- Someone proposes a change to the rules, effective as of some future block number
- Each miner decides whether to adopt the proposed rules
- The network is forked at that block number; some miners work on the original chain with the old rules while others work on a fork with the new rules
- The network converges as most miners, exchanges, etc. will end up honoring whichever fork has more traction. (Sometimes the fork with less traction remains somewhat viable; see Ethereum Classic.)
Okay. One of the appeals of cryptocurrencies to anti-government types is that there is predictability and transparency over new currency creation, since it's hard-coded in an algorithm. We can find out exactly how many Bitcoins there will be in five years. Granted, forks can change those algorithms, but they're still transparent. Also, forks of the Etherium Classic or Bitcoin Cash type don't really count as inflation, since you cannot send ETC when the receiver is expecting ETH, and likewise with BCH/BTC; they are not interoperable. In other words, the Bitcoin Cash fork did not cause inflation of core Bitcoin.
Now let's consider USD. Do you know how many USD there will be in five years? USD creation is at the whim of legislators and unelected bureaucrats who could collude tomorrow to crash the value of USD by just letting the printing presses run and there's not really anything that most of the users of USD, the normal people, can do about that. Now I'm not saying that such intentional currency crashing is likely to happen, but that lack of control and predictability is why libertarian types would find the idea of backing cryptocurrency with government fiat currency to be nonsense.
Maybe this is the reason why most governments would like to ban cash? Or at least restrict the amounts being processed by one entity. It's all about control.