What Are Chain Splits In Cryptocurrency?

Chain splits are something can periodically occur in a cryptocurrency blockchain. They are not very common, and in some cases have been confused with forks. You don’t have to know what chain splits are to be an investor in Bitcoin or other digital currencies, but here is a little information that will help you understand the subject when you hear it discussed.

About Blockchains

Before we talk about chain splits it is best to talk about blockchains in general as a reminder for those who may have limited understanding of the technology. A blockchain is what underpins a cryptocurrency. It is the foundational technology that enables cryptocurrency transactions to be carried out while a record of those transactions is preserved.

Blockchains are a type of decentralized digital ledger. Taking Bitcoin as an example, whenever someone sends or receives Bitcoin a record of that transaction is created and added to the blockchain. That record becomes permanent. There is no way to alter the record without altering the entire blockchain. Individuals known as miners are tasked with maintaining the integrity of the blockchain by adding new blocks through verifying transactions.

Some blockchains have moved beyond recording crypto transactions and can be used to record any type of contract between two or more parties. The Ethereum blockchain allows for Smart Contracts and also something known as Dapps, applications that run on the blockchain.

To provide an example of what a chain split is we will look at example from the Ethereum blockchain, but first let’s give a brief definition of a chain split and how it differs from a fork.

Defining Chain Splits

When a break occurs in a blockchain which affects its digital record a chain split is created. Blockchains are a series of blocks of data. These blocks must be added to the blockchain through a consensus protocol. This means that miners on the blockchain’s network must agree that the blocks of data are correct. They also have to agree on how the blocks of data are formed and added to the blockchain.

In rare cases there can be disagreement about these matters. Since only one block of data should be made at a time, the disagreement can lead to the creation of different camps. When this happens there may be a split. When this happens two distinct forms of the blockchain are created. You have the original blockchain and you also have the new blockchain.

The most famous example of this could be the creation of Ethereum Classic from the Ethereum blockchain. There were two camps who experienced a disagreement over something known as the DAO, or Decentralized Autonomous Organization. The result was the branching off of a new record chain which became Ethereum as we know it today. The original record was retained as Ethereum Classic.

Differences Between Chain Splits and Forks

A fork in cryptocurrency is a type of planned split in which a new cryptocurrency or blockchain breaks off from another. The new cryptocurrency doesn’t have to be associated or related to the one it emerged from. Litecoin is a good example of a soft fork.

In a soft fork like the one accomplished by Litecoin and its developer Charlie Lee, the open source code of an existing  blockchain is used as a foundation. Lee took the source code of the Bitcoin blockchain and used it as a framework. He made modifications which led to the creation of Litecoin, a distinct cryptocurrency which has its own blockchain framework.

The difference with a chain split is that it is a scenario where two or even more competing versions of one blockchain exist. These versions share the same history up to a specific point. At that point the two versions separate because the rules of how blocks are created and added to the blockchain differ.

A soft fork and a hard fork can sometimes cause a chain split. A chain split does not cause a fork. Back in 2016 there was a planned soft fork rule change for the Bitcoin blockchain. This planned change led to a chain split and reorganizations of the blockchain. Likewise, a chain split can also be used in some situations to prevent a hard or soft fork.

There is much more that could be explained about chain splits on a deeply technical level. You now have a general idea of chain splits and what they are which can be used to inspire your own research. Chain splits can be a fascinating study because they often reflect different ideologies in cryptocurrency.

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