethereum began work on the Frontier alpha version of the next Ethereum hard fork. Because it was insufficiently safeguarded, a new version of the protocol called Homestead was implemented right away. The price of Ethereum doubled from $12 to $30 when it was upgraded from one version to the next. Block number 1,150,000 was the first to receive the updated software version. The following updates were included with the release of Homestead:
EIP-2 Is a collection of adjustments to the consensus rules, including a higher gas price, a limit on the maximum value of the transaction signature s-value to better defend the network from spam assaults, and bug fixes to the mining complexity calculation algorithm.
EIP-7 — a new operation is being implemented: DELEGATECALL
EIP-8 — enhances network compatibility in anticipation of future protocol modifications
Serenity
The consensus algorithm will transition from Proof of Work (PoW) to Proof of Stake as the Ethereum fork progresses to the Serenity version (PoS). Miners will have to switch from the PoW chain to the PoS chain at the same time. The PoW algorithm pits computers against each other to see who can answer a complex arithmetic problem the fastest. The device that solves the challenge contributes a new block to the network and is rewarded for it, both for the block and the transactions it contains. Miners are continually improving the power of their devices in order to outrun competition and sign as many blocks as possible because the first computer to solve the problem receives the entire payout.
Miners, on the other hand, are obliged to spend a lot of money on equipment and electricity, which farms require for bitcoin extraction. A miner's computing power determines how much energy he or she need.
Validator nodes can deposit money on blocks that are added to the blockchain while employing the PoS consensus mechanism. The greater the amount of bitcoin accumulated by miners in comparison to other users of the system, the better the possibility of obtaining money as a consequence of PoS mining.
Casper
The Casper protocol's major goal is to transition from PoW to PoS, which will result in a threefold improvement in productivity, the ability to expand the network, and a large reduction in gas prices. This Ethereum split protocol will be deployed in two stages: the Casper PoS/PoW hybrid system will be implemented first, followed by pure Casper PoS. In the initial stage of full PoS, a validator's minimum deposit will be at least 1,000 ETH.
It will be necessary to pool the coins of those who own a lower number of coins. This is because the system may be unable to handle a huge quantity of messages. The 32 ETH minimum validator deposit stipulated in the Lilac Book relates to the period during which 100 percent PoS + sharding will be implemented. The Book also shows that the remuneration ratio for any deposit is 3/1000000000 per second, assuming that the validator always does the right thing. As a result, the maximum yearly remuneration at PoS will be (3/1000000000) * 31536000 = 0.0946 or 9.46 percent of the total annual remuneration. Given that the processing of smart contracts will generate the majority of the profit over time, emission should decrease; eventually, it may cease entirely.
The "complexity bomb," designed to make mining increasingly difficult over time, will begin to accelerate after the debut of this Ethereum fork. The amount of time it takes to mine a block will increase, and miners will earn less and less money as a result. In the end, the network will be unsuited for miners' operations, but they need not be concerned about full PoS because, in addition to the deposit, they will require adequate power for EVM to function. Some projects are already working on attracting free coins as well as free capacity for integrating validators into full nodes.
Raiden and Plasma
Both the Raiden and Plazma protocols have the potential to fork and form a secondary chain.
The Raiden network is a decentralised payment system based on Ethereum's blockchain. Raiden's payment channels allow for an unlimited number of transfers between network members via two-way transfer. These transactions are completed instantly and without the use of the blockchain. Only the initial opening and shutting of the payment channel when payment is complete are recorded in the blockchain. Furthermore, this Ethereum hard fork allows developers to create scalable applications with decentralised management using a simple API. Raiden technology can also be used to make payments and swap tokens within a network.
In the form of the Raiden protocol, Lightning Network technology has been deployed to Ethereum. The fundamental goal of this Ethereum hard fork was to shift away from a model in which all transactions are recorded on a single public blockchain (which is a bottleneck in the system) and toward a one in which users can communicate privately while also transferring value.
To retain the guarantees provided by the blockchain system, Raiden uses a network of p2p-channels of payments and deposits in Ethereum. Raiden is a cryptocurrency that has been added to the Ethereum network. The Raiden node interacts with the Ethereum node to make payments and communicates with other Raiden nodes as well as the Ethereum blockchain to manage deposits.
The charge will stay minimal even if you transmit millions of offline transactions to the network, because only a few entries in the main blockchain are required to confirm the calculations (for example, if you send transactions once a day).
Because numerous minor transactions will now be carried out outside the blockchain and subsequently merged into larger transactions that fall onto the blockchain through Raiden, the processing performance of operations will dramatically improve. That isn't all, though. Smart contracts can also be scaled and their states changed via lightning. This is exactly what Plasma is all about.
Should I Invest in Forks of Cryptocurrencies?
Every investment entails some degree of risk. Forks in cryptocurrency are just as dangerous as any other investment. Experts, on the other hand, have found numerous clear benefits of the Ethereum soft and hard forks:
new earnings opportunities (extracting new coins associated with a popular network is much more profitable than mining old coins, which are already mined by a huge number of users)
a larger selection of cryptocurrencies to invest in, as well as the free accumulation of an equivalent quantity of potential coins (for example, those with 10BTC in their account automatically received 10 BCH, 10 BTG, and so on)
the possibility of qualitative adjustments, as well as the fixing of flaws and problems that detract from the project's appeal, promoting development through increased competition and diversification of options
With that said, all of these advantages can be discussed in only one scenario: if a fork was made to increase network performance.
In reality, there aren't many projects out there right now with such a wonderful objective and concrete development plans. The bulk of forks, according to experts from Bloomberg, Coinomi, and other blockchain startups, are made simply for the aim of generating quick money. Most experts, on the other hand, are optimistic about the trend toward more forks. This, they claim, reflects the market's constant evolution and pushes developers to construct new versions of established networks.
Investing in forks could pay out handsomely. You must maintain track of the Ethereum hard fork date in order to do so. However, only forks created to improve current blockchain networks, not forks created to launder money, should be considered. If you continue to follow the emergence and growth of new assets in the bitcoin space, you will undoubtedly hear more about forks. Any of them could have an impact on your cryptocurrency holdings.
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