Introduction to soft forks and hard forks

No, we’re not mixing our cutlery up with our currency! Soft and hard forks are legitimate cryptocurrency terms that refer to changes made to a blockchain’s protocol.

For those who aren’t computer experts, the protocol can be understood as the set of rules that governs how the blockchain operates.

OK, so what does this mean for crypto??

In the world of crypto, a fork can be understood as either a temporary or permanent change to the current version of the blockchain network - like a fork in the road. These changes can only be activated by the miners themselves and, because cryptocurrency networks are decentralised, a majority consensus is required for them to be implemented.

What is a soft fork?

A soft fork refers to an upcoming change to the blockchain that won’t necessarily conflict with the current version of the network. In short, it’s an upgrade for nodes (computers in the network) that isn’t compulsory.

Even if they don’t upgrade their nodes to recognise the current version, people can keep using the network to a certain degree. Non-upgraded nodes will still see the transactions that follow the new rules as valid; however, if non-upgraded nodes continue to mine blocks, the upgraded nodes will reject them.

Another reason to upgrade is that the more miners that accept the new rules, the more secure the network is post-fork. This is because the higher the number of non-upgraded nodes, the more likely it is that one of those nodes violates a new consensus rule, which can cause a temporary divergence in the blockchain.

What are soft forks used for?

Soft forks may be used to make changes to the existing network, such as adding new transaction types or upgrading the transaction format to fix problems.

A recent - and very important - example of a soft fork in action is the Segregated Witness (SegWit) fork, which originally occurred on the Bitcoin network and has since been adopted by other networks as well.

SegWit was implemented to fix the problem of limited block size (1MB of data storage) on the Bitcoin network. Since Bitcoin is becoming increasingly popular, the network is struggling to process the increased number of transactions - this has increased the waiting times for transactions to take place and has also incurred increased fees for users.

SegWit has attempted to remedy this problem to some extent by freeing up space within each block. It has done this by moving signature data - which contains the digital signature used to authentic transactions - out of the main block and into a separate structure at the end of the block. This allows for more transactions to be stored and processed in a single block.

This hasn’t fundamentally changed the network yet, but this is only because nodes are not forced to upgrade to recognise SegWit and many have not adopted the new fork due to security concerns. Since a soft forked network recognises both old and new rules, it hasn’t caused a permanent split in the network.

What is a hard fork?

A hard fork refers to a permanent divergence in the network. It seeks to impose a change, or series of changes, that aren’t compatible with the old version of the network. In other words, it creates a completely new chain that forks off from the existing one to follow a different set of rules.

To activate a hard fork, all miners need to agree on the new protocol. It’s also not backwards compatible, so if miners want to use the new chain, they must upgrade their nodes to accommodate the new rules. Those who choose not to adhere to the new chain will not be able to use it – nor will the old and new chains be able to recognise each other’s transactions as valid.

What are hard forks used for?

Hard forks are used to make radical changes to the blockchain protocol. An easier way to understand how hard forks are used is to look at a couple of critical examples that have happened in the Bitcoin network - Bitcoin Cash and Bitcoin Gold.

Bitcoin Cash

This hard fork occurred in August 2017 in response to Bitcoin’s ongoing scalability issues. The main rule change involved increasing the Bitcoin block size limit of 1MB to 8MB to increase the number of transactions that can be processed.

Bitcoin Gold

Not too long after Bitcoin Cash, another hard fork – Bitcoin Gold – took place, in October 2017.

The intention of this fork was to change how Bitcoin mining works. In other words, it attempted to move away from ASIC-based mining towards GPU-based mining. We will examine the pros and cons of different types of mining in a later lesson, but if you need a general refresher on mining, check out our introductory lesson.

And you thought it was difficult differentiating between a salad, fish, dinner, dessert and oyster fork! Soft and hard forks are a bit of a challenge to understand and are still quite controversial - not everyone agrees with them. They do, however, represent an opportunity for new changes and improvements to be made to the way cryptocurrency networks operate.

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Which of the following was a famous Bitcoin soft fork?
Bitcoin Gold
SegWit
Bitcoin Cash
Hard Fork