What is a Chain Split?

Introduction

Not everyone fully knows what it means when a fork causes a chain to split. In blockchain and cryptocurrency, forks are common.  Did you know that these coins’ chains had ever split?

Some people see these splits positively, but there’s more to the story than that. In this blog, we will talk about the truth about forks and chain splits in the world of digital currencies. It will show how they really affect the blockchain industry.

What is a chain split?

When a blockchain network splits, two chains form. A blockchain code fork creates a new chain alongside the original one when functions are changed. There are basically two types of forks that exist- hard and soft forks.

Chain splits can cause soft forks, which are compatible with older wallets and software. Users can still access the network with their existing software, but new features implemented after the fork may not operate.

However, hard forks involve software and wallet updates. After a hard fork, only users with updated software can communicate with the blockchain.

Blockchain network modifications cause chain splits, which create a new chain. For network access, hard forks require updates, but soft forks are backward compatible.

When does the chain split happen?

Chain splits occur in cryptocurrencies when developers disagree on a blockchain project’s direction. These ideological differences may lead to different blockchain development strategies. Bitcoin Cash (BCH) split from Bitcoin due to disagreements on scaling the most popular cryptocurrency. 

Many cryptocurrencies are open-source, making blockchain splits easy. Disagreements could lead to a new blockchain because users and developers can access these projects’ codebases. Chain splits can also improve digital assets by resolving programming issues or integrating new technology. For instance, Litecoin (LTC) left Bitcoin to use a new hashing algorithm and produce more coins. 

DOGE, which broke from Litecoin (LTC), and Ethereum Classic (ETC), which split from Ethereum, are two significant chain splits. These splits demonstrate how different perspectives and technologies may inspire new bitcoin startups.

Impact of Chain Splits on the Cryptocurrency Market

Changes in Prices

Chain splits have the potential to cause rather large price swings. Learn about the erratic nature of cryptocurrencies.

Example from Real Life: The splitting of Bitcoin Cash was the cause of the cryptocurrency’s price volatility.

The production of fresh coinage

Hard splits frequently result in the creation of new cryptocurrencies. One example is Bitcoin Cash, an altcoin that descended from Bitcoin.

Crypto Fork vs. Chain Split

Blockchain terminology includes “forks” and “chain splits.” These concepts are similar but distinct.

A blockchain network forks when its software changes. This modification could be a protocol upgrade or a new feature. If most network users install the updated software, business as usual continues. A chain split can occur if some users use the old software.

A chain split occurs when a fork produces changes the community can’t agree on. This splits the blockchain into two chains with different rules. Hard and soft forks split chains. Hard forks produce two new blockchains, while soft forks modify the previous one.

In summary, a fork proposes a change, but a chain split occurs when people disagree.

Important Examples of Chain Split

Blockchain splits, frequently due to ideology, have created numerous prominent cryptocurrencies:

1. Bitcoin Cash: 

Bitcoin (BTC) forked due to arguments on scaling the coin for more users. Unlike Bitcoin, Bitcoin Cash wanted to expand the block size limit to enable more transactions.

2. Ethereum Classic: 

The Ethereum community disagreed on whether developers should be able to edit blockchain data to retrieve stolen cash. Ethereum Classic kept its blockchain unchanged.

3. Dogecoin (DOGE): 

Inspired by a Shiba Inu meme, Dogecoin is a fork of Litecoin created as a joke. Despite its funny origins, Dogecoin became popular and has a market valuation of over $2 billion.

These examples show how technical scalability concerns and internet-inspired community-driven initiatives can cause chain splits in bitcoin development.

The risk associated with Chain splitting

Sustained chain splits pose several dangers to blockchain projects and their communities.

Firstly, they can lead to brand dilution, causing confusion among investors and users about which chain is the authentic one. This uncertainty can undermine confidence in the project and hinder its growth.

Secondly, sustained chain splits can result in the centralization of ideas within the blockchain community. New projects formed from splits often attract community members from the original project, draining diversity and innovation from the ecosystem. This centralization can hamper the project’s ability to adapt to changing environments and survive in the long term.

Furthermore, the centralization of ideas can also lead to the centralization of hash power, as miners choose which project to support based on economic or ideological reasons. This concentration of hash power increases the risk of one entity controlling a majority of the network, potentially enabling censorship or double spend attacks.

Finally, sustained chain splits can result in the loss of development capacity as experienced developers move to new projects. This dispersion of talent can create significant challenges for the original project, particularly in maintaining consensus code and implementing new features. Additionally, it may foster a silo mentality within the blockchain space, hindering collaboration and innovation.

Overall, sustained chain splits present significant risks to the stability, security, and development of blockchain projects, highlighting the importance of strategic decision-making and community cohesion in addressing these challenges.

Conclusion  

In conclusion, blockchain chain splits are natural but not necessarily helpful. Sustained, intentional forks can be harmful. We’ve explored how they can hurt investor trust, increase centralization risk, and slow blockchain growth.

For those who support forks, consider the bigger picture. Forks can split networks and foster crypto tribalism, deterring mainstream adoption. Recognising power law dynamics is more important than separating them off. Unity and collaboration are essential to establishing a stronger, more robust ecosystem, as only a few blockchain projects will succeed.

Forks and chain splits may appear like a simple cure, but they typically cause worse problems. We can overcome challenges and propel the blockchain industry forward by working together and building a community.