6. Forking and Governance
Updated: Jul 21, 2021
Once a blockchain is created, it's up to the miners to keep it operating. Depending on the blockchain, the ways in which it can evolve are a bit different, but in general there is soft forking and hard forking. Soft forking is when the updates to the network are unanimous and there will only be one resulting blockchain. Conversely, hard forking is when two blockchains with different codes exist side by side.
With each blockchain, the miners can make decisions regarding what should happen to the network by choosing which version of the blockchain they want to mine. If a soft fork is made by the creators of the blockchain, miners do not have this choice as they still mine the same code but their rules are often less advantageous and therefore they are losing money compared to if they update to the new rules. Hard forks however are when two different sets of rules run in unison which is often a result of mixed opinions from miners. Blockchain has had numerous of these hard forks resulting in miners needing to choose which network to mine (Bitcoin or Bitcoin Cash as one example). The interesting part about these forks is that owners of the coin before the fork keep the same amount of coins in each new blockchain, essentially doubling their value. These forks are rare though because if roughly half of all miners do not believe the new coin will be better (therefore of more value), they will not want to mine it and the attempted fork will not occur.
Tokens have a slightly more nuanced form of evolution through various means of governance. Each token has its own unique way of making these decisions through various levels of on and off chain systems. An on chain system makes voting a by-product of ownership of the token. The more you own, the more votes you get. Off chain systems are more similar to modern politics where the voting rights are not ingrained in the code that runs the token. The really interesting part about on chain voting is that coin holders can often give their voting rights to another individual if they themselves don't feel confident in voting on how to improve the token. This process is called staking and in terms of tokens, there are rewards for active voting. When an individual stakes their tokens to an active voter, the voter receives part of their reward and the holder receives the rest. This is often a win-win as the holder likely would not have voted on their own and therefore would not have received any reward.
More about staking will be discussed in a future article. Up next, I'll explain the effects of halving on the price of Bitcoin.