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Crypto Fork: Hard & Soft Fork Explained, Benefits, Risks

A blockchain is a distributed open-source software that powers cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). A fork is a modification to the blockchain’s basic protocol. A blockchain crypto fork is a significant upgrade to the network that can be initiated by developers or community members and can represent either a radical or minor modification.

You probably don’t think twice when your smartphone’s digital banking app prompts you to upgrade it. Perhaps your phone upgrades itself without your knowledge. After all, if you don’t install the most recent version of the software, you risk being refused access to the software’s services.

crypto fork

Things are significantly different in the world of open-source cryptocurrency. You don’t have to read every line of Bitcoin’s code to use it, but having the option to do so is crucial. There is no hierarchy here, and no bank that can just push updates and make changes whenever it wants. As a result, adding new functionality to blockchain networks might be difficult.

This post will look at how blockchain networks can be improved. They use two separate ways to accomplish this: hard forks and soft forks.

What Is a Crypto Fork?

Crypto forks like Bitcoin and Ethereum are powered by blockchains, which are decentralized, open software that anybody can contribute to. 

Blockchains are like that because they’re built up of blocks of data – think of a long railway – that can be tracked all the way back to the network’s first transaction. Because they are open source, they also rely on their communities to build and enhance their underlying code.

crypto fork

When a community modifies the blockchain’s protocol or basic set of rules, a fork develops. When this occurs, the chain splits, creating a second blockchain with the same history as the first but traveling in a different direction.

Hard Fork

Forks are changes to the blockchain’s software protocol that cause the main blockchain network to divide. If an old blockchain has a cryptocurrency operating on it, a fork on that blockchain will result in the creation of a second coin on the new, forked blockchain.

The rules of the blockchain protocol are updated or changed in hard fork crypto, making the old blockchain and the new blockchain incompatible.

This means that the old nodes will refuse to accept the newly updated blocks, and the new blockchain will run under new rules that reject blocks from the old blockchain on a regular basis. A “backward-incompatible” software upgrade is what this is known as.

A hard fork was produced on the Bitcoin blockchain, for example, due to a debate among Bitcoin users about the optimal method for growing the network.

People who wanted to increase the block size were on one side of the debate. On the other hand, there were individuals who were opposed to such developments. Those that wanted to expand the block size followed the Bitcoin Cash fork, while those who didn’t desire to change their minds continued on the regular Bitcoin network.

As a result, despite the fact that the two coins (Bitcoin and Bitcoin Cash) run on different blockchains, they share the same history prior to the fork.

Soft Fork

A software upgrade that is backward compatible with previous versions is known as a soft fork. Persons who did not upgrade to the new software will still be able to participate in transaction validation and verification.

A soft crypto fork is substantially easier to implement because just the majority of participants must upgrade their software. Whether or not they’ve updated, all players will continue to detect new blocks and preserve network compatibility.

It’s worth noting, though, that a non-upgraded participant’s functioning is impacted. When the new rule indicates that the block size will be reduced from 1MB (1,000KB) to 800KB, this is an example of a soft fork.

Non-upgraded participants will still be able to observe that new transactions are valid when they receive them. The problem is that when non-upgraded miners try to generate new blocks, the network rejects their blocks (and hence their efforts).

As a result, soft crypto forks serve as a gradual upgrade mechanism, pushing users who have yet to upgrade their software to do so or risk losing functionality.

crypto fork

Crypto Fork: Hard Fork vs Soft Fork

  • Soft forks are the other sort of fork that comes from purpose forks. Hard and soft forks are similar when a blockchain rule is altered in that the old version remains on the network but the new version is also there.
  • Soft forks allow old networks to accept data that is invalid to new nodes without the user being aware. Nodes in hard forks will suspend processing blocks after the addition of new rules.
crypto fork
  • In soft forks, the two versions of the software are usually compatible, however, in hard forks, this is not the case. Whereas both forks result in a split, a hard fork creates two blockchains while a soft fork just creates one.
  • Due to the differences in security between both types, almost all users and developers prefer a hard fork over a soft fork. While overhauling all of the blocks in the blockchain takes a lot of time and computational resources, the confidentiality provided by a hard fork is a key differentiator.

Benefits Of Hard Fork And Soft Fork

The Ethereum community decided to conduct a hard fork to roll back the transactions following the DAO attack on the Ethereum network. The hard fork gave DAO holders their ETH back, but it didn’t truly unwind the network’s transaction history; instead, it moved funds to a newly constructed smart contract.

DAO holders got their funds returned, and the hacker’s transactions were rolled back, thanks to hard forks that let two versions operate side by side. Because of this fork, the current Ethereum blockchain exists, whereas Ethereum Classic is the previous chain.

Hard fork crypto is preferred by most major platforms due to increased security, privacy, and reversibility. Soft forks are still useful since they demand significantly less processing resources and make it easy to add new features that are also backward compatible.

Nodes are not required to update to the new protocol, and because all of the new protocols in the soft fork adhere to the same rules as the old ones, existing users accept them.

Still, the more people who update and accept the new rules, the more secure the network becomes, therefore hard forks are safer because all nodes must upgrade. Soft forks, by their very nature, cannot be reversed because the set of valid blocks accepted is only a subset of what was acceptable before the update.

Final Words

Hard forks crypto and soft fork crypto are critical to blockchain networks’ long-term success. Despite the lack of a central authority, they enable us to make changes and upgrades to decentralized systems.

Forks allow blockchains and cryptocurrencies to integrate new features as they are created. We’d need a centralized system with top-down control if these processes weren’t in place. Otherwise, we’d be stuck with the same rules throughout the protocol’s whole lifespan.

Crypto Fork FAQs

Is a Hard Fork good for Crypto?

Although it takes a lot of computational power to overhaul a blockchain’s blocks, the privacy obtained via a hard fork makes more sense than a soft fork.

What happens to my coins in a Hard Fork?

Any change that breaks backward compatibility is referred to as a hard fork. Any new transactions will be rejected by nodes running the old software. This means they’ll have to update in order to mine new “valid” chains.

What is a Soft Fork Crypto?

A soft fork in blockchain technology is a change to the software protocol that makes only previously valid transaction blocks invalid. A soft fork is backward compatible since old nodes will identify the new blocks as valid.

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