What is a Chain Split?
A chain split, also known as a hard fork, occurs when a blockchain network splits into two or more separate chains, each with its own set of rules and transaction history. Chain splits can happen for various reasons, such as disagreements over protocol changes, security issues, or updates that are not universally accepted by all participants in the network.
When a chain split occurs, the participants in the original network are given the choice to either stick with the original chain or switch to the new one. If they decide to stay with the original chain, they will continue to use the existing rules and transaction history, while the participants who switch to the new chain will use the updated rules and transaction history. This can result in two separate cryptocurrencies, with separate values and trading volumes.
Chain splits can have significant consequences for the participants in the network. For example, if a chain split occurs in a popular cryptocurrency like Bitcoin, it can result in a new cryptocurrency with a different value and market cap. This can also create confusion among investors and traders, as they need to understand the implications of the chain split and decide which chain to support.
One of the most notable examples of a chain split was the Bitcoin Cash hard fork in 2017. The hard fork was caused by disagreements over the block size limit, which led to a group of miners and developers splitting off from the original Bitcoin network to create a new blockchain with a larger block size limit. This resulted in the creation of a new cryptocurrency, Bitcoin Cash, which had a different value and market cap than the original Bitcoin.
Chain splits can also have implications for network security. When a chain split occurs, it can create vulnerabilities in the original network, as the computing power that was once dedicated to securing the network is now divided between multiple chains. This can make the network more susceptible to attacks and other security threats.
Simplified Example
Imagine you have a group of friends who all share a notebook. Each friend writes down their own transactions and passes the notebook around to the others, who then verify and sign off on the transactions. This notebook is like a blockchain, where each block contains a set of verified transactions.
Now, imagine that one day, two friends make a copy of the notebook and start writing their own transactions in their own copy. They continue passing their copies around to the other friends who verify and sign off on their transactions.
Soon, the other friends notice that there are now two different versions of the notebook, each with different transactions in them. They try to decide which one is the correct version, but they can't come to a consensus, and so they decide to continue using both versions of the notebook, with some people using one version and others using the other.
History of the Term Chain Split
Chain split, also known as a hard fork in the blockchain realm, refers to a significant divergence in the blockchain's protocol, resulting in two distinct paths forward. Notable instances of chain splits occurred within the cryptocurrency landscape, particularly in 2017 when Bitcoin experienced a significant fork, leading to the creation of Bitcoin Cash. This event stemmed from a disagreement within the Bitcoin community regarding the scalability and transaction speed of the original Bitcoin blockchain. Consequently, a group of developers and miners initiated a hard fork, creating a new chain with modified protocols and a larger block size, forming Bitcoin Cash as an alternative cryptocurrency. Chain splits like these exemplify the decentralized nature of blockchain technology, allowing divergent paths based on community consensus and technical changes.
In the history of blockchain, another significant chain split occurred within the Ethereum network in 2016, leading to the creation of Ethereum Classic (ETC). This split followed the aftermath of the DAO (Decentralized Autonomous Organization) hack, where a vulnerability in a smart contract led to the loss of a significant amount of Ether (ETH). In response, the Ethereum community faced a pivotal decision: whether to perform a hard fork to reverse the hack and restore the lost funds. This decision resulted in a divide among the Ethereum community. The majority supported the chain split, leading to the creation of a new chain, now known as Ethereum (ETH), while a faction chose to remain on the original chain, which became Ethereum Classic (ETC). This event emphasized the philosophical and technical differences within the Ethereum ecosystem, highlighting the complex nature of governance and consensus in decentralized networks.
Examples
Bitcoin Cash (BCH) - In 2017, a group of users and developers proposed increasing the block size limit of the Bitcoin blockchain, in order to improve scalability. This proposal led to a hard fork, where a new blockchain, Bitcoin Cash, was created, with a block size limit of 8MB.
Ethereum Classic (ETC) - In 2016, the Ethereum blockchain underwent a hard fork to recover funds that had been stolen as a result of a hack on the Ethereum network. This split resulted in the creation of a new blockchain, Ethereum, and an older version, Ethereum Classic.
Bitcoin Gold (BTG) - In 2017, the Bitcoin blockchain underwent a hard fork to create Bitcoin Gold, which aimed to make mining more decentralized by using a different proof-of-work algorithm.