Hard Ford vs Soft Fork

It is common knowledge that a cryptocurrency is a decentralized form of currency not controlled by banks but rather an open-source software system commonly known as a blockchain. A blockchain fork is a modification made to the underlying protocol, an important update that can bring about a big or small change.

These changes can be made by either the developers or members of the community. Upgrading to the latest protocol version requires node operators, machines that help validate transactions on the blockchain, to update their software.

Every node contains a copy of the blockchain and ensures that new transactions are consistent with its history.

A hard fork is a significant upgrade that can make prior transactions and blocks valid or invalid. It necessitates all validators in a network to upgrade to a newer version, and it’s not backward-compatible.

Conversely, a soft fork is a backward-compatible upgrade, and validators in an older chain version can consider the new version valid. Hard forks typically create a permanent chain separation because the old version is incompatible with the new version.

Those who hold tokens on the old chain are also granted tokens on the new chain because they share the same history. There are various reasons why hard forks may occur.

Key Takeaways

• A hard fork is a significant change to a blockchain network’s protocol, which leads to two branches, one following the old protocol and the other following the new version.
• When hard forks are implemented, users don’t lose their coins when returning them to the new branch. However, miners must choose what blockchain they want to verify in the new branch.
• Hard forks can happen in any blockchain, not just in Bitcoin. For instance, Bitcoin Cash and Bitcoin SV are examples of hard forks that occur in Bitcoin.

What are Forks?

When blockchain developers want to change the network rules, they reach a consensus before proceeding. Once they agree on the upgrades, the blockchain splits into two, known as a “blockchain fork.” The original blockchain continues to operate under the same rules as before. At the same time, the new branch carries forward the protocols of the original one with improved transactional processes after the upgrade. Ethereum’s Merge and Cardano’s Vasil upgrades are recent examples of blockchain forks.

Who Determines a Fork Formation?

Blockchain experts state that since no centralized entity governs the blockchain, platform members are responsible for deciding on a path forward and making improvements to enhance the system’s functionality and efficiency.

The blockchain consists of diverse groups of participants, including miners, investors, and full-node developers. Additionally, because each division contributes to the network, some users have greater voting power than others.

For instance, miners are essential to the system’s security since they provide the processing power needed for block validation. They will also likely determine the validity and acceptance of the forked version.

Any fork authorized by miners is most likely to be successful, as they are in charge of sustaining the network. Most blockchains provide job overlap and govern power levels over the fork generation procedure.

In addition, full node users serve as the platform’s core and auditors, confirming and preserving the blockchain’s record, as well as programmers who design and optimize the blockchain’s foundation code script.

What is a Hard Fork?

A hard fork happens when a blockchain network splits into two paths, where one path follows its current rules, and the other follows a new set of rules. Because of this ongoing separation, two distinct networks now function independently.

A hard fork, on the other hand, renders the new version invalid for the old one since it is not backward compatible. Hard forks are often seen as risky because of the chain split that can occur between miners and nodes, which makes the network less secure and more vulnerable to attacks.

One such attack is the 51% attack, where a group of miners that control over 51% of a network’s computing power can alter its history. Some networks that resulted from hard forks have been hit with numerous 51% attacks, allowing attackers to double-spend the same funds.

Another possible vulnerability with hard forks is replay attacks, in which someone intercepts a transaction on a forked network and repeats it on the other chain, effectively moving another user’s funds without their knowledge.

Hard forks should have replay attack protection in place to avoid such attacks.

Why do Hard Forks Happen?

As a user, you may be wondering why nodes even consider hard forks if they can make the blockchain network vulnerable. The answer is that hard forks can help meet the nodes’ requirements.

These requirements may include new functionalities, improved security procedures, resolving disagreements within the network, or even correcting faulty transactions.

Sometimes, hard forks can happen accidentally when two miners work on the same block and produce different consensus results, causing the blockchain to split. In such cases, the participants may follow the old block, while the new one is called the orphan block.

Despite the risks involved, hard forks can sometimes be necessary to improve the functionality and security of a blockchain network. However, it’s important to consider the potential consequences carefully before initiating a hard fork, as they can result in significant changes to the network and even lead to the creation of entirely new cryptocurrencies.

Accidental hard forks

Over the years, several unintended hard forks have occurred on the Bitcoin network. These forks are extremely frequent and are usually fixed swiftly with little warning.

Most unintentional hard forks occur when two miners find the same block roughly simultaneously. Due to bitcoin’s decentralized nature, both miners accept the block as legitimate and start mining independently until a new miner adds a new block.

To preserve unanimity, the branch enters the broader chain after the next transaction is added, and the shorter chain is terminated. As the abandoned chain is no longer economical, miners shift to the larger one.

When this happens, the miner who discovered the discarded block forfeits the coin base and service charge awards. However, no transactions are invalidated because both blocks contain the same transactions.

Sometimes, accidental hard forks result from code issues that cause short-chain splits. For example, in 2013, a block was mined and broadcasted with more total transaction inputs than previously seen.

However, some nodes did not process it, which resulted in a split. The network eventually resolved the issue after some nodes downgraded their software to reach a consensus and reject the larger block.

What is a Soft Fork?

A soft fork differs from a hard fork because it doesn’t make the network vulnerable, and new changes are backward-compatible with older versions. This indicates that while old version nodes will take new blocks, the reverse is untrue.

The advanced upgrade method makes sure that the system self-corrects. Because both outdated and updated nodes accept the new version blocks, they ultimately prevail.

For instance, new version nodes would reject blocks with the previous limit, leading to a brief split when the users opted to cut the block size from its present theoretical limit of 4MB to 0.5MB. This has happened several times and is a soft fork.

Introducing the limit of 1MB was done through a soft fork since the new rule was “stricter” than the old one. This amendment generally requires only the majority of miners to upgrade, making it more feasible and less disruptive.

The pay-to-script-hash function was also successfully added through a soft fork, which enhances the code without changing the structure. Compared to hard forks, soft ones can’t double the spending risk because users using old nodes can read new and old blocks.

Soft work takes away the vulnerability of changes in the system, which is why some experts prefer this to Hard Fork.

Difference Between Hard Fork and Soft Fork

Examples of Hard Forks

Bitcoin Cash Hard Fork

In 2017, after the implementation of SegWit, a group of Bitcoin developers didn’t like the changes it brought to the cryptocurrency. They decided to Hard Fork the blockchain, creating Bitcoin Cash, which currently ranks 24th among cryptocurrencies.

Bitcoin Cash never adopted SegWit, and multiple other Bitcoin Hard Forks have resulted in cryptocurrencies like Bitcoin Gold, Classic, and Unlimited.

Ethereum’s Dilemma

In July 2016, Ethereum’s blockchain executed a hard fork to retrieve over $40 million worth of Ethereum from a hacker’s address to a new address. This Hard Fork allowed the funds to be moved via a new smart contract, which enabled the original owners of the funds to retrieve them in the form of DAO tokens.

Examples of Soft Forks

SegWit Soft Fork

In August 2017, the Bitcoin blockchain underwent a soft fork to implement the Segregated Witness protocol. This protocol aimed to increase the block size limit and speed up transactions on the network.

While most of the community accepted the upgrade, some miners were unhappy with it and eventually pushed for a hard fork, which led to the creation of Bitcoin Cash.

Which One Is More Beneficial: Soft Fork or Hard Fork?

According to cryptocurrency exchanges and other business networks, hard and soft forks serve different purposes.

While hard forks that cause controversy can divide the community, well-planned and thoughtful ones can lead to changes everyone agrees on.

Soft forks are seen as more gentle and diplomatic than hard forks. If modifications are made in a way that does not conflict with current rules, there is no need to worry about fragmentation.

Conclusion

Regardless of whether it’s a hard or soft fork, ensuring a seamless transition of blockchain updates and upgrades is crucial. Most blockchain miners and merchants prefer hard forks because they lower the risk of validating or mining invalid blocks.

This ensures that they are not left behind or defrauded when they continue to run the old version. However, hard forks can consume a lot of computational resources and are considered detrimental to the future of cryptocurrencies.

Despite their inherent risks, soft forks provide a much quicker solution to software upgrades on the blockchain without the excessive use of computational resources.

Soft forks are also praised for their ability to implement updates without causing a split in the community.