Its essence is as follows. Each blockchain has its own protocol with a set of algorithms defining its characteristics. These are transaction speeds, security methods, block sizes, transaction confirmation methods, etc. In some cases, the base code of the cryptocurrency is subject to changes in order to correct or improve, as a result, algorithms change, which in some cases leads to the appearance of an asset with fundamentally new properties, which is called a fork of the cryptocurrency (from the English fork - fork, branch). That is, in fact, it is a new coin that replaces the outdated version. The process of updating the algorithm itself can also be called a fork.
All forks can be divided into 2 main categories: soft fork and hard fork. Their key difference is in the number and scale of edits made to the code. As you might guess, the soft fork provides for small, minor updates, in which most of the algorithms remain the same. At the same time, new coins that would function independently on cryptocurrency exchanges are not created. All the updates made do not contradict the existing settings in any way, and the new and old algorithms remain backward compatible. An example of a soft fork is reducing the block size in the new algorithm from 1000 KB to 800 KB. Even before the miner accepts updates, all incoming transactions will be valid, but it will no longer be possible to add a new block in the old size of 1000 kbytes, for this it will be necessary to update.
The hard fork, in turn, is a significant modification of the blockchain. That is, the current protocol does not change, but a copy of it is created with a new code. And if these blockchain changes are accepted by the community members, then they make the transition to the new code. The hard fork changes such key characteristics of the project, such as, for example, the emission rules.
At the same time, forks can be used not only to optimize and improve projects, but also to earn money. As an example, we can cite the hard fork of bitcoin, which was created in response to a very long transaction processing that arose in 2017 due to the tremendous growth in popularity of this cryptocurrency. As a result, a new cryptocurrency Bitcoin Cash (BCH) appeared on a parallel blockchain, and everyone who had bitcoins on cryptocurrency wallets at the time of branching received an equivalent amount of BCH. And then simple mathematics comes into play. 1 BTC at the time of the events was worth $3000, and BCH started trading at $700. That is, each bitcoin holder effortlessly increased his deposit by 20%. And by the end of 2017, the amount of the increase in crypto wallets increased 5.5 times, as the BTC rate rose to $ 3,900.
Thus, the fork of cryptocurrencies is useful for developers and profitable for investors. It is extremely difficult to predict profit as a result of it, but many popular cryptocurrencies have prerequisites for this.
