How is an Ethereum hard fork different than a Bitcoin Hard fork? Is an Ethereum hard fork a software upgrade of the Ethereum network whereas Bitcoin’s hard forks are tools to create 2 coins everytime there is a hard fork?
A good question we had from one of our readers on twitter that we will try to answer in this article!
Ethereum and Bitcoin hard forks are very similar. They are both software upgrades made to the Cryptocurrency. So once there is a planned hard fork, an important change is made to the protocol. A change so radical that it creates a divergence in the blockchain. Put simply, once there is a Hard fork, the Cryptocurrency’s chain branches into 2 :
- Chain # 1 Keeps the previous Version of the protocol
- Chain # 2 Adopts the new upgraded protocol
So we end up having 2 branches and each branch has nodes signalling a different protocol therefore rejecting the nodes from the other branch. This rejection leads to the creation of 2 Cryptocurrencies.
- To correct important security risks found in older versions of the software
- To add new functionality, or to reverse transactions
So to answer the initial question, Hard forks are the same for both Bitcoin and Ethereum from a technical aspect. Any technical upgrade to the software has the potential of leading to the creation of a new chain and the creation of a new coin provided the new coin gets adoption from users and miners.
The difference between an Ethereum hard fork and a Bitcoin hard fork lies in the way the hard fork is executed. Bitcoin’s Segwit upgrade as a process was very long because there were many parties involved. At some point, it moved away from the technical aspect and was more about the ideology and politics and no consensus was reached. We ended up seeing Bitcoin fork into Bitcoin and Bitcoin Cash.
With Ethereum, the process of reaching consensus is very structured and the community is able to come to a common ground. We saw that clearly during the Byzantium upgrade. The Byzantium hard fork could have easily resulted in another coin but the Ethereum community made sure miners were onboard and incentivized (although they were cutting the # of Ethers awarded for mining) and gave the community enough time to vote on the proposal and even contribute. The Ethereum community and Foundation used Carbonvote as a point of reference during decision times.
Carbonvote was created during the DAO hack and this hack is actually a good example of how an Ethereum hard fork could lead to the creation of another coin: After the Dao hack, Ethereum (the token before the DAO hard fork) forked into 2 coins, Ethereum (ETH) that supported reversing the DAO hack and restoring the stolen coins and Ethereum Classic (ETC).
From a price perspective, Bitcoin’s hard forks have been used for speculation. This is because once a hard fork happens, there is a period where each Bitcoin holder at the moment of the fork has the equivalent of his holding in both chains. So if he or she has 1 Bitcoin at fork time, they automatically have one in each blockchain. A situation that can be exploited to manipulate the price. We haven’t noticed this happen with Ethereum but definitely keeping an eye as it is the source of quite the price swings. This article by Cointelegraph explains this pretty well.