A Hard Fork is the most significant and severe change in the source code of a decentralized system. The cryptocurrency ecosystem is not a static network. It is developing dynamically, which requires regular implementation of various updates and changes. Because the cryptocurrency system uses open-source code, update processes occur according to a specific protocol.

How does a Hard Fork happen?

Each blockchain operates based on a specific protocol - an application that has different components in its structure. The source code of modern blockchains is open. This means that each participant in the system sees the entire history of processes, can identify errors or bugs, and suggests ways to eliminate them. Minor updates are eliminated by moderators without approval, only notifying all community members of the work done. If large-scale changes are expected, then the process occurs differently:

• a proposal is made for the integration of changes;
• all community members consider the proposal;
• voting takes place;
• changes are confirmed if more than 90% of system participants approve the update.

In case of minor changes, they are included in the existing protocol. To integrate large-scale updates, they change the current version and create an additional copy to implement the new code. As a result, operators, miners, and validators switch to a new protocol version.

Why is a hard fork needed?

Regular protocol updates allow you to:

• ensure stable operation of the ecosystem;
• eliminate serious errors;
• avoid crises;
• modernize the code to meet current technical capabilities.

Hard Fork is also used to create a new cryptocurrency when a specific type of blockchain is taken as a base.

From a security point of view, the most striking example of a hard fork is the situation in 2016, when The DAO was hacked and user funds were stolen. As a result of the hard fork, the money was returned.

The impact of a hard fork on the value of cryptocurrency

Such events always affect the value of a digital coin, the system of which is expected to undergo major updates. Depending on the type of changes and the implementation speed, the cryptocurrency's value may increase (provided there is high trust among community members) or decrease (if the updates raise doubts regarding the effectiveness criterion).