I’m going to write down a few things I’ve observed about how cryptocurrencies operate, and what makes a good hardfork and a bad one.

Bitcoin was and still is the gold standard of what a cryptocurrency should be, as witnessed by how the scaling debate of 2014–2017 was handled.

In this article I’m going to try and explain why bitcoin’s upgrade to SegWit compatibility and subsequent split resulted in a better valuation by the market, while Ethereum’s fork in 2016 resulted in a lot of confusion and bad feelings which still remain until this day.

There are two components to any cryptocurrency. One is the protocol itself, and the other is the community which uses that protocol. Protocol is as important to the community as is constitution to the offline government. The difference to offline governance of course is that cryptocurrency protocol is defined by software and impossible to break accidentally. This can be contrasted with offline governments which often in practice do entact edicts that are not compatible with the constitutions, which in theory should constrain them.

Using this analogy, we can define soft fork and a hard fork in terms of constitutions. Soft fork is writing down another amendment at the end of the document. Hard fork is editing or removing an existing amendment.

It’s traditional to assume that the offline governments can change the constitutions and that all of their subjects will automatically accept the changes. This is not the case in cryptos, where everyone is free to accept and reject the changes to the protocol.

Essentially, hard fork always creates 2 coins — the original one and the forked one. A lot of confusion is usually created because exchanges often treat the version of the coin which is supported by the developers as the original coin. In Bitcoin’s fork vs Bitcoin Cash that actually turned out to be correct decision.

Let’s contrast that with Ethereum’s fork of 2016. The fork happened when one of the “smart contracts” on the chain (DAO) didn’t work in a way which would be profitable to its creators. In case of Ethereum’s fork, the original coin that should had retained the name “Ethereum” is currently known as Ethereum Classic.

There is a more recent example of a hardfork being done incorrectly by a major currency — Monero developers arbitrary changed its proof of work algorithm in 2018 to give people who did not invest into specialized mining hardware advantage over people who did make the investment.

The treatment of the forks where the name of the coin can be arbitrary assigned to any of the resulting coins is incorrect and confusing. To be consistent with the idea of cryptos, the name should always remain with the original chain.

What should had happened with Monero hardfork is exchanges retaining the old protocol and allowing people to trade between the old and the new protocol’s tokens. The tokens than can be traded against each other to find out what the community actually thinks about the advantages and disadvantages of this fork

This should also apply to future bitcoin hard forks. The more time passes without bitcoin hardforking, the lower the probability that it will hardfork in the future. However, should bitcoin hardfork any time in the future, the original chain should retain the name “Bitcoin” and the new chain get some other name, maybe Bitcoin2, or Bitcoin++