The Difference Between Soft Forks And Hard Forks

The Difference Between Soft Forks And Hard Forks

August 10, 2022 by Diana Ambolis
Blockchains are a kind of decentralized, open-source software that powers cryptocurrencies like Bitcoin (BC) and Ethereum (ETH), among others. A blockchain split is a critical network upgrade representing a significant or minor change. A change to the blockchain’s underlying protocol is known as a fork. Either developers or community members may initiate forks of a
The Difference Between Soft Forks And Hard Forks

Blockchains are a kind of decentralized, open-source software that powers cryptocurrencies like Bitcoin (BC) and Ethereum (ETH), among others. A blockchain split is a critical network upgrade representing a significant or minor change. A change to the blockchain’s underlying protocol is known as a fork. Either developers or community members may initiate forks of a blockchain. To comply with this requirement, node operators, who are computers connected to the blockchain and help verify transactions, must upgrade to the most current protocol version. Each node keeps its copy of the blockchain and verifies that new trades do not render its prior records incorrect. A hard fork is a drastic update requiring all network validators to upgrade to the most recent version. Depending on the conditions, a hard fork may declare previously lawful transactions and blocks illegitimate or genuine. It’s incompatible with older versions. A soft fork is a backwards-compatible software upgrade that enables validators in an older version of the blockchain to recognize the current version as valid. This fork is frequently referred to as a “soft fork.”

Because the prior version of the program is incompatible with the new one, a hard fork nearly invariably results in an irreversible chain split. This is the case the majority of the time. Those who owned tokens on the old chain will instantly get passes on the new chain since the histories of both chains are similar. Several potential circumstances might lead to a hard fork. Understanding hard forks

Before grasping the notion of a hard fork, a basic knowledge of blockchain technology is required. A blockchain is a chain composed of data blocks that serve as a digital ledger. In a blockchain, a new data block is not deemed authentic until the network validators have verified the preceding block’s authenticity. The history of the data recorded on the blockchain can be traced back to the network’s first transaction. This is why we can still see the first block on the Bitcoin network.

Also read: NFT stocks and Non-fungible tokens explained for dummies.

A hard fork is essentially a permanent split from the most current blockchain version. Due to the incompatibility of a hard fork with prior versions, the older version will no longer recognize the latest version as valid. This results in a blockchain division since some nodes can no longer reach an agreement, and two different copies of the network are created. This implies that the blockchain will fork, with one path continuing to comply with the restrictions that have been in place up until this point and the other route adhering to a new set of regulations. Due to the numerous chain splits they induce, hard forks are often seen as potentially dangerous.

Suppose communication breaks down between the miners, who are responsible for network security, and the nodes, which are responsible for assisting in verifying transactions. In that case, the network will be less secure and more vulnerable to attack. A 51 percent assault is a prevalent hostile activity against a blockchain. This attack happens when a group of miners obtains more than 51 percent of the computer power required to secure a network and utilizes this processing power to modify the blockchain’s history. Some networks created as a direct result of hard forks have been vulnerable to multiple 51 percent attacks, in which malevolent actors spend twice the same amount of money. In these attacks, the bad actors use the excellent computing capability inside the network to reshuffle the blocks, allowing them to conduct double-spending. Replay attacks are a different kind of vulnerability created by hard forks. This kind of assault is known as a replay attack and occurs when an adversary on a branched network intercepts a transaction and then copies the data on the other chain. When there is no protection against a replay attack in a hard fork, both transactions are considered valid, which implies that someone may transfer another user’s funds without being able to manage them.

What is the cause of a hard fork?

Why do hard forks occur if they can threaten the blockchain’s integrity significantly? The answer is relatively simple: As blockchain technology progresses, it will be necessary to execute network-strengthening upgrades known as hard forks. There are several possible reasons for a hard fork, albeit not all are hazardous.

  • Enhance functionality
  • Address possible safety issues
  • Find a resolution to a controversy that has emerged in the Bitcoin community.

Reversible transactions on the blockchain are possible.

Additionally, accidental hard forks are a possibility. Most of the time, these incidents are swiftly resolved, and individuals who no longer follow the principal blockchain return to it and re-adhere to it after realizing what has transpired. Similarly, individuals who break from the consensus might often re-join the main chain when a hard fork is done, which adds functionality and enhances the network.

The Bitcoin blockchain has been vulnerable to several unintentional hard forks. Typically, they are resolved so quickly that they are scarcely worth noting. When two miners discover the same block nearly simultaneously, this is the most common cause of unintended hard forks. Both parties initially agree that the league is valid and continue mining on separate chains until either they or another miner adds a subsequent block to the network. This occurs due to the diffusion of agreement across the web. This next block will decide which chain will become the longest, necessitating the abandonment of the other chain to retain consensus. Mining Bitcoin on the abandoned chain necessitates mining a network split, so miners have migrated to the chain with the most extended blocks. Because Bitcoin mining on the abandoned chain is no longer profitable. When one of these splits happens, the miner who found the abandoned block has their coin base and reduced transaction fee incentives. However, since the two identified blocks were comparable and included identical transactions, none of the transactions would be ruled invalid. Several unintended hard forks, which resulted in short-chain splits, were caused by errors in the source code. In 2013, for instance, a block was mined and broadcast with a more significant number of total transaction inputs than had previously been witnessed; nonetheless, some nodes elected not to process the block, resulting in a network split. The issue was resolved once several nodes downgraded their software to get everyone to agree on anything and reject this larger block.

This is the contrast between hard and soft forks:

It is not essential to resort to a hard fork to update the underlying software of a coin. Soft forks, however, are seen as a more secure and backwards-compatible approach. This indicates that nodes not upgrading to newer versions will still deem the chain functional. The rules a blockchain must adhere to cannot be adjusted via a soft fork, which permits the inclusion of new features and services. Soft forks are often the preferred option when integrating new features at the programming level. An excellent illustration of understanding the difference between hard and soft forks is the process of installing a more recent version of the operating system on a mobile device or computer. After the upgrade, the new operating system version will be compatible with all the currently installed programs on the device. In this instance, a hard fork would necessitate the transition to an entirely new operating system.

Notable examples of hard forks

In the history of cryptocurrencies, there have been several instances of hard forks, and not all of them happened on the Bitcoin network. The following is a list of some of the most well-known complex divisions in history, along with an explanation of their influence on the industry. These samples are widely available on the internet.

Combining SegWit2x with Bitcoin Cash

The SegWit2x update was proposed to make Bitcoin more scalable. On the cryptocurrency network, it was intended to implement Segregated Witness (SegWit) and increase the maximum block size from one megabyte to two megabytes. The disputed New York Agreement, finalized on May 23, 2017, stipulated the implementation of SegWit2x. SegWit would be implemented by a soft fork, while the block size limit would be implemented by a hard fork later. According to the rules of the agreement, a group of Bitcoin entrepreneurs and miners representing more than 85 percent of the overall hash rate decided Bitcoin Core’s destiny behind closed doors.

The plan was received with hostility since none of the Bitcoin Core developers responsible for Bitcoin’s entire codebase was involved. In addition, it was regarded as a centralizing influence since a group of firms would decide the destiny of the network without miners and nodes reaching an agreement. The agreement was established after years of debate regarding Bitcoin’s scalability. According to proponents of smaller blocks, more giant blocks would make it more challenging to operate a full node, leading to the currency being more centralized. Those who lobbied for larger blocks said that Bitcoin’s growing transaction fees would damage the cryptocurrency’s growth and force some users to leave the network. Soft forks may be triggered by user interaction on the Bitcoin network. This functionality is present. In this case, wallet operators, exchanges, and other organizations that operate full nodes may be able to transition to a new version of the blockchain. A future activation point for this new blockchain version will need miners on a network to “fall in line” and activate the new regulations. If they fail to do so, the network may become more fractured.

To avoid a precedent being set, Bitcoin users at the time organized a movement to adopt a user-activated soft fork in response to a meeting held behind closed doors to determine Bitcoin’s future. They believed that SegWit2 was a controversial hard fork that rendered the network susceptible to a replay attack. They demanded the deployment of Bitcoin Improvement Proposal (BIP) 148, which aimed to install SegWit on the Bitcoin network. They also demanded that SegWit be implemented on the Bitcoin network. It was released to the public in March 2017, and its intended implementation date was August 1. Some proponents of huge blocks decided to divide the Bitcoin blockchain on August 1, 2017, because of concern that SegWit2x would not be effectively deployed and because the community favored SegWit. As a direct result, Bitcoin Cash was created (BCH). Its supporters did not see the split as the formation of a rival network but rather as the continuance of Satoshi Nakamoto’s original notion. The Bitcoin Cash network’s original block size was eight megabytes. However, that amount has subsequently been quadrupled to 32 megabytes. Bitcoin Cash proponents assert that the currency’s low transaction fees will enable it to spread and offer financial services to the unbanked. They anticipate that Bitcoin Core will lose ground due to its increased transaction costs. The Bitcoin Cash hard fork popularised the concept of a hard fork, and in the short period that followed, many other Bitcoin forks were created. This category includes Bitcoin Gold (BTG), Bitcoin Diamond (BCD), and other coins.

The DAO Intrusion

In 2016, the Ethereum network experienced a significant historical hard fork in forming the decentralized autonomous organization (DA). This occurrence occurred in 2016. Ethereum is responsible for operating a variety of smart contracts, which are just pieces of code that automatically execute when a particular set of circumstances is met. These contracts make money programmable and are the primary reason behind decentralized financial applications (DApps). Digital Asset (DA) engaged in one of the first crowdfunding efforts in the cryptocurrency sector and successfully raised $150 million worth of ETH before the 2017 ICO craze. As stated, it was an early form of the decentralized governance models used by DeFi protocols, in which token holders vote on the future course of the protocol. Following its inception, the DAO was compromised, resulting in the loss of $60 million worth of ETH from 11,000 investors. Due to the low price of Ethereum at the time, around 14 percent of all ether in circulation was invested in the DAO. As a consequence, the assault severely eroded the confidence of network users.

As everyone sought to determine what to do, the Ethereum community quickly started discussing the best approach to protect itself against the attack. Initially, Vitalik Buterin, the creator of Ethereum, proposed a soft fork that would ban the attacker’s address and prevent the transfer of funds. The attacker, or someone posing as them, responded to the community by declaring that the money had been obtained in a “legal” and “compliant” way with the terms of the smart contract. They said they were prepared to take legal action against anybody seeking to seize the funds. Tensions rose due to the attacker’s announcement that they would attempt to disrupt smooth fork operations by paying ETH miners with the cash. Again, discussion ensued until a hard fork was proposed as an alternative. The hard fork was implemented in the end, resetting the Ethereum network’s history to a point before the DA attack.

Additionally, the stolen funds were redistributed to a smart contract from which investors may withdraw their assets. Some argued that the move undermined the blockchain’s resilience to censorship and immutability. These individuals assert that investors were bailed out of their investments. Those who shared this opinion rejected the hard fork and pushed for an earlier version of the network, currently known as Ethereum Classic (ETC).

In ABC’s conflict with SV in Hashrates,

The Bitcoin network had a hard split in August of 2017, resulting in the birth of Bitcoin Cash. Due to internal turmoil, the Bitcoin Cash community will eventually split into two different networks. On the one hand, there was Bitcoin Cash ABC (BCHA), a development team seeking to improve the underlying technology. On the other hand, Bitcoin Cash SV (BSV) was an organization supported by Craig Wright, who considers himself “Satoshi Nakamoto.” This group sought to increase the block size from 32 to 128 MB. At block 556,767, the blockchain was split into halves, and the battle to control the BCH ticker symbol began. The miners on both sides used every available resource to obtain a hash rate advantage. Numerous individuals called for an attack on the opposing network that would use 51 percent of its resources and reorganize its blocks to compel its supporters to join their side. Exchanges of cryptocurrencies and other organizations have stated that they intend to assign the BCH ticker to the winning blockchain. Some mining pools opted to commit their whole resource pool to the hash wars, resulting in Bitcoin Cash ABC’s keeping most of the hash rate and effectively repelling any attempts to launch a 51 percent attack. Later, it claimed ownership of the BCH ticker on exchanges and other services, but the competing network chose to use the BSV ticker.