What are Blockchain Forks? Hard vs Soft forks explained with examples.
Any software needs constant updates to fix issues or increase performance. In the world of crypto, those updates are called forks. Since cryptocurrencies are decentralized networks, all participants in the network, known as nodes, need to follow the same rules in order to be able to work properly. That set of rules is known as a protocol.
Typical rules in a protocol include the size of a block on a blockchain, the rewards miners receive for mining a new block, and many more.
There are two types of forks in crypto, soft forks and hard forks. Both kinds of forks fundamentally change how the protocol of a cryptocurrency works.
A soft fork is a change in a cryptocurrency protocol that is backwards compatible. That means that non-updated nodes are still able to process transactions and push new blocks to the blockchain, so long as they don’t break the new protocol rules. Read about Blockchain Network Nodes here.
Let’s illustrate this in an example. Imagine a soft fork that makes a new rule lowering the block size from 3Mb to 2Mb. Older nodes will still be able to process transactions and push new blocks that are 2Mb or less. But if an older node tries to push a block that is greater than 2Mb to the network, newly updated nodes will reject that block because it violates the new rules. This encourages older nodes to update to the new protocol since they aren’t as efficient as the updated ones.
A hard fork is a change in a cryptocurrency protocol that is incompatible with the previous versions, meaning that nodes that don’t update to the new version won’t be able to process transactions or push new blocks to the blockchain. Hard forks can be used to improve or change the existing protocol or even to create a new, independent protocol and blockchain.
Let’s consider a change in the protocol that increases the block size from 2Mb to 4Mb. If an updated node tries to push a 3Mb block to the blockchain, the older non-updated nodes will not see this block as valid, and they will reject it.
Planned vs Controversial Hard Forks
Depending on the situation, hard forks can be planned or controversial.
In a planned hard fork, participants voluntarily upgrade their software to follow new rules leaving the old chain behind, while the ones who don’t update are left mining on the old chain, which (at least in theory) only few people will be using.
But if the fork is controversial, meaning that there is disagreement within the community about the upgrade, the protocol is usually forked into two incompatible blockchains and, as a result, two different cryptocurrencies. Both of these blockchains will have their own community and developers will progress in the way that they believe is best.
Since a fork is based on the original blockchain, old transactions from the original blockchain are also copied into the new fork. So, for example, if one has 100 coins of the old cryptocurrency called CoinA, and a hard fork based on that cryptocurrency creates a new cryptocurrency called CoinB, then the user will also get 100 coins of CoinB.
Due to the open-source nature of cryptocurrency and as different organizations with different goals enter the crypto space, forks will continue to be integral to the development of cryptocurrency.
Forks in real-life
A real-life example of a controversial hard fork was the emergence of Bitcoin Cash (BCH) which created a new chain based on Bitcoin’s blockchain. It was created to solve the argument around scaling, where Bitcoin Cash supporters wanted to implement an increase in block size, while Bitcoin supporters opposed the change and remained on the initial blockchain. Contrary to the planned fork situation where most users move on with the new chain, in this case, Bitcoin, the initial chain, has remained the most adopted.
A real-life application of a soft fork is the Segregated Witness (SegWit) fork, which happened shortly after the Bitcoin — Bitcoin Cash split. SegWit involved an update that changed the format of transactions and blocks. The updated version would allow updated nodes to read some fields of information while non-updated nodes would not be able to view such information. Therefore, in this case, the old nodes could still operate without breaking any protocol rules. As a result, nodes did not need to upgrade to the newer software simply and it was observed that even a couple of years after the soft fork, not all nodes had upgraded.
Both types of forks are important to the long-term success of blockchain networks. Forks enable users to upgrade and improve decentralized systems. Without forks, there would be a need for a central authority to approve and implement these changes. Finally, with the help of such mechanisms as soft and hard forks, blockchains can evolve by integrating new features and adapt to the needs of their users.
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