When dealing with decentralized technology, there is often much more than meets the eye. Peeling back the layers of blockchain technology exposes the dense underlayers of the blockchain and cryptocurrency world where immensely complex moving parts are occurring to make sure the decentralized blockchains remain secure and trustworthy, free from a centralized authority.
Unlike centralized systems, blockchains cannot call top-down maintenance to implement changes as in a regular system, the power is centralized and changes are easy to make. Blockchains, on the other hand, are composed of nodes running from all across the world, with no singular point of command or failure.
Due to this, blockchains can be decentralized, but also require forking in order for changes to be made to the blockchain such as new rules, bug fixes or soft additions. Let's find out how soft and hard forks work to keep blockchains updated but secure and decentralized.
What Are Forks?
When working surrounding blockchains, a fork is considered to occur when a blockchain creates two different potential paths forward. Miners, who must all constantly agree on the rules of the blockchain will also all have to agree on rule changes.
To change the rules, you need to fork the blockchain, which demonstrates a change in rules or protocol. Forks often bring to life different cryptocurrencies with similar names, such as Bitcoin Cash and Ethereum Classic as new chains are created.
Not all forks are intentionally done, and accidental forks can occur when two miners almost mine the same block in the blockchain at the same time. Resolving the issue of unintentional forks will happen automatically, as one chain continues to add blocks, the other block will be abandoned, considered an orphan block.
Hard Vs Soft Forks
Both types of forks occur when a cryptocurrency's code is altered with the largest difference between hard and soft forks being their desired outcome.
Both hard and soft forks are necessary tools for the longevity of a blockchain, both being used for different purposes to make changes in a decentralized system. Without forks, a centralized body with top-down control would be required to make changes in the blockchain.
Here is a Video by Whiteboard crypto Where he explains what a fork is:
Hard Forks
Hard Forks in blockchains occur when a permanent altar of code occurs in the chain, and some of the existing nodes refuse to accept previous versions of the blockchain. A hard fork needs all current nodes to upgrade to the newest version. In turn, the new version of the blockchain becomes completely different from the previous and is backward-incompatible.
The Hard fork may have been needed to drastically change a blockchains protocol or to fix a bug. Most of the time, the nodes which are still existing on the old chain will soon realize that their blockchain is outdated and is not being updated, leading them to upgrade to the newest version of the chain.
A hard fork has several other reasons for happening, such as reserving transactions which was demonstrated during Ethereum's hack in 2016, to add new functions to the chain or address any security risks the current version poses to the chain.
Hard Forks, given by the name, are much harder than soft forks. They create a divide between the two sides and often harshly divide communities in half creating two sub-communities.
Examples of Hard Forks
The Bitcoin Cash Hard Fork
After the implementation of SegWit (Segregated Witness), a famous Bitcoin Hard Fork occurred, which resulted in Bitcoin Cash. A few Bitcoin developers did not like the new changes that SegWit brought upon the cryptocurrency and decided to Hard Fork the blockchain, resulting in Bitcoin Cash appearing in late 2017.
Bitcoin Cash is a successful cryptocurrency in its own right, currently sitting at rank 24, and never adopting SegWit.
There have been multiple other Bitcoin Hard Forks, resulting in cryptocurrencies such as Bitcoin Gold, Classic and Unlimited.
Ethereum's Dilemma
In July 2016, Ethereum's blockchain executed a hard-fork in order to return over $40m of Ethereum from a hacker's address to a new address.
The Hard Fork allowed the funds to be moved via a new smart contract to allow the original owners of the funds, which had been taken away, to retrieve them in the form of DAO tokens.
Soft Forks
Conversely, soft forks only require a majority of nodes or miners to change to the new rules, as a soft fork is backward compatible. In order to be backward compatible, new rules must not conflict with old rules, so nodes can maintain their current version.
Soft forks allow rules to be integrated into the chain without forcing all node holders to upgrade, such as decreasing the block size of the chain, which was successfully implemented via soft fork by ‘SegWit’ which we will touch on shortly.
As Soft Forks keep everything on one chain, there is no ‘double spend’ risk as there is in hard forks, as holders of a coin or token only have access to it on a singular chain.
The main danger to soft-forks, although seen as easier to execute, is the risk of malicious actors tricking miners into validating rules which go against the blockchain for their advantage. Hard forks limit this risk as they are not backward-compatible, which is why miners prefer hard over soft forks.
Examples of Soft Forks
The SegWit Soft Fork
In August 2017, the Segregated Witness protocol soft fork occurred on the Bitcoin chain, implemented to increase the block size limit and increase the transaction speed of the chain.
As seen before, although SegWit was a soft fork, it sparked a few miners who did not like the new protocol to push for a hard fork, creating Bitcoin Cash.
Why Are Forks So Important?
Forks are vital to update a decentralized blockchain where there is no top-down centralized authority available to make changes.
Conclusion
Although Hard and Soft forks can be nervous times for those involved with a cryptocurrency and especially difficult for node operators or miners, forks are inevitable processes in maintaining the decentralization and security of a blockchain.
Soft and Hard forks will continue to occur with major cryptocurrency blockchains like Bitcoin and Ethereum to maintain their security and keep the network upgrading for years to come.
