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Blockchain is the most sophisticated technology that changed the fintech industry in a way no other technology can. Both halving and forking are important, or sometimes even necessary, part of blockchain networks.
There is no way we confuse between halving and forking because they share clearer differences. The major difference between halving and forking is that while halving deals with the reduction of mining rewards, forking makes changes to a blockchain network at its programming level. Keep reading to learn more about how halving and forking differ.
Halving is the concept of reducing blockchain mining rewards by 50% at periodic intervals. Satoshi Nakamoto introduced halving when he developed Bitcoin blockchain in 2019. Today, many cryptocurrencies go through halving events based on their own predefined conditions.
Bitcoin is the first cryptocurrency that introduced the halving concept. It went through a Bitcoin Halving event for the first time in 2012 and its mining rewards were reduced from 50 BTC to 25 BTC. After going through a total of 3 Bitcoin Halving events, its current mining reward is 6.25 BTC. The upcoming Bitcoin halving is estimated to take place in April, 2024, which reduced mining rewards to 3.25 BTC.
The main advantage of Halving events is they control the amount of cryptocurrency that comes into circulation through mining. By reducing mining rewards, halving gradually reduces the supply of new cryptocurrency and it keeps the overall supply in check. It is a brilliant way to achieve limited supply and to increase the value of cryptocurrency over time.
Forking is the process of making modifications to a blockchain network. Developer teams of blockchains implement forks to improve the network, the same way internet protocols improve web browsers. Cryptocurrency forks are two types – soft forks and hard forks.
Soft forks of a blockchain does not create a new chain by splitting it into two. They just make some changes to the existing network like introducing new features to it. Soft forks function more like software upgrades we make to our electronic devices. They make changes at the programming level to make the network better and more secure or introduce new features.
Hard forks leave a permanent mark on an existing blockchain network. A hard fork splits the blockchain network into two blockchains and introduces a new native cryptocurrency on the new chain. The changes made at the programming level in hard forks are major compared to soft forks.
Even though the source code of the two blockchains are the same, they will not be compatible with each other. While the original blockchain remains the same, the new blockchain will follow a new set of rules and go in a different direction. Litecoin is an example of a hard fork that happened on the Bitcoin blockchain.
The purpose behind halving and forking is a big differentiator. Main purpose of implementing halving is to gradually reduce the supply of tokens to finally achieve limited supply. On the other hand, the purpose of implementing forks is either to make some upgrades to the blockchain or to split the chain because of community disagreements.
Halving ensures that the token supply is limited. It is designed to protect the long-term price valuation of the token and to avoid inflation. But, forking has nothing to do with token supply. It is implemented to fix issues on blockchain, to add new features, or to create a new cryptocurrency.
Halving on a blockchain is implemented at predetermined intervals. For example, when Satoshi Nakamoto developed Bitcoin blockchain, he introduced the “Bitcoin Halving” concept. On the Bitcoin blockchain, Halving occurs every four years for every 210,000 blocks. But, forks have no such predefined time frame.
Like this, halving events on other blockchains are also implemented at periodic intervals and reduces the mining rewards by 50%. But, this is not the case with blockchain forks. When a blockchain project’s developer team and community agree to make changes to the chain, they implement forks.
When a halving event occurs on a blockchain, its impact will primarily be on the mining rewards. The mining rewards will be reduced by 50%, which means that miners of that blockchain will only get half of the rewards they used to get before halving. The reduced mining rewards further impact factors like mining profitability, mining difficulty, etc.
Unlike halving events, forks bring heavy modifications to blockchains. While soft forks maintain a single blockchain and make slight changes to the existing nodes, hard forks split the blockchain into two, introducing a new cryptocurrency on the new blockchain.
Halving and forking are two entirely different but very essential concepts of blockchain technology. It is not that hard differentiating between them as they deal with different aspects of a blockchain network. While halving slashes mining rewards by half, forks bring new changes to already existing blockchain networks. We hope our article helped you understand the differences between halving and forking in detail!
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