Both hard and soft forks are fundamental to blockchain development and cryptocurrency evolution. The hard fork is what offers the ability for different cryptocurrencies to split into two and allows them to compete with each other, offering new features or security upgrades that appeal to users looking to invest in a particular niche.
Both soft and hard forks happen whenever a community makes a change to the blockchain’s protocol or basic set of rules. This is different from an update: updates often lead to improvements in the software (for example, adding new features), whereas soft and hard forks can result in changes that may not be compatible with existing code.
Cryptocurrency forks are important because they can be used to change blockchain rules, instead of forcing users to upgrade their software. This allows new cryptocurrency development teams to fix bugs and issues without forcing everyone else onto new software versions. Soft and hard forks enable cryptocurrencies that have diverged from the original codebase to solve problems using a consistent protocol across two branches.
A hard fork creates a new blockchain that shares the same history as another blockchain. The best way to imagine it is like splitting an old road into two new roads, both of which have their own unique set of rules and paths. To understand the term and concept of blockchain forks more accurately, let's look at the difference between a hard fork and a soft fork.
Cryptocurrency forks: Hard Forks and Soft Forks
What Is A Hard Fork?
A hard fork is when a blockchain splits in two and a new cryptocurrency network is created. The hard fork happens when there’s a fundamental change to the blockchain, such as upgrading one of its core technical components (ie: blocksize). This requires everyone who uses that blockchain to upgrade their software or else they will no longer be able to participate on the network. Users can also opt to be a part of both blockchains that result from cryptocurrency forks.
When a hard fork occurs two unique blockchains are created that each have their own cryptocurrencies, and is usually a result of a community split over a decision or vision for the future. A hard fork is a common occurrence in the cryptocurrency industry, with many big cryptocurrencies being the product of a successful hard fork.
An Example of a Hard Fork: the Bitcoin Cash Fork
Bitcoin Cash is a prime example of a hard fork. In 2017, following a disagreement within the Bitcoin community about the future of the original cryptocurrency, a group of developers and miners got together to form a new and improved version known as Bitcoin Cash. The Bitcoin Cash hard fork was implemented and BCH was created, with several new additions to the original blockchain code.
The most significant change to the Bitcoin Cash network was the increase of the block size to 8MB, allowing for faster transaction speeds, more transactions able to get verified at once, and lower transaction fees. The network also increased the difficulty to ensure the security of the network would not be compromised. In March 2022, the block size limit was increased to 32MB.
There have been many Bitcoin forks over the years, with Bitcoin Cash and Litecoin being the two most well-known.
What Is A Soft Fork?
Soft forks is backward-compatible and require upgrades only if you want to access new features. For example, soft forks that increase transaction speed don’t require everyone to upgrade their software in order to enjoy the new feature.
If you don’t upgrade your software, however, you will not be able to take part in any future transactions using the new feature (ie: faster transaction speeds). Soft forks are a great way for new changes to be implemented without creating an entirely new cryptocurrency.
An Example Of A Soft Fork: The SegWit Upgrade
In 2015, the Bitcoin blockchain underwent a soft fork known as the Segregated Witness (SegWit) Bitcoin protocol update.
Before the SegWit upgrade, Bitcoin's protocol was both more expensive and slower, with transactions costing about $30 each and taking around an hour to complete. The inventors of the SegWit change recognized that signature data accounts for 65% of a transactional block. As a result, SeGWit proposed moving the effective block size from 1MB to 4MB.
The motivation for this increase was to separate or delete the signer data from the transactional data on every block of the blockchain, allowing for greater transaction throughput per block.
With the soft fork, the old Bitcoin blockchain was able to accept both new 4MB and 1MB blocks at the same time. The soft fork enabled the existing nodes to also validate the new blocks via a clever engineering approach that formatted new rules without breaking existing ones.
What To Do When A Fork Is Announced
When it’s announced that a fork is coming, you should first wait for the dust to calm down before making any big decisions, such as buying or selling your tokens. Keep in mind that sometimes forks can be contentious and not everyone will agree on the path forward, meaning that there may be a lot of confusion and volatility in the coming days as people react.
A hard fork is when blockchain technology is split into two resulting in two unique blockchain networks with their own cryptocurrencies. A soft fork is when a blockchain simply upgrades or incorporates new features and allows users to decide whether they would like to continue using the old version, or upgrade their software protocol to make use of the new features.
Either way, cryptocurrency forks are a common occurrence in the blockchain space and have been the start of many different networks. The most iconic hard forks include the likes of Litecoin, a hard fork from the Bitcoin network, Ethereum Classic, a hard fork from the Ethereum network, and Bitcoin Cash, a hard fork of the Bitcoin network.
Both soft and hard forks allow innovation within the blockchain space to evolve, making space for new features, more efficient means of executing an action, and other chain improvements. Hard forks in particular have shed light on new innovations without creating a blockchain network from scratch.