Crypto Forks: What Actually Happens When a Blockchain Splits in Two
Soft forks, hard forks, and the handful of famous splits that created entirely new coins, explained without assuming you already know the difference.
By Firoz Khan|13 September 2026|Updated 11 October 2026|3 min read
A fork happens when a blockchain's rules change, and depending on how that change is implemented and whether the network agrees on it, the result ranges from a routine software upgrade nobody notices to an outright split into two separate, competing chains and, often, two separate coins.
Soft forks: backward-compatible rule tightening
A soft fork tightens the rules in a way that's still recognised as valid by nodes running the older software, it narrows what's allowed rather than expanding it, so the network can upgrade gradually without splitting. Most routine Bitcoin protocol upgrades have been implemented this way specifically to avoid a chain split.
Hard forks: rule changes that aren't backward compatible
A hard fork changes the rules in a way older software won't recognise as valid, which requires every participant to upgrade or risk being left on an incompatible, minority chain. If the community doesn't fully agree on the change, the chain can permanently split into two, each continuing under its own rules from that point onward.
Soft fork and hard fork compared
| Metric | Soft fork | Hard fork |
|---|---|---|
| Older software accepts new blocks | Yes | No |
| Everyone must upgrade | No, upgrade can be gradual | Yes, or be left on the old chain |
| Risk of a permanent split | Low | Higher if the community disagrees |
| Example | SegWit, which raised Bitcoin's effective capacity | The 2017 Bitcoin Cash split; Ethereum Classic in 2016 |
Checked 11 October 2026.
When a split creates an entirely new coin
Bitcoin Cash split from Bitcoin in 2017 over a disagreement about block size, and Ethereum Classic split from Ethereum in 2016 following a contentious decision to reverse a major hack, with the original, unreversed chain continuing on as Ethereum Classic. In both cases, anyone holding the original coin at the moment of the split typically ended up holding a matching balance on both resulting chains.
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How a fork is taxed in the UK
HMRC's guidance says new tokens from a hard fork are not treated as income. Their value is derived from the original tokens you already hold, so the Capital Gains Tax rules for derived assets apply, and the fork itself is not a disposal of your original tokens. After the fork, the new tokens go into their own pool. The cost held in the pool of the original tokens is split between the two pools on a just and reasonable basis, and HMRC does not prescribe a particular method.
Say you hold one coin with a pooled cost of £10,000. After a fork you hold one of each. On the day the new coin appears, the original is worth £28,000 and the new one £2,000. Splitting the £10,000 by market value gives about £9,333 to the original and £667 to the new coin. That is one reasonable approach, not the only one, and the figures are an example. HMRC adds that if your exchange does not recognise the new tokens, you may either put all the cost against the original tokens or consider a negligible value claim, depending on the circumstances.
This differs from an airdrop. Tokens received for a service can be taxable income on receipt, while tokens that arrive only because you already held the original asset are treated as a fork.
Why forks matter beyond the history lesson
A pending hard fork can affect exchange withdrawal availability, wallet compatibility and price volatility in the run-up to and aftermath of the split, and holding an asset through a contentious fork means genuinely tracking which chain your exchange or wallet actually supports and recognises as the 'real' continuation.
Check the announcement from your exchange or wallet before a contentious fork, not after. Confirm which chain they will treat as the continuation, whether deposits and withdrawals will be paused, and whether they will credit you with the new coin at all. Do not interact with a link or site offering to "claim" a forked coin, since a fake claim page is a common way to steal from wallets.
Where to read more
- Ethereum vs Ethereum Classic: the fork behind two chains
- Bitcoin's block reward, size and time explained: the block size debate behind Bitcoin Cash
- Crypto taxes in the UK: how HMRC treats fork tokens
- Proof of work vs proof of stake: why consensus rules matter
A reminder
The FCA risk warning still applies to higher-risk crypto content. Always assess how much risk you are willing to take before buying.
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