Bitcoin is open-source software, so anyone can duplicate, modify, and use it at their own discretion. The actual modification of the source code is called a fork.
In other words, any fork is a change in the rules according to which a block in the blockchain is recognized as authentic (valid).
What are the forks?
There are two main types of forks: soft forks and hard forks. The first can be called “soft” modification of the source code, the second — “hard.”
What is a soft fork?
In the case of a soft fork, changing the rules does not require updating the client (software) to enforce the new rules. If some of the nodes (nodes) in the network do not accept the new rules, such nodes will still be able to interact with the nodes that use the new rules.
For a better understanding, you can draw an analogy with languages: if before the fork all nodes spoke American English, and the new rules require a switch to the British version, then the nodes that continue to use the American version will still be able to understand British. At the same time, nodes that use British English will easily understand the American version.
Thus, a soft fork is a reversible code change that does not break consensus about the protocol itself.
What is a hard fork?
In the case of a hard fork, the new rules contradict the old ones so much that the nodes that did not accept them do not receive information from the nodes that accepted them. If we follow the same analogy with languages, the old nodes speak English, and the new ones speak Chinese. A hard fork implies a change in the consensus mechanism itself, in which case the entire network is divided into two parts that can never interact again. This is because blocks that are valid in one part will not be valid in the other.
How does it work in cryptocurrencies?
In the case of cryptocurrencies, a fork may mean a change in the rules of operation associated with the need to make changes to the protocol. In other words, sometimes, to make Bitcoin better and safer, you have to resort to one of the types of forks. Although in some cases the fork is a security issue.
What happens after the hard fork?
In the case of a hard fork, one of the resulting branches (chains) of the system may die out, but it may also remain — it depends on how much hash power falls on each of the branches. The branch with the higher power has a better chance of success. As the most obvious example of such a scenario, we can recall the Ethereum network hard fork that happened in the summer of 2016: the new chain continued to exist under the former name (ETH), but at the same time the original chain, called Ethereum Classic (ETC), was preserved and maintained.
Is it believed that most cryptocurrencies are forks of bitcoin?
A fork can really be called a clone of an existing cryptocurrency. For example, you can copy the source code of bitcoin to your computer right now, change the name, emission rules, and compile the program. After that, it is imperative to mine (issue) several million coins and invites friends and acquaintances to play an exciting economic game. Sometimes very serious projects emerge from such cloning.
Are all cryptocurrency projects forks or altcoins?
No, not all of them. There are so-called “colored coins,” meta coins, and many other complex tokens, which in the strict sense of the word are neither forks nor altcoins.
What is an altcoin?
Any alternative cryptocurrency other than bitcoin is called an altcoin. In the strict sense of the word, an altcoin cannot be considered a clone of an already existing cryptocurrency, which does not carry any significant technical improvements and the desire for a worldwide singularity. In practice, altcoin and fork are very vague concepts that can be used about the same project, regardless of the accuracy of this definition.
What is the difference?
It would be more correct to call altcoin cryptocurrencies that are significantly different from other projects. For example Dash, Ethereum, MaidSafe, NXT. In turn, it is more correct to call forks such projects as Dogecoin (a fork of Litecoin), Expanse (a fork of Ethereum), Stellar (a fork of Ripple).