A fork is a change to a blockchain’s protocol rules. Forks occur when the community or developers decide to change how the network operates, and they come in two varieties. A hard fork is a backwards-incompatible change — nodes that don’t upgrade can no longer validate new blocks, creating a permanent split in the chain. If a significant portion of the network follows the old rules, two separate blockchains exist going forward. A soft fork is a backwards-compatible upgrade — old nodes can still validate new blocks (they just won’t enforce the new rules), so the network doesn’t split as long as a majority of miners/validators adopts the change.
Famous hard forks: Bitcoin → Bitcoin Cash (2017) — over block size disagreement; Bitcoin Cash → Bitcoin SV (2018) — further block size dispute; Ethereum → Ethereum Classic (2016) — over reversing The DAO hack. Famous soft forks: Bitcoin SegWit (2017) — restructured transaction data to increase capacity; Bitcoin Taproot (2021) — added Schnorr signatures and improved privacy and smart contract capability. For traders, forks create short-term volatility opportunities: assets often pump ahead of a fork on speculation, and holders of the original chain typically receive an equivalent amount of the new forked token (“fork airdrop”), creating a brief arbitrage between chains.
Example: Before Bitcoin Cash hard forked in August 2017, BTC price rallied as holders anticipated receiving BCH tokens for free. After the fork, both chains traded independently — BTC holders at the snapshot date received an equivalent amount of BCH.
Learn more: Investopedia — Hard Fork vs Soft Fork
