19. What is a Soft and Hard Fork?
The world of cryptocurrencies has many terms that are worth knowing. Especially when you start your adventure with digital assets. The cryptocurrency industry does not stop even for a moment. Every day something new appears in it, which is named differently and also has its own acronym. In today’s lesson, we will have a closer look at two terms that you have surely heard of – Hard and Soft Fork. Ready? Here we go.
We’ll start with… a fork. Although the cryptocurrency fork has nothing to do with it. A fork is when there are changes to the blockchain of a given cryptocurrency. A fork can even cause a new cryptocurrency to spin off from the original one. This happens when some miners do not accept the changes and stay with the old chain, while the rest of them will mine the new one. An example of this happening is the fork on ETH and the creation of Ethereum Classic.
Forks can also be economic, e.g., a fork on Bitcoin and the creation of Bitcoin Gold. The whole change was to privilege GPU miners over ASIC miners. As you’ve also managed to notice, they are divided into Hard Forks and Soft Forks.
What are forks for?
Decentralization is the goal of cryptocurrencies. The desire to abandon centralized intermediaries for the storage and exchange of value is the main challenge of the various protocols proposed.
All network participants follow similar rules to ensure decentralization. These principles are defined in a consensus protocol. Regardless of the protocol used, whether in Proof of Work or Proof of Stake, each blockchain communicates information in a decentralized manner.
These consensus rules are used to confirm the validity of transactions and blocks. Nevertheless, the direct involvement of users according to these rules creates the possibility of confronting a blockchain with a Soft Fork or, in the worst case, with a Hard Fork as these evolve.
This is the opposite of a Hard Fork. During a Soft Fork, new changes introduced are backwards compatible with old versions. Imagine a protocol that introduces new rules or some cosmetic change. There is no impact on the blockchain structure. In such a situation, the blocks of the “new version” will be accepted by the blocks of the “old version”, but not vice versa – the improved “new” version of the block will reject the blocks of the old version. This is how a Soft Fork works.
Let’s use an example – Bitcoin. Its community decided to reduce the size of the current block to 0.5 MB from the current 4 MB. New versions of nodes – those with 0.5 MB, would reject blocks with the old limit (4 MB) and build nodes on the previous block. This behaviour would result in a temporary fork of blocks, which is an example of a classic soft fork. In fact, it has even happened several times.
In the case of Bitcoin, a soft-fork can occur either via MASF (Miner-Activated Soft Fork) or via UASF (User-Activated Soft Fork). Regularly, the choice between these two solutions is subject to a long debate in the Bitcoin community.
In its case, things get a bit more complicated and require more knowledge, especially blockchain knowledge. It is often referred to as a “fork in the blockchain” or a “branch in the blockchain”. As we know, a blockchain consists of a chain of blocks based on blocks of data. Each new block is valid and only added to the network once it has been validated by miners. Hard Fork is a departure from the last version of the blockchain. It leads to a separation of the chain, so that nodes do not reach consensus and the resulting two versions of the network operate separately.
Imagine a split on a blockchain, where one blockchain operates under the old rules and the other operates under the new rules. Hard Fork does not work like Soft Fork, so it is not backwards compatible.
Hard Forks are dangerous because they typically cause the chain to fracture. If there was a split between miners at the same time, the network would be very vulnerable. Nevertheless, they are essential. They go with the spirit of blockchain technology development and improve a given network or cryptocurrency. Additionally, Hard Forks increase the functionality of the network, nevertheless removing security risks and resolving disputes in cryptocurrency communities. Interestingly – Hard Forks can be accidental.
Hard versus Soft Fork
|This is not the only way to update your cryptocurrency software.
|They are a safer update alternative.
|Changes the rules of the blockchain.
|Adds new features and functions to the chain without changing its rules.
|It can result in the creation of a new cryptocurrency.
|Often used to introduce new features, especially from a developer level.
|Changes the entire cryptocurrency ecosystem.
The reliability and immutability of blockchain should not make the principles inherent in the evolution of society disappear. Soft fork and hard fork are solutions to overcome technical, economic or social problems that may arise on the blockchain. Updates have the advantage of constantly ensuring the will of users while respecting consensus. This short lesson allows you to see the differences between hard fork and soft fork. Both definitions are common in the cryptocurrency world, so it is useful to distinguish between them.
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