hard and soft fork

Concept of Hard and Soft Fork in Cryptocurrency Explained

Hard and soft fork terms are tossed out quite often in discussions related to cryptocurrency, but not everyone is familiar with their concepts. In simpler words, we can say that when a cryptocurrency splits into two i.e. different blockchain and a new coin, it is called a hard fork. The biggest example of such split is Bitcoin and Bitcoin Cash. On the other hand, when cryptocurrency receives a major overhaul but remains on the same blockchain and the same coin, then it is referred to as soft fork. An example of such fork would be SegWit update for Bitcoin.

Why Are Forks Necessary?

Just like your iOS or Android version, a cryptocurrency needs to be updated as well. A new update might be done to resolve certain security concerns, improve upon the older version, add some new functionality, or reverse transactions. However, unlike iOS or Android, you are not forced into updating – you can keep using the old blockchain/coins if you want to without any repercussions. If hard fork has occurred, then you can either switch to the newer currency or stick with the old one. In case of soft forks, the blockchain and coins remain the same, so this does not apply there.

Examples of Hard Fork

A hard fork is how Bitcoin Cash originated in the first place. A lot of people were not happy with the 1MB block size of Bitcoin and there wasn’t any intention of increasing it, so some members of the crypto community united to create an alternate cryptocurrency and named it Bitcoin Cash. This new cryptocurrency came with an increased block size of 8MB.

Both Bitcoin and Bitcoin Cash started co-existing, and everyone, who originally held bitcoins, was handed the same amount of Bitcoin Cash at its inception. They then had the choice to keep using Bitcoin or adapt to Bitcoin Cash or use both at the same time. None of the users were forced into anything; they were simply provided a couple of options to work with.

Hard forks such as above always lead into three outcomes:

  1. One blockchain (new or old) becomes more dominant, and the other one just drowns into the backdrop.
  2. Both blockchains enjoy success and co-exist independently.
  3. People get accustomed to both of them but are only in favor of one.

Examples of Soft Fork

The highly controversial SegWit update of Bitcoin is a great example of a soft fork. The purpose of this update was to increase the scalability of the 1MB block without increasing the size. Not a lot of users were in favor of this idea, as it was considered a temporary solution to a much larger problem. However, when the update arrived, everyone had to adapt.

A soft fork can lead to the following outcomes:

  1. Better, more functioning blockchain.
  2. Ability to reverse all the transactions that may have taken place during a security breach.
  3. Removal of security concerns.
  4. Added functionalities for new operating systems.
  5. Faster transactions speed.

The aforementioned are just a few ways in which a soft fork can have an impact on a cryptocurrency.

Can Anyone Fork a Coin?

Yes, anyone with a code of a coin can add some improvements and update the software to create a hard fork. However, the likelihood of everyone adapting to the newly created coin/blockchain is extremely low. The newly originated coin would need miners, more than enough users, and it also needs to be listed on an exchange.

Even if the user is able to achieve all of the above-mentioned feats, they will still need to add value to their coin, which is not an easy task. A ton of coins are already available in the exchanges, and it is extremely difficult to make a new one work. Due to this very reason, the incidents of Hard and Soft Fork don’t happen too often at a large scale.

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