Bitcoin Security 101 🔑 What You Need To Know During a Hard Fork Video Lecture | Cryptocurrency Fundamentals: Buy, Sell and Trade Cryptocurrency - Business Basics

If you’re interested in cryptocurrencies,
you’ve probably heard of something called
a fork.
We’ve seen a few hard forks already, but
what are they exactly?
Before we can take a look at what a hard fork
is, you must understand how a blockchain works.
You can watch this video here for a simple
explanation.
In this video I will use Bitcoin as the primary
example, but all these concepts apply to other
cryptocurrencies as well.
As you probably know, Bitcoin is a digital
currency and that means that it is implemented
with a lot of software.
This software is called the Bitcoin protocol
and it establishes the rules to which everyone
should agree if they want to use Bitcoin.
This includes how large a block is, what rewards
miners get, how fees are calculated, etc…
But just like any software project, development
on Bitcoin will never be finished.
There is always room for improvement.
The Bitcoin developers regularly push out
updates to fix issue’s or to increase performance.
Some of these improvements are small but others
fundamentally change the way Bitcoin works.
So sometimes it happens that a group of developers
disagree with the direction that Bitcoin is
taking.
The miners can also disagree because updates
to the Bitcoin protocol could reduce their
profits.
If a group of people are so dissatisfied they
can choose to go their own way and create
their own version of the protocol and fork
the blockchain.
So what happens if they do this?
Well Bitcoin consists out of two big pieces:
the Bitcoin protocol and the blockchain which
stores all the transactions that have happened.
If they decide to create their own fork, they
start by copying the Bitcoin protocol code
and start making their changes.
They can do this because Bitcoin is completely
open source.
After they have implemented their desired
changes, they define a point in time at which
there fork will become active.
This is done by specifying a block number.
For example: you can say that your fork will
go live when block number 480,000 is published
to the blockchain.
When that block number is reached the community
splits in two.
Some people decide to support the original
protocol while others want to support the
fork.
Each group then starts adding new blocks to
the fork that they want to support.
At this point, both blockchains are incompatible
with each other.
Because a fork is based on the original blockchain,
all transactions that happened on the original
blockchain, also happened on the fork.
And that means that if you had a certain amount
of coins before the fork, you will also get
the same amount of the new currency.
Some people call this free money, but it all
depends on whether or not the fork can attract
actual value.
We’ve already seen quite a few hard forks.
It happened to Bitcoin on August 1st 2017
when Bitcoin Cash was born for instance.
In this case, the developers couldn’t agree
on what the new size for a block should be.
Some wanted it to go from 1mb to 2mb, but
others wanted it to increase even further.
When matters couldn’t be settled, both groups
decided to go their own way.
Bitcoin has had a few hard forks already,
some forks becoming more successful then others.
But it’s not the only one.
Also Ethereum had a hard fork when it split
into Ethereum and Ethereum classic.
So that is essentially what a hard fork is.
But there is also something called a “soft
fork”, so what’s the difference?
A hard fork occurs when someone forks Bitcoin
and makes it incompatible with the original.
If you however fork Bitcoin and make your
changes compatible, then we call it a soft
fork.
A subtle difference.
So now you know what a hard fork is and why
they happen.
Because cryptocurrencies are becoming more
and more popular it’s safe to say that disagreements
will pop up more often and more forks will
be created.
So that was it for this video, thanks a lot
for watching and I’ll see you in the next
one.