Hard forks vs. soft forks – what do both mean in the world of crypto?

hard fork vs soft fork

The world of crypto is finally getting mainstream recognition – at least to some degree. Back when blockchain and Bitcoin were created in 2008, no one trusted the technology. However, slowly things changed for the crypto world. Now, the market capitalization of Bitcoin is around 120 billion USD. In the UK alone, 1.1 million people have invested in the technology.

If you are new to the crypto world, the chances are you will feel overwhelmed with the various terms and information you receive in mainstream media. After all, there has been nothing like the cryptocurrency in the past. This world is foreign to most of us.

Two terms that you will see popping up a lot is hard forks and soft forks.

What does “Fork” mean?

Before getting into what a hard and soft fork is, it is essential to understand what fork means. It’s merely a fancy term used to describe a type of software update. These updates have one distinct feature. And that is that they are coded in a way that they can either be backward compatible or they can’t be. So, Fork is just a term that is used to refer to a software update in the crypto world.

What do forks generally do? They help in creating an alternate version of the blockchain technology. This allows for two such blockchain technologies to run side by side on varying parts of the same network.

Soft Fork explained

A soft fork is one of the most common types of forks that exists in the crypto world. It refers to software updates where only major miners are required to upgrade to the new system to enforce the new protocol. It adds a new feature or update to a given blockchain without having to create a new network.

Soft forks are used to implement significant changes in the blockchain network. This is one of the reasons why they are considered to be a crucial tool. While it may be beneficial for miners and users of crypto, investors don’t really think highly of Soft Fork. This is because these protocols lead to the formation of a single chain rather than separate ones. Hence, as an investor, you don’t really get any new assets out of it to get rewarded with.

However, this doesn’t mean that investors are always at a disadvantage with a soft fork. Instead, if a soft fork is able to add new distinctive features to a blockchain product, the price of the solution is bound to increase. For instance, if a soft fork is implemented on the AutoBlock that makes it even more beneficial for the automotive industry, we can expect the price of its assets to rise – usually. On the other hand, a soft fork failure can cause a dip in the price as well.

That’s crypto for you…

Therefore, as an investor, it is pivotal to keep an eye out for soft forks as carefully as you would do for hard forks.

Hard fork explained

A hard fork refers to changes in the protocol or coding of the blockchain network that makes all old rules and protocols obsolete. Instead, newly updated codes become the new base. For such a fork to occur, all nodes and miners must upgrade their system to the latest version of the blockchain solution. Remember, such a fork is not backward-compatible. It is permanent.

What does this mean? Let’s take a look at a layman example to understand this. Let’s say you have MS Excel 2003. Your boss has given you a file that is made on MS Excel 2015. Since MS Excel 2003 doesn’t have a compatibility pack so you won’t be able to run the file on your MS Excel. This means that the file isn’t backward-compatible. So, let’s say the AutoBlock cryptocurrency, the AutoCoin is hard-forked. Once new rules are implemented, you won’t be able to go back to the original version.

Why is a hard fork done?

There are various reasons why forks may happen. But, the most common one is to cause a split in the community. For instance, a given blockchain community decides that they don’t want to follow a given set of rules anymore or that they don’t want to use the blockchain network. So, the hard fork is done to change the rules as necessary, and a new blockchain is made in the process.

How are forks created?

The blockchain is a decentralized network. This makes one wonder how such forks are created. After all, no standardized body decides and governs changes. Well, in the crypto world, everything requires consensus. This holds true for creating forks as well. Whether it be a soft fork or hard fork, to implement it, you need a consensus of the users and miners.

For instance, if you are creating a soft fork, you need a majority of those who are currently using the blockchain to agree to the change and upgrade. In technical terms, these users or coin holders are referred to as nodes. The point of difference in a hard fork is that every node must upgrade to the new version, i.e., every user must agree for the protocol to take effect.

Author Bio:

Thanks to Evie Harrison for this amazing blog post. Evie is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences and express herself through her blogs. Find her on Twitter:@iamevieharrison