Hard Fork vs Soft Fork

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Author: Mr. KingsHOK
An accountant who turned cryptopreneur to pursue my interest in crypto and decentralized finance. Let me show you how to invest safely in the space with my experience over the years.

In the cryptocurrency world, you might have heard of different terms and lingo like; Lambos, FOMO, FUD, moon and so many others.

In this content, we are going to discuss about the more serious one, you need to know, especially, if you’re among people that likes to earn passive income with different cryptocurrency projects.

The terminologies am going to discuss right here is popularly known as Hard Fork or Soft Fork.

What is cryptocurrency fork?

Crypto Fork

Cryptocurrency forks are frequently a result of protocol disagreements within a community, but can also be an effort to revert the blockchain history to a point prior to a hack, or malicious bug.

In the normally technology world, this process is entirely known as reverting a process with Backward Compatibility to a state where a problem occurred, so it can all be avoided.

The most common forks occur when a blockchain’s most influential stakeholders (mainly miners and developers) cannot agree on updates to the protocol.

The infamous example of fork was when Bitcoin and Bitcoin Cash split in 2017. What resulted was two blockchains competing for the same Bitcoin brand, which effectively split the community into two distinct ideologies.

And if everyone in a network is on-board with a fork, they are said to be in “consensus” – Ethereum constantinople hard fork is a great example of this type of crypto fork.

The entire community was on-board with the changes, because they believe the upgrade will have a positive effect on the blockchain network. The core developers will add in a number of upgrades on February 27th, 2019.

Moreover, these types of forks are called hard and soft forks. The both of them have different implications that are important to understand.

Soft Fork vs Hard Fork

Hard Fork Vs. Soft Fork G

Soft fork: This type of fork occurs when the code is updated, but nodes running the older version can still approve new blocks.

Therefore, instead of two different blockchains (which creates a whole new cryptocurrency) being created like that of hard fork, new blocks are added to the blockchain and approved by the older nodes.

Hard fork: A permanent split from previous version of the blockchain, where nodes running older version will no longer accept transactions created on the new version.

This creates two different versions of the blockchain, with one version continuing to run on the old blockchain, and one version operating on the new path.

A hard fork is essentially the creation of a new cryptocurrency, with holders of the original currency during the time of the fork getting an equal amount of the new currency.

To see a list of all the cryptocurrency forks (i.e. hard fork and soft fork) that happened since 2017, you can check the fork list here.

What happens during forking?

When Bitcoin was first created, its genesis block was block #1. However, when Bitcoin Cash was created, it’s genesis block was Bitcoin’s 478,558 block.

This is because, Bitcoin uses an open-source technology allowing others to copy its code, and then make adjustments where they like. And to publish those changes, a new coin would have to be made through the hard fork process.

When a hard fork occurs, all of the previous data transactions and the number of coins mined up to that block also carries over onto the new blockchain for the split coin.

This is more like copy, edit and paste kind of process in the cryptocurrency blockchain.

This means that as soon as Bitcoin Cash was created, it already had 16.4+ coins and a long history to view on its blockchain (although that was technically Bitcoin’s history).

Nowadays, there’s many differences between Bitcoin and Bitcoin Cash and the features each one promotes. However, the important take away is that Bitcoin Cash used Bitcoin’s concept as a base to create it’s own.

Regardless of which side you are on, at the time the hard fork took place, anyone HODLing Bitcoin was rewarded with Bitcoin Cash. More on this concept (known as airdrops) soon.

Bitcoin vs Bitcoin Cash fork

Btc Vs Bch Fork

This type of activity is welcome in the Bitcoin blockchain by being built on open-source software. Though, there’s been tug of war going on between Bitcoin developers since 2017, which was the main driving force behind hard fork, which led to creation of Bitcoin Cash (BCH).

The main driving force that caused this war was an argument of how large, or small each block in bitcoin’s blockchain should be.

Bitcoin core developers believed that increasing bitcoin’s block size (from 1 Mb to 2 Mb) was well enough, while others argued that it was too small and wanted to expand it to 8 Mb, so each block could record more transactions on the blockchain.

Ethereum vs Ethereum Classic fork

Ethvsetc Fork

In June of 2016, there was a hack on the Ethereum DAO in which a third of supply was stolen. Technically, this was not the fault of Ethereum blockchain, it caused a huge split in the community.

Should a blockchain rollback hacks? Or does this violate the integrity and decentralization of the chain?

The Ethereum community concluded that it should be rolled back in the form of a hard fork. The Ethereum Classic community argued that whatever happens, and no blockchains can be reversed or rolled back.

As fundamental tension goes on between these two groups that surrounds this hack, ETH and ETC have slowly diverged their separate ways and now have even more differences, and that is exactly what brings me to the next point – which is airdrop.

What is crypto airdrop?

cryptocurrency airdrop is a process in which the new split coin gets distributed to the public for creating awareness for the new project.

If you’re holding a crypto-coin on an exchange, they’ll usually determine who’ll receive new coins and what amount the person will receive. If you have cryptocurrency in your own wallet, there are a few steps you’ll have to make.

Every user’s wallet or public key is snapshot-ed at a specific time, revealing the amount of the original coins being HODLed by each user.

But beware of scam airdrops

Scammers with fake crypto projects have used airdrops as a marketing scheme with sole intention of “pumping and dumping.”

This is a notorious term in the crypto world. Hype and “FOMO” are created throughout the community via news and certain inside scoops like a “massive” lucrative airdrop that will take place but ONLY if you hodl a certain amount of coins.

Unfortunately, again, only to realize that once the masses bought into the coin, rising it price, everyone else who got in at a lower price, usually the criminals behind the project, then dumped their coins.

This has been known to cause a rapid and massive sell-off that causes the price per coin to plummet, leaving those who bought in after the airdrop announcement at a significant financial loss.

Finally on crypto fork

Now that you’ve known how cryptocurrency hard fork and soft fork happens, you should be able to get yourself ready and safe to partake in the next forking.

But mind you that you may not be able to receive the next cryptocurrency airdrop or forked coins, if you are not using offline crypto wallet.

If you have enough money in getting a secure cryptocurrency wallet, i would suggest you get a hardware wallet as they are known to be far more secure than software wallets.