Hard Forks and Soft Forks: A Comprehensive Introduction

Connor D | April 16, 2021

Last updated on June 9th, 2021

Any software needs constant updates to fix issues or increase performance. In the world of cryptocurrencies, those updates are called “forks.” Cryptocurrencies and blockchains are built on decentralized networks. Network participants on a blockchain are called “nodes.” in order for the blockchain to work properly, the nodes on a need to follow the same rules. The set of rules dictating how nodes interact is called a “protocol.” Standard rules in a protocol include the size of a block on a blockchain, the rewards miners receive for mining a new block, and many others. 

There are two types of forks you may encounter, a “soft fork” and “hard fork.” Both kinds of forks fundamentally change how a cryptocurrency protocol works. 

 

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What is a Soft Fork?

A Soft Fork is a change in a cryptocurrency protocol that is backward compatible. This means that when an update introduces new rules, nodes that have not been updated can still process transactions and add new blocks to the blockchain as long as they do not break the new rules. 

Imagine a soft fork that makes a new rule lowering the block size from 5Mb to 4Mb. Older nodes will still be able to process transactions and push new blocks that are 4Mb or less. But if an older node tries to push a block greater than 4Mb to the network, newer nodes will reject that block because it violates the new rules. That encourages older nodes to update the new protocol since they are not as efficient as the updated ones. 

 

What is a Hard Fork?

A hard fork is a change in the cryptocurrency protocol that is incompatible with previous versions. This means that nodes that do not update to the new version cannot process transactions or add new blocks to the blockchain. Hard forks may change or improve an existing protocol, but can also be used to create completely new and independent protocols with new blockchains. 

 

Imagine a change in the protocol, which increases the block size from 2Mb to 5Mb. If an updated node tries to push a 5Mb block to the blockchain, the older, non-updated nodes will not see this block as valid, and they will reject it. 

Hard forks can create new blockchains.

Depending on the situation, hard forks can either be planned or controversial. In a planned hard fork, participants will voluntarily upgrade their software to follow the new rules, leaving the old chain behind. Those who don’t update are left mining the old chain, which very few people will be using. But, if the fork is controversial, meaning that there is disagreement within the community about the upgrade, the protocol is usually forked into two incompatible blockchains and two different cryptocurrencies; one for each side of the disagreement. 

Both of the blockchains will have their community, and the developers will progress in the way they believe is best. 

Since a fork is based on the original blockchain, all transactions from the original blockchain are also copied into the new fork. For example, if you have 50 coins of a cryptocurrency called coin A, and a hard fork based on that cryptocurrency creates a new cryptocurrency called Coin B. You will also receive 50 coins of Coin B.

 

Conclusion

Because cryptocurrencies are often open source, and due to the nature of decentralised consensus, forks will continue to be a critical component of the cryptocurrency space. While soft forks will continue to bring in minor patches and improvements hard forks can implement more binding changes or offer a last resort resolution in conflict. As individuals and organizations with different goals continue enter the crypto space, forks will continue to be integral to the development of cryptocurrencies.

References

https://www.techopedia.com/definition/32912/hard-fork 

https://learn.bybit.com/blockchain/what-is-a-soft-fork/ 

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