Cryptocurrency networks, like Bitcoin and Ethereum, are constantly evolving. But unlike traditional software updates, where a central authority decides when to make a change, blockchains require consensus among those on the network. When developers propose upgrades, disagreements can sometimes arise, leading to a crypto fork or a split in the blockchain’s history.
Some splits are tagged as soft forks, while others are called hard forks. If you are wondering the difference between these terms or how a fork happens, then you are in the right place. Keep reading this article as we explain the difference between a hard and a soft fork. We will also explain how the incident affects users, miners, and investors.
Let’s get right into it!
KEY TAKEAWAYS:
- A crypto fork happens when a blockchain splits into two separate paths because of changes in the underlying code.
- Hard forks happen when a radical change in the blockchain is not compatible with the previous version of the network.
- Soft forks are minor upgrades that do not require all users to upgrade.
- Every major cryptocurrency has undergone some form of forking.
What Is a Crypto Fork?
A fork happens in crypto when a blockchain splits into two separate paths because of changes in the underlying code. Think of it as a software update, but instead of everyone automatically switching to the new version, some people choose to still stay on the old one. Let’s take a closer look at the different types of forks and how they work.
What Is a Hard Fork?
This is a radical change in the blockchain protocol that is not compatible with the previous versions. When a hard fork occurs, nodes that do not update their software cannot validate transactions on the new blockchain. Therefore, two separate chains exist:
- The original blockchain
- The new, independent blockchain with different rules.
Here is a quick rundown on how hard forks happen:
- Developers suggest a change: A group of developers or the community proposes a major update.
- Disagreement arises: Some miners and users support the change, while others oppose it.
- The chain splits: Those who agree with the update move to the new version, while those who disagree stay on the old chain.
- The new blockchain is born: The new network has its own rules, coins, and community that are separate from the original.
Read Also – The Future of Ethereum: A Deep Dive into Ethereum 2.0
Real-Life Example of a Hard Fork
One of the most famous hard forks occurred in 2017 when Bitcoin Cash (BCH) split from Bitcoin (BTC). The dispute was over whether Bitcoin’s block size limit should be 1MB (Bitcoin) or 8MB (Bitcoin Cash) to allow for faster transactions. Bitcoin Core developers are stuck with the original 1MB block size. Conversely, Bitcoin Cash supporters increased it to 8MB, believing it would improve scalability.
Pros Of A Hard Fork
- Allows for major improvements and new features.
- Creates new investment opportunities by introducing new coins.
- Fixes past mistakes like security vulnerabilities.
Cons Of A Hard Fork
- Splits the community and can weaken the network security.
- Can cause market confusion and volatility.
- Creates the risk of double spending if transactions are duplicated on both chains.
What Is a Soft Fork?
Unlike hard forks, soft forks are minor updates that do not require all users to upgrade. The new version remains backward-compatible, meaning that older nodes can still interact with the network, but they might not fully benefit from the new updates. Think of it like a messaging app updating its features to include emojis. Those who update the app can use the new emojis, while those who do not can still chat but will not see the emojis.
Here is how a soft fork works:
- Developers introduce a rule change that modifies the existing network rules.
- Some miners and nodes adopt the update, but others continue using the old rules.
- The blockchain remains unified because older nodes can still validate transactions.
Real-Life Example of a Soft Fork
In 2017, Bitcoin’s SegWit soft fork was designed to increase the network’s transaction speed. Instead of increasing the 1MB block size limit, which would have led to a hard fork, SegWit moved the transaction data storage outside the main block to free up space. However, not everyone had to upgrade because older nodes could still process transactions using the former rules.
Pros Of A Soft Fork
- It is less disruptive, which keeps the community united.
- It improves the blockchain’s efficiency without splitting the network.
Cons Of A Soft Fork
- It may take longer to implement.
- It requires major support from miners.
Final Thoughts
Both hard and soft forks have helped shape the crypto industry in their unique ways. In fact, every major cryptocurrency has undergone some form of forking. Moving forward, we can expect more of this to ensure blockchain remains functional, competitive, and ever-evolving to meet the needs of both the users and developers.
References
- cointelegraph.com – Soft fork vs. hard fork: Differences Explained
- investopedia.com – Soft Fork: What it is, How it Works in Cryptocurrency
