Blockchain technology is the foundation upon which cryptocurrencies are built. The technology is open-source, freely available, decentralized, and managed by members of its community. Furthermore, with the nature of the blockchain, any member of its community can propose a change to improve and upgrade the existing protocol being employed.
The blockchain is a database set up as a chain of interconnected blocks, each containing a collection of data. Blockchain technology is a digital ledger that stores transactions in its simplest form. Since blockchains are decentralized open-source protocols with no centralized authority, the decision to upgrade to the protocol requires the agreement of all network users. However, miners or developers choose the rules that govern how transactions are carried out. The community decides whether to update the protocol and add new features. However, a cryptocurrency fork happens when there is a disagreement and the community cannot agree on a course of action.
What is a Fork?
A blockchain fork is a significant network upgrade that can be either revolutionary or minor, and developers or community members can start it. This means a fork is a change to the blockchain's underlying protocol. A fork occurs every time a community modifies the blockchain's protocol or the entire set of guidelines. When this happens, the chain splits, creating a second blockchain operating in a different direction but still following the original's default intent.
In most cases, a fork happens when the software developers deliberately alter the source code to include new features or alter the basic principles governing networks' operation. Though the forked protocol typically functions as the original but has significant, lasting changes that force network users to update their software to the most recent version. Occasionally, these intentional forks can give rise to a new protocol with the addition of a new token and a new ecosystem. Hence, depending on their purpose, forks can be classified as hard or soft forks.
A hard fork is a permanent disconnection of a chain from the most recent version of a blockchain protocol. This results in the blockchain being split into two separate networks that operate independently of one another because the nodes of the original blockchain can no longer reach consensus, and it becomes invalid on the forked version. In other words, the original blockchain network continues to follow the rules guiding it while the forked version adjusts to a new set of rules. Therefore, Hard forks are software updates to the blockchain protocol that is backward-incompatible and invalidate older versions.
Conversely, the hard fork typically creates a new cryptocurrency that uses the same payment system. While the new blockchain has its own ecosystem, the default blockchain –mother– still uses the same algorithms to function. Hard forks typically occur when one community faction wants to add a new feature to the blockchain, but the other faction is opposed to the idea. Scalability, improved security, and others are factors that are considered for a fork.
One notable example of a hard fork is the famous Bitcoin, where the community disagrees on the best approach to scale the network. Some members supported increasing the block size. While on the other hand were members who opposed these changes. This led to bitcoin splitting into two different chains, and a new cryptocurrency was forked, Bitcoin Cash. Even though Bitcoin and Bitcoin Cash use different blockchains, they share the same history.
The splitting of the Ethereum blockchain into two separate chains to form Ethereum Classic is another illustration of a hard fork. The development team decided to invalidate blocks related to the exploited vulnerability due to a security breach in the project's development.
What changes occur during the hard fork?
The blockchain is a straight path made up of blocks linked to one another. These blocks are linked together and agreed upon by a consensus. Therefore, any protocol upgrade necessitates a change in consensus on all of the blocks. As a result, during a hard fork, a new blockchain is created operating on a separate protocol, and most times, a new cryptocurrency emerges. This new cryptocurrency emerged because of the developer's significant effort in making adjustments to the original blockchain that are incompatible with the existing algorithms. The following modification occurs during a hard fork;
- The new block size is specified.
- The time for generating blocks is specified.
- The maximum amount of new tokens that can be issued.
- An upgraded algorithm for controlling and regulating mining complexity is developed.
- A new reward amount is stated for revealing the block and the frequency with which it is adjusted.
A soft fork is essentially an upgrade to the blockchain's software. This means that the newly implemented features will work with the previous blockchain version. As a result, adding new rules does not invalidate the previous rules, making a soft work backward-compatible. A soft fork is mostly a minor modification to the blockchain, enabling non-upgraded users to still interact with one another within the network.
Additionally, soft forks frequently add new programming features invisible to network users. The communication between the old and new nodes produced by the soft fork is seamless. However, some elements from the old network that are not required for the operation of the upgraded network are filtered out by the upgraded network.
To understand the soft fork, suppose the community decided to reduce the block size from its current maximum of 4MB to 2MB. Then, if the old block were mined using an updated network, the new network would reject blocks with the old limit and build on them, resulting in a temporary fork.
Segregated Witness (SegWit) is a remarkable example of a bitcoin soft fork. In order to make bitcoin transactions smaller and more affordable to send, the SegWit upgrade soft fork removes the signature data from them. Additionally, it enables the addition of more transactions per block, increasing the capacity available to all bitcoin users. SegWit, therefore, proposed increasing the appropriate block size from 1MB to 4MB. By employing a sophisticated engineering strategy that structured new rules without breaking the old ones, the soft fork also allowed the old nodes to validate the new blocks.
Hard Fork vs. Soft Fork: The Difference
A hard fork occurs when a blockchain network splits into two distinct versions, typically because one set of users wants to expand the program's functionality. In contrast, the other wants to maintain the present version.
A soft fork occurs when an update is made to an existing blockchain network for older features to continue functioning properly with the upgraded version.
They are a permanent divergence from the existing blockchain. Thereby forming a different blockchain.
They are minor modifications made to the existing blockchain.
A user on the old blockchain cannot interact with the new blockchain.
Non-upgraded users can enjoy the benefit of the new features as upgraded users.
A dividing community arises from a hard fork because there are always two parties involved.
Security issues arise from soft forks because malicious parties may use them to validate transactions that don't adhere to network requirements.
When a hard fork occurs, new cryptocurrencies are often the outcome.
No new currency is created as a result of a soft fork.
A hard fork protocol update is backward-incompatible.
A soft fork protocol update is backward-compatible.
Both soft and hard forks are deliberate modifications to the protocol. These could be for various factors, including fixing minor or significant bugs, undoing the consequences of hacks in soft forks, and community disagreements over the best course of action in hard forks. However, hard forks always loosen up some of the protocol rules, and new ones are established, while soft forks are typically used to introduce changes that tighten up some of the protocol rules.