Blockchain forks: what they are and what happens to your coins
A blockchain fork is a rule change that splits or redirects a network's history. Hard forks create two chains, and your wallet decides what to credit.
Vahe HakobyanEditor-in-chief
Updated Oct 5, 20263 min readFact-checked
On this page
- Hard forks split the chain; soft forks stay compatible.
- Wallets and exchanges decide which forked chain to credit.
- Forked coins can be fake or illiquid.
When the computers that run a blockchain follow new rules, the network either switches together or divides into two groups.
What Is a Blockchain Fork?
A fork begins with a change to the rules that nodes follow. Nodes are the computers that check transactions and add new blocks. When some adopt new rules and others keep the old ones, the chain branches and records history in two directions.
Hard Fork vs. Soft Fork?
A hard fork makes two incompatible chains, so old software cannot follow the new rules and nodes must upgrade to stay on the new chain. A soft fork stays compatible with older software, so one chain usually continues.
What Happens to Your Crypto?
After a hard fork, holders may receive an equal number of new coins on both chains. Your wallet or exchange decides which chain to support and whether to credit you. In 2017, the bitcoin split that created Bitcoin Cash left holders with coins on both chains. To claim forked coins, first move your coins to a new wallet, and only then import the old keys or recovery phrase into any fork software.
Why Do Blockchains Fork?
Forks happen when developers and network participants disagree about an upgrade, or when the network needs to fix code. The rules that win are the ones most participants choose to follow.
- Developers disagree about an upgrade.
- Users and miners want different rules.
- The network needs to fix a bug.
What Are the Risks?
Forked coins can be fake or illiquid. A new chain may have few users or no market for its coins. A replay attack can threaten funds on both chains, because a transaction valid on one chain can be copied onto the other.
Frequently asked questions
No. New coins exist only if the new chain keeps running and enough people use it. Some forks produce no tradable coin at all.
The IRS treats crypto as property. It says new coins from a hard fork are usually ordinary income when you control them.
A soft fork can be reversed if the network agrees. Reversing a hard fork that created a separate chain is much harder.
A fork is the rule change. A chain split is the result when two groups follow different rules and both chains keep running.
