Hard Forks and Soft Forks in Crypto

Hard forks and soft forks are crucial mechanisms for implementing changes and upgrades in decentralized blockchain networks without a central authority. They enable blockchain to evolve and incorporate new features, allowing for flexibility and improvement over time.

Basics

Updating banking apps is a necessary process to avoid being denied access to its services. It is usually prompted on smartphones and sometimes occurs automatically without user notice. However, upgrading the blockchain is a more challenging task as there is no central authority that can push updates and implement new features in the network. 

This article will delve into the upgrading process of cryptocurrency networks, even in the absence of a central authority. For this purpose, there are two applicable mechanisms: hard forks and soft forks.

Who Makes Decisions About Blockchain Changes?

Understanding the governance of a blockchain network is crucial in comprehending how forks operate. In Bitcoin, the decision-making process involves three subsets of participants who actively contribute to the network: developers, miners, and full node users. Light nodes such as wallets on personal devices are also important members of the network, but they don’t contribute to the blockchain upgrading.

Developers

Developers are responsible for creating and updating the code, and anyone can contribute to this process. They submit changes publicly for other developers to review.

Miners

Miners secure the network by running the cryptocurrency’s code and dedicating resources to adding new blocks to the blockchain. In the Bitcoin network, they use Proof of Work to add new blocks, and they receive a block reward for their efforts.

Full Node Users

Full node users, as the backbone of the cryptocurrency network, validate, send, and receive blocks and transactions and maintain a copy of the blockchain. There is often an overlap between these categories, as some individuals may assume more than one role.

While developers and miners play a significant role in making decisions for the network, the real power lies in full nodes. Users have the option to choose what software they use, and developers and miners cannot coerce them into using specific software.

The software is not proprietary, so users can make any edits they want. If others run their modified software, they can all communicate, and a new network is created in the process. Therefore, developers and miners cannot force unwanted changes onto users.

Overall, these parties are not all-powerful overlords, but rather service providers. If people decide not to use the network, the coin will lose value, directly impacting miners. Developers can also be ignored by users. Thus, decision-making in blockchain networks is a collaborative effort.

Fork Explanation 

In the world of software development, a fork occurs when the code is copied and modified, creating a separate project that goes in a different direction from the original. This is a common occurrence in open-source projects, and it can be seen as a divergence in the path of two projects that once shared a common ground, like a road that splits into two.

For example, if there were a disagreement between the team members of a popular cryptocurrency content website about the direction of the site, one group might decide to replicate the site on a different domain, posting different content than the original.

In the blockchain space, there are two types of forks: hard forks and soft forks. While these terms are unique to blockchain, forking has been happening in software development long before the emergence of cryptocurrencies like Bitcoin or Ethereum.

Hard Fork

Hard forks occur in blockchain when there is a fundamental disagreement among the community about the direction of the protocol. They happen when a new rule is introduced into the blockchain code that is not compatible with the old rules. This can create a divergence in the blockchain's history, resulting in two separate chains, each with its version of the blockchain. The most common reasons for a hard fork include disagreement over software changes, security concerns, and network congestion. 

Hard forks are backward-incompatible software updates, and new nodes can only connect with other nodes using the new version. As a result, the blockchain splits, and two networks emerge - one with the old rules and one with the new rules.

After the fork, the blockchain history remains the same until the point of the fork. However, different blocks and transactions are added to both networks, creating parallel systems. If an individual had 5 BTC when a fork occurred at Block 600,000, they could spend them on the old chain, but they would still have five coins on the new blockchain if they retained their private keys.

An example of a hard fork is the 2017 Bitcoin fork, which resulted in two separate chains: the original Bitcoin (BTC) and the new Bitcoin Cash (BCH). The fork was a result of disagreement on the best approach to scaling. Bitcoin Cash proponents wanted to increase the block size, while Bitcoin supporters opposed the change. As a consequence, nodes were only able to accept blocks smaller than 1MB in size. However, if nodes had upgraded their software to accept larger blocks, only those nodes with the same modifications could communicate. This rendered them incompatible with the previous version.

Soft Fork

Soft forks are a type of upgrade in the blockchain network that is backward-compatible. This means that nodes that have been upgraded can still communicate with those that haven't. Soft forks are generally implemented to make improvements to the blockchain network, such as reducing block sizes or adding new features. They can also be used to fix security vulnerabilities or other issues with the blockchain.

For instance, reducing the block size can be achieved through a soft fork. Bitcoin is an excellent example of this scenario. Even though there's a limit to how large a block can be, there's no limit to how small it can be. Therefore, if you want to accept only small-sized blocks, you can reject larger ones. This action won't disconnect you from the network, but you will filter out some information that nodes not implementing those rules send you.

Segregated Witness (SegWit) is a prime example of a soft fork. It occurred after the Bitcoin/Bitcoin Cash split. SegWit was a well-crafted update that modified the format of blocks and transactions. However, old nodes could still verify blocks and transactions because the format didn't break any rules. They wouldn't understand them since some fields are only readable when nodes switch to newer software, allowing them to parse additional data.

Two years after SegWit activation, not all nodes have been upgraded, even though there are advantages to doing so. However, there's no sense of urgency since no changes could break the network.

Which Is the Better Option - Hard Forks or Soft Forks?

There are two main types of forks in the blockchain world, and they serve different purposes. Contentious hard forks can create division within a community, while planned hard forks offer the freedom to make modifications with the agreement of all parties involved.

On the other hand, soft forks are a gentler option. In general, they are more limited in what they can achieve because new changes must not conflict with the old rules. However, if an update is crafted in a way that remains compatible with the old rules, there is no need to worry about splitting the network.

Soft forks are preferred over hard forks because they are less disruptive to the blockchain network. With a soft fork, the blockchain network remains intact, and nodes that have not been upgraded can still participate in the network. In contrast, a hard fork creates a new blockchain network incompatible with the previous version. This can lead to a split in the community and create two separate cryptocurrencies.

Conclusion

The importance of hard forks and soft forks cannot be overstated in the context of blockchain networks. These mechanisms enable us to implement changes and upgrades in decentralized systems, where there is no central authority.

Forks play a vital role in allowing blockchains and cryptocurrencies to incorporate new features as they are developed. Without these mechanisms, we would need a centralized system with top-down control, which would limit our ability to evolve the protocol. Thanks to hard forks and soft forks, we have the flexibility to adapt and improve the blockchain network over time.