Hard Fork. Soft Fork. What You Need To Know

Hard Fork Soft Fork

The two most commonly known forks in Cryptocurrency are known as: Soft Fork & Hard Fork

Keep in mind the main difference is that a soft fork can still go backwards. Meaning, older versions will still work on the newer ones. Minus a few bells and whistles.

Now, let’s tie this into the blockchain technology.

Soft and hard forks are important to have a grasp on and stay updated with because they can actually affect your money.

Rules & Consensus

In a decentralized network, all users must agree on the same rules in order to verify exchanges and reach a consensus.

A fork can happen on a blockchain in a couple of ways. Although, when you typically hear talk about forks, the main thing being discussed is most likely a change of rules within the protocol.

1) Split Consensus

A Split Consensus is when two miners (those supplying the computing power to verify transactions) discover the same block at the same time…

This results in two split chains.

It’s temporary because the chain that mines the next block first, wins, thus becoming the new consensus. The smaller chain is then forgotten.

A Split Consensus is not really discussed as much, because it’s temporary.

2) Change In Protocol Rules

As we mentioned above, this is something you need to stay updated with.

You can think of this as when the code used by developers needs to be changed.

It could be changed for a number of different reasons such as, upgrading to new features on the network, increasing the block size (speed), or even if there has been some type of abuse on the network.

3) Planned & Contentious Hard Forks

Lastly, a planned hardfork is a protocol upgrade that has been planned in a company’s roadmap.

Whereas a contentious hard fork is due to disagreements within the community which results in a portion of them creating a new chain.

What Is A Soft Fork?

A soft fork does not require exchanges, nodes, or users to upgrade and it’s still backwards compatible.

Although, to be implemented, a soft fork does require 51% consensus of mining power.

Trent here at GCA has a weird certification in Microsoft office and likes using this example:

If you’re running Microsoft Office 2016 – one could still open up an old 2007 document. It would still run, but you won’t have all the newer features.

With this example, if folks are still using 2007 Word, it will become more and more difficult to use right?

You can think of a soft fork as a means to gradually update the network and those who haven’t updated yet, are more incentivized to do so.

Hopefully one chain gains more majority over the other.

What Is A Hard Fork?

A hard fork creates an entirely new set of rules and is not compatible with one another.

Exchanges, nodes, users – all participants must upgrade to the new software.

As long as there is still support in the previous chain, both the new and old chain will co-exist.

What do you need to do?

During a hard fork, you’ll receive the same amount of coins in the new version.

Although, you’ll also need to know whether or not an exchange is participating in the hard fork. Meaning, if the exchange is not, they won’t give you the free coins.

As a good rule of thumb, you should never leave your money sitting on an exchange.

If your money is in a wallet, you’ll receive the equivalent amount of coins in the new version.

Major Forks In Crypto History

To understand a bit more about hard and soft forks, here are some major points in history if you wish to dive a bit deeper.

Bitcoin Soft Forks

BIP 66 –  This involved signature validation.

P2SH – This involved address formatting.

Bitcoin Hard Forks

Bitcoin Cash – learn more about Bitcoin Cash here

Bitcoin Gold – BTG aims to “re-decentralize” the mining of Bitcoin. According to their site, “Bitcoin Gold decentralizes mining by adopting a PoW algorithm, Equihash, which cannot be run faster on the specialty equipment used for Bitcoin mining (ASIC miners.) This gives ordinary users a fair opportunity to mine with ubiquitous GPUs.”

Although, BTG is not really getting picked up by anyone.

Segwit2x – Segwit2X is a controversial hardfork that has caused a big rift in the Bitcoin Community. In short, Bitcoin is having scalability issues due to a quickly growing user base with more transactions.

Segwit2x aims to increase the block size limit from the current 1MB to 2MB, which requires a hardfork.

Ethereum Hardforks

For the full story, you can read all about Ethereum and The DAO Attack here.

The DAO Attack is what created the split from Ethereum Classic (ETC) to what you now know today as Ethereum (ETH):

Basically Ethereum implemented a hard fork and made all the hacker’s stolen money worth nothing.

Although, this was a very controversial decision because the great attribute of a blockchain is that it’s not able to be changed.

Ethereum’s Metropolis – This hardfork was planned and allows for better scalability and private transactions on the Ethereum network.

Random Coins

Remember Bitcoin’s protocol is open source. Which means, anyone can view the code and make changes to it. This is good and bad.

Bad in a sense that you could end up with coins that don’t serve a real purpose such as Dogecoin:

Dogecoin

Good in a sense that you can end up with innovation such as, Litecoin.

Litecoin Wallet

Which is much faster than Bitcoin. Read everything you need to know about Litecoin here.

Final Thoughts

Overall, you can think of the main forks as:

Soft – does not require exchanges, nodes, or users to upgrade initially and it’s still backwards compatible.

Hard – creates an entirely new set of rules and are not compatible with one another.

It’s important for you to have a general understanding of the technology behind Cryptocurrency. It is in fact your money.

Your main takeaway should be to stay updated with news on any hard forks, so you can make sure you are prepared properly.

 

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