This reinforces the democratic ethos of blockchain technology where every participant’s voice holds weight. In order for a hard fork to take place, there must be a disagreement amongst the community and miners on the current protocol. Because the miners help facilitate transactions on the blockchain, they possess the power to implement a new protocol. If a large enough group of miners wanted to increase the size of Bitcoin’s blocks from 8 MB to 32 MB then they could initiate a vote. This is how the first hard fork of Bitcoin, Bitcoin Cash, was created. Soft-forks are therefore, backwards-compatible and after the soft fork, still only one blockchain exists as both upgraded and non-upgraded nodes work on the same chain.
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As we dive deeper into the world of soft forks and hard forks, we will discover the nuances that make each unique and their critical role in shaping the course of a blockchain network’s future. In the beginning, we discussed that a successful fork must reach consensus in order for it to be implemented. This is especially the case for hard forks, since they create new blockchains. If everyone involved in the network agrees on the blockchain’s fork, it means they’ll all start offering their services to the newly created blockchain. As a user, any wallet provider will update its software to link to the newly created blockchain for you, meaning you wouldn’t need to do anything. Your coins would be on the new blockchain, and the old one will no longer be used as no one supports it.
The Impact of Forks on a Crypto Community
All of these have a resemblance to their former blockchain, but, due to particular ideas, a hard fork was introduced to forge a new cryptocurrency. Even more recently, another hard fork occurred in one of the world’s most valuable cryptocurrencies by market cap, Terra. Its native cryptocurrency Luna and its algorithmically backed stablecoin UST became battered as the result of a widespread selloff in crypto markets. The algorithm backing UST depegged from $1 and Luna subsequently lost value as well.
- Note that this kind of thing happens a lot in open-source projects, and has been happening for a long time before the appearance of Bitcoin or Ethereum.
- Juxtaposing hard fork and soft fork, it’s clear that both terms represent changes in the blockchain protocol.
- Because currencies like Bitcoin are open source, anyone can take the code, make some changes, and produce a new version.
- If there are enough members left in the previous version of the blockchain, two versions now exist.
- Since Bitcoin Cash was created, more and more hard forks have come around.
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Hard Forks vs. Soft Forks
One unique feature of the Bitcoin Gold hard fork was a “post-mine,” a process by which the development team mined 100,000 coins after the fork had taken place. Some Bitcoin forks, including Bitcoin Gold, have attempted to make Bitcoin more accessible by changing the hardware necessary to establish a network connection. While we’ve used Bitcoin as our example here, forks 25 high-dividend stocks and how to invest in them can happen on any blockchain. If these two categories tried to strong-arm the rest of the network into following their will, however, it wouldn’t end too well. This is largely a function of the network being opt-in, meaning that users can choose what software they’re running. You could, for instance, be a developer and a full node user, or a miner and full node user.
Hard fork vs. soft fork
Soft forks are generally used for smaller changes at a programming level that don’t impact the protocol of the blockchain. So does a holder of the original cryptocurrency doubles their money when a crypto hard forks? The answer is not the same as a stock split since in a stock split, each new share is completely interchangeable and substitutable with the existing shares. Suddenly you have two blockchains, one with both older and newer version blocks, and another with only older version blocks. Which chain grows faster will depend on which nodes get the next blocks validated, and there could end up being additional splits. It is feasible that the two (or more) chains could grow in parallel indefinitely.
Bitcoin XT initially saw some success, with updates and nodes operating until late 2018, when it was essentially abandoned. Even two years after SegWit activation, not all nodes have upgraded. There are advantages to doing so, but there’s no real urgency since there’s no network-breaking change.
For example, back in 2017 the Bitcoin underwent a blockchain fork introducing SegWit to the network. This has since become the predominant address format used for managing BTC. And if it occurred due to a disagreement in the community, the new cryptocurrency may be seen as a competitor to the original. Soft forks, on the other hand, are often comparatively minor upgrades. They’re typically system upgrades, similar to how your laptop installs updates, and are often accepted by the majority of the community.
Both blockchains maintain the same history up to the time of the split (as in who owns how many cryptocurrencies and who has sent who how many), but operate independently. In a hard fork, a stringent protocol change leads to a complete split, resulting in two separate blockchains, each following its own set of rules. This means if you were holding tokens in the original blockchain at the time of the hard fork, you would end up having tokens on both the old and new blockchains. A hard fork is different from a soft fork, which is a protocol change that does not cause a rejection of the pre-existing rule set. A hard fork requires all network participants to upgrade to the new rule set and reject the old rules, while a soft fork will continue to accept transactions created by the old rule set.
With that said, 2 of the most successful forks still in existence are Bitcoin Cash (trading under $BCH) and Bitcoin Gold (trading under $BTG). Bitcoin Cash aims to become a faster, more efficient version of Bitcoin through larger block sizes. Bitcoin Gold runs on a modified proof-of-work system with the goal of becoming even more decentralized than Bitcoin. Did you know that as of late 2023, there are technically over 70 active versions of the Bitcoin network? This is due to a blockchain function called forking, which has occurred over 100 times throughout Bitcoin’s history. Other than a few tweaks, Bitcoin Cash is extremely similar to Bitcoin.
However, there are important distinctions between these two operations. A hard fork occurs when there is a permanent split in a blockchain. This split occurs when there is a change to the code; this creates two paths. One path has the new blockchain, and the second path has the original blockchain. When a soft fork takes place, older nodes (computers that connect to the cryptocurrency’s network) will still recognize new transactions as being valid.
Put simply, blockchain forks can help cryptocurrencies provide more flexibility. Plus, they allow the implementation of patches for security, usability, scalability and so forth. A big difference between regular networks and blockchains is that there’s not just a single governing body. Instead, everyone participating in the network must agree with the proposed fork.
While Bitcoin XT had some attention from the cryptocurrency community, some members still wanted Bitcoin block sizes to increase. In response, a group of developers launched Bitcoin Classic in early 2016. Unlike XT, which proposed increasing the block size to eight megabytes, classic intended to increase it to only two megabytes. Similar to most information technology, blockchains can receive certain updates. They’re similar to how you need to update some computer programs at times – this is the cryptocurrency equivalent of it. Hard forks often produce new tokens, but investors should remember that they’re not guaranteed to be valuable, and many may eventually be worthless.
Forks are almost always a sign that developers are still actively working to improve their blockchain platform. So, if a project is undergoing a fork, you can rest assured that the blockchain project has not been abandoned. Bitcoin Gold was a hard fork that followed Bitcoin Cash in October 2017. The creators of this hard fork aimed to bring mining back to graphics processing units (GPUs), as they felt that mining had become too specialized in terms of equipment and hardware required.
This can be due to a major hack, as was the case with Ethereum, or as a fundamental disagreement within the community, as we’ve seen with Bitcoin and Bitcoin Cash. If you’re new to cryptocurrency, you may have heard the term “fork” thrown around. Like a fork in the road, a cryptocurrency fork is a point at which there are two paths for a blockchain’s development. Called Byzantium, it was a hard planned fork that took place in October 2017 to help improve Ethereum’s scalability. That means everyone agrees to upgrade the software, create a new blockchain, and leave behind the old blockchain.
What if the next block is validated by a node running an older version of the protocol? It will try to add its block to the blockchain, but it will detect that the latest block is not valid. So, it will ignore that block and attach its new validation to the previous one. Developers cannot force changes on a public blockchain that relies on participation. Public blockchains rely on their participants, so changes must be implemented by them, not forced upon them. Otherwise, they can refuse to accept the changes and keep their preferred version.
A hard fork occurs when a blockchain splits into 2 blockchains, with each operating independently. One critique of Bitcoin is that its transaction processing times can be slow. This is because its block size—the number of transactions processed per block—is kept small by design. Proponents of its block size believe that this helps keep Bitcoin decentralized, as larger block sizes require more expensive equipment to mine.
You still communicate with nodes that aren’t implementing those rules, but you filter out some of the information they pass you. Just like a single road that later splits into two, there’s now a permanent divergence in their paths. The code is available publicly, so they can submit changes for other developers to review. Both cryptocurrencies maintain their own distributed ledger, so after that point, the two currencies will diverge and started trading at entirely independent valuations relative to each other.
Because there’s that shared history, you’ll end up with coins on both networks if you were holding them before the fork. Suppose that you had 5 BTC when a fork occurred at Block 600,000. You could spend those 5 https://cryptolisting.org/ BTC on the old chain in Block 600,001, but they haven’t been spent in the new blockchain’s Block 600,001. Assuming the cryptography hasn’t changed, your private keys still hold five coins on the forked network.
However, any blocks that are mined will be considered invalid by the updated nodes. The software was launched by Mike Hearn in late 2014 in order to include several new features he had proposed. While the previous Bitcoin version allowed up to seven transactions per second, Bitcoin XT aimed for 24 transactions per second.
So they implemented their own solution, but their update wasn’t compatible with the original system. Hence, Bitcoin Cash was born, and those holding coins in the original Bitcoin received an equivalent amount of Bitcoin Cash coins. For those running older software versions, soft forks shouldn’t cause any issues because those blocks and transactions should still be accepted within the chain. Forks are typically conducted in order to add new features to a blockchain. Bitcoin has undergone many different forks since it was first introduced in 2009. Wright’s version of the protocol proposed to increase the blocksize by hundreds of times, allowing cheaper transactions and more throughput for decentralized applications.
