Hard Fork Versus Soft Fork: Understanding The Difference

Mar 20, 2019 · 4 min read

Forks are a common occurrence in the world of cryptocurrencies. Even if you are new to the sector, chances are that you have heard the term before. However, there are two types of forks and understanding the difference can be a challenge.

In this article, you will learn the distinction between a hard fork and a soft fork and why they occur on blockchain networks.

What is a Fork?

A fork happens when a blockchain network splits into two different chains because of a change in the underlying software that governs the network. The software underpinning a blockchain controls the entirety of the network. The code governs all details relevant to the network, including the consensus algorithms, the tasks, responsibilities, and rewards that apply to all participants in a network.

Forks can be initiated for a number of reasons. These can include, the need to include some new features in order to meet increasing demands on the throughput of the network. A fork can also be as a result of the need to increase security measures or other features designed to better the robustness of the network.

Lastly, some forks are implemented due to disagreements within the community supporting a cryptocurrency network. Because of the decentralized and largely open-source nature of the blockchain, this scenario is one of the main ways people can exercise their decision making power and is relatively commonplace.

Confusion can occur when it comes to the different types of forks, especially when it seems like the two terms are sometimes erroneously used interchangeability.

To better explain the difference between soft forks and hard forks, we will use the Bitcoin and Ethereum blockchain as examples.

Soft Forks

As explained earlier, a fork is a change in software. In a soft fork, the alteration in the underlying code is backwards compatible. Backward compatibility refers to is a scenario where the nodes running on the older software can still recognize the blocks added to the network by nodes running on the newer software.

To put it differently, in a soft fork, the change results in two different underlying codes but maintains a single native digital asset. A good example of a soft fork is the SegWit update.

On 23 August 2017, the Bitcoin blockchain activated Segregated Witness, a Bitcoin Improvement Proposal (BIP) initially proposed by Peter Wuille and other bitcoin developers. Following extensive community discussions and miner support, the BIP went live on the Bitcoin network.

Segwit was implemented to bypass the block size written into the Bitcoin blockchain’s software, which was a contributing factor to the decreased speeds and higher fees which were plaguing the Bitcoin network at the time. By amending the software with SegWit, the network witnessed a significant increase in transaction speeds as well as throughput. However, nodes which were running on older software were still able to recognize nodes running the SegWit software. Thus, the update was backwards compatible.

Hard Forks

Conversely, hard forks create two different chains which cannot integrate because the changes in the software are not compatible with the older versions that have previously run on the network. Hard forks are generally driven by ideological differences.

For instance, during the extended period within which the bitcoin community debated on the ways to scale the digital currency, opposing views began to emerge over what would work best for the Bitcoin network. While most of the community was in support of SegWit, and it eventually won and was implemented as the soft fork referenced earlier, a miner-led faction began to contemplate splitting of the main Bitcoin blockchain.

Unable to reconcile their ideals and priorities with that of the main SegWit supporting groups, the opposing group grew into the creation of Bitcoin Cash. On 1 August 2017, the group opposing SegWit split off from the Bitcoin blockchain, creating their own version of Bitcoin. This group believed the key to scalability was to increase the block size, which is the main feature of Bitcoin Cash (BCH).

Therefore, while the two cryptocurrencies may share some similarities in the name, they are not the same token. Bitcoin and Bitcoin Cash share a history until block 478558 at which point the underlying code changed in a manner which permanently and irreversibly split the blockchain into the two chains.

The Ethereum Hard Fork

On the Ethereum network, the majority of the community were in support of a hard fork to reverse a hack in 2016 that had led to the loss of a large amount of ether (ETH). Attackers had discovered a vulnerability in the software underlying the newly-formed DAO on the Ethereum network and drained a substantial amount of funds from the wallet connected to the DAO smart contract.

The Ethereum community voted to hard fork to recuperate the funds. In this scenario, the hard fork was used as a, somewhat controversial, last-minute failsafe.

However, not all members of the Ethereum community agreed and some continued to mine the original Ethereum blockchain, which was then renamed Ethereum Classic (ETC) and become its own blockchain project.

To conclude, soft forks are defined by their backward compatibility while hard forks cause a permanent and irreversible split resulting in the original blockchain and its native digital asset as well as a new ledger with its own digital token or coin.

If you want to learn more about investing in digital assets, including the opportunities and risks involved, check out CentrumCoin’s ‘Learn About Investment’ education section.

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CentrumCoin, the bridge between individual investors, entrepreneurs and the cryptocurrency market. centrumcoin.com


CentrumCoin, the bridge between individual investors, entrepreneurs and the cryptocurrency market.

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