Topic
What is a hard fork?
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- Quick fact 1
A hard fork is a permanent split that happens when nodes follow incompatible rules.
Source: bitcoin.org glossary: Hard fork
- Quick fact 2
Ethereum has gone through many planned network upgrades, several of them hard forks.
- Quick fact 3
In the US, the IRS treats new coins received after a hard fork as income in some cases.
Source: IRS: Frequently asked questions on virtual currency transactions
The short lesson
Blockchains run on rules written in software. Sometimes those rules change. A hard fork is a change that older versions of the software will not accept.
If everyone upgrades, the network simply moves on with the new rules. Many planned upgrades work this way.
If some people refuse to upgrade, the chain can split in two. Both versions share the same history up to the split, then go separate ways. Each has its own coin. A well-known example is the 2017 split that created Bitcoin Cash.
What it can mean for you:
- Scams spike around forks. “Claim your forked coins” sites ask for seed phrases. Never type your seed phrase to claim anything.
- Exchanges decide whether to support a new coin.
- Taxes. In the US, new coins you receive after a hard fork can be income. Check the IRS FAQ.
A soft fork is a smaller change that older software can still accept.
Related terms
Go deeper in Lesson 4: The shared list everyone can check
Common questions
What is the difference between a hard fork and a soft fork?
Old software rejects a hard fork’s new rules; a soft fork stays compatible with old software.
Do I get new coins in a fork?
If the chain splits, holders may end up with coins on both chains. Access depends on your wallet or exchange.
Should I claim forked coins?
Be very careful. Never enter a seed phrase on a website to claim anything.
Are forked coins taxable?
In the US, new coins from a hard fork can be income once you can use them. See the IRS FAQ.