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Cryptocurrency forks – What is a Hard and Soft Fork?

Cryptocurrency forks are one of the many cryptocurrency topics you will see.

  • But what are cryptocurrency forks?
  • Why is there so much talk about them?
  • What is the difference between a hard fork and a soft fork?

Most posts you will find about forks on the internet will be advanced or high-tech info to read and weed through.
We will try to put it into something that should be easier to understand the difference between the 2 types of forks and what they are.

An Analogy for cryptocurrency forks – A Family with a son and daughter

So let’s say we have a family and we name them Bitcoin, husband and wife have 2 beautiful children John Bitcoin & Jane Bitcoin.

They reach a certain age and get married;

  • John Bitcoin gets married to a Lisa Update, his wife Lisa takes the husband’s family name and gets from now on named Lisa Bitcoin. So the Bitcoin family name lives further.
  • Jane Bitcoin gets married to a Roger Bitcoin Cash, as in our modern world she takes her husband’s family name and from now on she is known as Jane Bitcoin Cash. The family name is no more Bitcoin.

And this will go on and on and on… There will be grandchildren and those will keep the family name or they won’t.

So the analogy is here that John Bitcoin is a soft fork as the family name doesn’t change, but for Lisa Bitcoin, it becomes a hard fork as she changes her family name to Bitcoin Cash.

You might also like to read “What is a fork and TPS (Transactions per second) in crypto”

This representation is not perfect but it fits more or less with what forks are.

Forks in cryptocurrency explained

A “fork,” is often an open-source code modification of the rules a coin holds though, not all forks are open-source some cryptos aren’t and code isn’t publicly available.

Usually, the programming code is similar to the original, but with modifications, and the two comfortably co-exist. With cryptocurrencies, it is used to implement an important rules update, or to create a new coin/token with almost similar but not exactly the same characteristics as the original coin/token.

The majority of cryptocurrency forks are due to disagreements over rules/characteristics, or to say someone’s personal interests.

One important thing to remember is that the record of transactions (ledger) on each of the chains (old and new) is identical prior to the split.

A basic understanding of a soft fork

In this example visual presentation, we see a  soft fork that happens at block 700. The majority of the miners support the stronger chain of blocks following both the new and old rules. If the two sides of mining groups reach an agreement, the new rules are upgraded across the blockchain network.

Any non-upgraded or updated nodes who are still mining are wasting their time and energy. Miners get back together friendly, and everything works as before until the next upgrade/update so a soft fork happened no divorce/split from the original blockchain.

Example:

  • Bitcoin the segregated-witness (SegWit) upgrade was a soft fork.
  • A weird one: The 21 million coin supply cap bug.  The software was upgraded in April 2014 to fix this bug, but this new rule does not apply until the 23rd century, the year 2263 approx.
An example of a soft fork
An example of a soft fork

A basic understanding of a hard fork

When the cryptocurrency reaches a certain block number as in the above example, block 999. The blockchain splits in two. Some miners decide to support the original set of rules, while other miners support the new fork.

Each group then starts adding new blocks to the fork it supports. At this point, both blockchains are incompatible with each other, and a hard fork happened.

With a hard fork, you could see it as the nodes that go through a divorce and don’t ever interact with each other again. They don’t even acknowledge the nodes or transactions on the old blockchain.

Example: The BTC hard fork that created Litecoin

Examples of hard forks

  • Bitcoin splits and a new chain is created called Bitcoin Cash
  • Zcash splits and a new cryptocurrency called Ycash sees the daylight
  • One of the best known Bitcoin hard forks is the coin created by Charlie Lee, Litecoin
An example of a hard fork
An example of a hard fork
Free money on cryptocurrency forks

Because the new fork is based on the original blockchain of that particular cryptocurrency, everything that happened on the blockchain before also happened on the fork.

The creators of the new chain take a “snapshot” of the ledger at the block the fork happened and create a duplicate copy of the blockchain. That means if you had a certain amount of cryptocurrencies before the fork, you should get the same amount of the new coin. But that isn’t as easy as it sounds.

To get free coins from a hard fork, you need to have the cryptocurrency on a wallet, exchange that supports the fork before the block at which the hard fork has been done. Having a crypto wallet where you own the private keys is the best option as then you are sure that you can get the free coins. Exchanges and Hosted wallets don’t give all the forked coins to their customers, they pocket most for themself to fund their operating costs.

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