Crypto ecosystem runs on a blockchain, a set of data blocks that facilitate various transactions and asset tracing. Each of the blocks connects using certain protocols, and the process depends on various updates that may happen. Hard fork vs soft fork is something that would happen when the updates result in changing blockchain protocols.
Crypto fork is a common occurrence in any blockchain, and it may affect the way your transactions are processed. Here is everything you need to know about these forks.
What Are Forks?
When blockchain experiences upgrades in the data blocks, the changes can affect all the transactions that have happened or are still happening. Since every block operates using a permanent set of rules, they cannot be rewritten. Therefore, every update or change happens through a "fork".
In a crypto blockchain, fork means the process of copying the old data blocks in the software and adding suitable changes to them based on the updates. The new blockchain then forms a separate branch, a natural process that happens with the updates because there can be no identical blockchains. This branching process creates a "fork, " separating the old and the new blockchain paths.
When branching or fork happens, the crypto transactions that happen on the previous path become affected. This causes the condition of hard fork vs soft fork.
Crypto hard fork happens when the upgrades cause the new blockchain to become incompatible with the old one. The process is called "backward-incompatible update", in which the new blockchain rejects the old one due to the new rules.
Hard fork requires every node to be upgraded so they can fit the new blockchain. This means every transaction that happens on the old blockchain can be affected. Many times, hard fork cryptocurrency creates a division between the owners of the same tokens.
Soft fork does not create changes as drastic as hard fork. Instead of total changes, the soft form causes only a few modifications in the new blockchain. The new blockchain rules should not interfere with the old ones, resulting in smooth integration with minimum adjustments.
In a soft fork, everyone stays in one chain, even with modifications. Basically, this kind of fork "tricks" the old blockchain into accepting the new rules, allowing the old and new blockchains to be more compatible with each other. The crypto-assets can stay in one lane.
Hard Fork vs Soft Fork Key Differences
Hard fork and soft fork are both important in making adjustments and changes in a decentralized system like crypto blockchain. Unlike the traditional system, crypto blockchain does not have some sort of a "top-to-bottom command". Fork is a more practical way to conduct adjustments and necessary changes in the system. However, hard fork vs soft fork has key differences.
While hard fork is more drastic than soft fork, it is important for implementing fundamental changes in the system. It is also important to target problems within the data blocks, such as bugs. Implementing a hard fork will also "encourage" the old blockchains to conduct upgrades.
On the contrary, soft fork is useful for adding new features or tools without having to change the entire blockchain protocol. It is useful for keeping users convenient when applying just small changes. Soft fork is also a preferred method to adjust and change small things on the programming level.
The direct impacts of hard fork also tend to be wider and more severe than soft fork. With the split between old and new blockchains, hard fork can force crypto owners to secure their assets or adjust to new policies that might be beyond their initial agreements.
Finally, soft fork saves crypto owners from double-spending, a risky move that can happen when the blockchains are split into two branches. Since soft fork keeps the original blockchain in one line, crypto users can still keep their original transactions and continue them.
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Examples of Forks
Crypto blockchain system has seen several historical forks, and all of them influenced or caused a drastic change in the crypto industry.
Hard Fork Cases
Bitcoin Cash and SegWit are probably the most famous "stars" in Bitcoin hard fork. When Segregated Witness (SegWit) was developed to support the sale of Bitcoin, the decision caused controversy. Many Bitcoin and Bitcoin Care developers felt duped because they were not involved in SegWit development. They conducted a hard fork, resulting in Bitcoin Cash in 2017. As a result, Bitcoin Cash became popular without ever adopting SegWit.
Another popular case was the hacker breach on the Ethereum blockchain. After the hacker stole around USD40 million, Ethereum conducted a hard fork to return the crypto owners' money that had been stolen. The money was stored as DAO tokens in the new blockchain system.
Soft Fork Cases
While the Bitcoin Cash and Segwit case was an example of a hard fork, the SegWit itself was a form of soft fork. SegWit was created as a way to increase the block size limit, which would improve the speed of Bitcoin transactions. While the plan did not go as predicted, the plan showed the implementation of a feature that would've improved the system without any drastic change.
Fork Benefits in Cryptocurrency
Forks bring positive causes to the cryptocurrency industry. They are forms of bug fixing, repair, and improvement in blockchain technology. Fork system is an important part of a decentralized system, which does not have a top-down chain command like in a conventional system.
Hard fork meaning may sound drastic, but it is also a great tool for upgrading old blockchains. Hard fork is also a solid upgrade solution that leaves little room for frauds, breaches, and other attempts to illegally profit.
Meanwhile, soft fork is a fast solution for small, quick updates. Even with slightly bigger security risks, soft fork allows developers to add new features and tools without implementing larger changes. These drastic changes are also more expensive, which is not efficient for a supposedly egalitarian system.
Understanding the difference between hard fork vs soft work is important, even if you are not a developer. By knowing the mechanisms behind them, you can better read the crypto market and calculate your next move should any forks happen.