Crypto forks: What happens when blockchains split?
Dec 16, 2025・6 min read
Cryptocurrencies are like software: protocols that run on specific coding instructions. But unlike traditional software programs, there’s no way for an organization to change a cryptocurrency’s programming. All crypto assets run on decentralized networks powered by globally distributed communities of nodes, so tinkering with a blockchain’s coding instructions means fundamentally shifting its architecture and, often, creating a new chain.
Although these protocol shifts can be drastic, they’re a frequent feature in Web3. In fact, they’re so common in crypto history that they have their own name: crypto forks. For investors, forks might mean stronger safety rules without having to change their approach, or they might provide an opportunity to get into a new currency from day one.
Ultimately, understanding cryptocurrency forks can help users better appreciate blockchain development and how programmers approach disagreements.
What’s a crypto fork?
A crypto fork is a change to a cryptocurrency’s underlying rules. The developers who maintain a crypto network’s codebase need to agree on proposed updates before implementing a fork on the open-source blockchain; controversial forks can cause multiple offshoots. These forks often change governance (aka a rule change event), fix security risks, or add new functionalities.
Sometimes, blockchain forking splits a cryptocurrency into two incompatible networks, while more minor forks add new features without causing severe disruptions. In either case, forking in crypto occurs when developers have a new vision for a blockchain protocol and put their ideas into practice.
Hard forks vs. soft forks: Key differences
Crypto forks fall into two categories – hard and soft – depending on how drastically they affect the underlying blockchain. Hard forks introduce rule changes so extreme that they create an entirely separate crypto network, often with a new cryptocurrency. Backward-incompatibility is a defining feature of hard forks, meaning the node operators running the original blockchain have to switch to an entirely different protocol to work on the hard-forked chain.
In contrast, soft forks are more like traditional software updates. They generally introduce new security or usability features without creating a schism. Soft forks’ smaller changes are backward-compatible, so nodes don’t have to change their systems to keep running on the updated blockchain.
A famous example illustrating these differences took place in 2017 when both the Bitcoin Cash blockchain and the SegWit update on Bitcoin launched. This period saw heated debates over how to improve Bitcoin’s scalability while preserving its security and decentralization.
Those in favor of a modest approach that maintained network integrity favored the SegWit soft fork, which separated out signature data on transaction blocks to improve transaction speed while remaining backward-compatible. Another group of programmers argued for a more drastic increase in Bitcoin’s maximum block size from 1 MB to 8 MB, creating an entirely new blockchain. The developers in this second group eventually launched the Bitcoin hard fork called Bitcoin Cash, which isn’t compatible with the original Bitcoin blockchain.
Why do forks happen?
Crypto forks aren’t always contentious. Although some historic hard forks created divisions, there are situations where most community members don’t have issues implementing a fork:
- Governance disputes: If enough developers or node operators don’t feel heard in their blockchain’s community, they might band together to create a new chain with different governance policies. These updated chains may include new voting programs on decentralized autonomous organizations (DAOs) or alternative leadership roles to address perceived inequalities.
- Scaling differences: A common source of conflict in crypto is how to promote and scale the currency without sacrificing decentralization or security. Some groups may favor minor adjustments to preserve harmony, while others may want hard forks with drastic changes.
- Security or bug patches: If developers notice a critical vulnerability in a blockchain’s code, they need to act quickly to resolve it and avoid a crisis of confidence. For example, the Bitcoin CVE-2018-17144 soft fork introduced a defense against denial-of-service (DoS) attacks and a fix for a bug that could have allowed miners to create new BTC.
- Roadmap disagreements: A cryptocurrency’s roadmap defines the project’s long-term vision and lists the steps necessary to achieve its overarching goals. In some cases, a short-term milestone may include a soft fork update. However, disagreements over a cryptocurrency’s identity or current course of action could trigger a hard fork.
2025
Crypto Tax
Guide is here
CoinTracker's definitive guide to Bitcoin & crypto taxes provides everything you need to know to file your 2024 crypto taxes accurately.
3 examples of major forks
Of the many forks in crypto history, those on Bitcoin and Ethereum have been the most influential. Not only are they on the two largest blockchains by market cap, but their forks have started intense debates on significant topics like Web3 scalability and security.
Here are three examples of Bitcoin and Ethereum forks over the years.
Bitcoin Cash
As Bitcoin soared in 2017, concerns about its scalability potential took center stage in the crypto community. Some developers believed the only way to make Bitcoin a viable form of peer-to-peer (P2P) electronic cash was to rewrite the parameters for the amount of data stored on each block.
In the original Bitcoin protocol, each block of transactions held 1 MB. To speed up transactions and reduce fees, these programmers suggested rewriting the code to increase its size to 8 MB, creating a hard fork. With the support of prominent Bitcoin investor Roger Ver and Bitmain’s former CEO Jihan Wu, this idea eventually led to the Bitcoin Cash hard fork on August 1, 2017.
SegWit
On the other side of 2017’s scalability debates, some developers proposed changing the architecture of Bitcoin’s block data storage rather than simply increasing the block size. Under the segregated witness (SegWit) model, signature (witness) data gets separated (segregated) from transaction details. This shift made it possible to process more transactions per block. By using this nuanced model, Bitcoin could process more data without introducing a backward-incompatible hard fork. SegWit’s introduction in August 2017 paved the way for other innovative scaling solutions, such as the Lightning Network.
Ethereum
Unlike Bitcoin Cash, Ethereum had a hard fork that overtook its parent chain in popularity. The origins of Ethereum’s hard fork go back to a notorious hack on the chain’s first decentralized governance experiment (the DAO), where hackers exploited a code vulnerability to steal millions from investors.
The early Ethereum community quickly split into two factions: one favoring a new chain to compensate affected users, and another opposing any third-party intervention. Those in the first group created ETH, while the original Ethereum blockchain continues to run as Ethereum Classic (ETC).
Do you get new coins when a fork occurs?
Just because a blockchain forks doesn’t automatically mean traders get to claim crypto. They’ll only receive new digital assets if they already hold a cryptocurrency on a blockchain undergoing a hard fork.
A user’s crypto wallet or exchange account also has to offer compatibility with this digital asset. If the hard fork creates a separate cryptocurrency, exchanges or wallets may not offer support for the new digital asset, meaning it may not be possible to store the new coin without creating a separate wallet.
Risks and considerations with crypto forks
Forks can benefit a cryptocurrency’s ecosystem, but even tiny changes to a blockchain’s protocol can ripple into big problems. Investors need to pay attention to the following technical and fundamental implications of forks on their crypto assets:
- Replay risk: As a chain splits, transactions posted on one chain may “replay,” or repeat, on another. This can happen by accident as blocks duplicate during the fork or as part of a planned replay attack, but both situations lead to unintended crypto transfers.
- Liquidity risk: Even with an enthusiastic group of followers, new tokens from a hard fork may struggle to attract buyers and sellers early on. This lower liquidity makes it difficult to assess the project’s reliability or trade cryptocurrencies without pricing inefficiencies (aka slippage).
- Custody and exchange support: One reason behind a forked cryptocurrency’s low liquidity is its lack of availability. Often, exchanges and crypto wallets initially avoid supporting forked cryptocurrencies to prevent security risks or intense selling pressure from airdrop recipients.
- Branding confusion: Since many forked cryptocurrencies aim to “replace” their original blockchain, it’s not uncommon for them to adopt a similar name and image to their parent crypto. Names like Bitcoin Cash and Bitcoin SV can be confusing and add unnecessary complexity to the already abstruse crypto market.
Account for forked crypto with CoinTracker
Whether forks are part of a scheduled software upgrade or a larger dispute within the crypto community, they always alter a blockchain’s rules and roadmap. Crypto investors need to pay careful attention to hard-forked crypto events and how they impact their portfolios. Any digital assets someone receives from a hard-forked chain must be reported to the IRS. Similar to airdrops or staking rewards, crypto from hard forks qualifies as ordinary income, so investors need to record the fair market value (FMV) of any new tokens at the time they receive them. CoinTracker’s Portfolio Tracker makes monitoring these changes easy.
Want a clear view of your assets at all times? With CoinTracker, link your wallets and exchanges to monitor your portfolio’s performance in real time. Create a free account and see why crypto investors trust us.
Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.
FAQ
What does a hard fork mean?
Hard forks are drastic and permanent splits between an original blockchain and a new protocol, often including a new currency.
What’s the difference between hard forking and soft forking?
Hard forks introduce fundamental changes to a blockchain’s infrastructure that aren’t compatible with the original version. Soft forks alter a blockchain’s infrastructure, but don’t create an entirely new one in the process.
How does a hard fork affect crypto prices?
The price of a cryptocurrency from a hard fork depends on multiple factors, such as initial liquidity, community confidence, and if it’s supported on wallets and exchanges.
Is a hard fork good?
Hard forks might be a positive event if they introduce significant safety and usability improvements over the original blockchain, but there’s a chance these cryptocurrencies will fail to deliver on their goals and create more confusion in the crypto ecosystem in the process.