Whereas permanent forks (in the sense of protocol changes) have been used to add new features to a blockchain, they can also be used to reverse the effects of hacking such as the case with Ethereum and Ethereum Classic, or avert catastrophic bugs on a blockchain as was the case with the bitcoin fork on 6 August 2010.
[citation needed] The concept of blockchain technology was first introduced in 2008 by an unknown person or group of people using the pseudonym “Satoshi Nakamoto” in a white paper describing the design of a decentralized digital currency called Bitcoin.
A hard fork is a change to the blockchain protocol that is not backward compatible and requires all users to upgrade their software in order to continue participating in the network.
For example, Ethereum was hard forked in 2016 to "make whole" the investors in The DAO, which had been hacked by exploiting a vulnerability in its code.
[9] A soft fork is a backward-compatible change to the blockchain protocol that allows new rules to be introduced without requiring all users to upgrade their software.
In a soft fork, a majority of the network’s miners implement the new rules and begin following the updated version of the blockchain.
[11] Permanent chain splits lead to a situation when two or more competing cryptocurrencies exist on their respective blockchains.
As these assets do not physically exist, HMRC has been forced to issue guidance stating that cryptoassets will follow the residence of the beneficial owner.
"[13] The US Internal Revenue Service (IRS) classifies cryptocurrency splits as "airdrops" and as taxable events.