The terms soft forks and hard forks are quite usual in the world of cryptocurrencies. Both of them have always been hot topics of debates among several delegates belonging to the industry. Apart from them, crypto traders fear that a particular fork would bring more uncertainty in the market. Without mattering about people, these forks occurred, and the first-ever fork that happened was on Bitcoin. These forks are generally the cryptocurrency program updates occurring from time to time. In this guide, we will learn about the soft fork and hard fork in detail.
Soft Fork And Hard Fork Explained!
Nowadays, you will find people, asking “what is a soft fork and hard fork in the blockchain?” So, let’s first talk about the soft fork. Simply put, a soft fork is a blockchain protocol update favoring the backward compatibility. By doing some modifications in the actual code, the blockchain protocol updates itself to the older versions of systems connected in the decentralized network. This fork works well for consensus blockchain protocol. A significant example of a soft fork is Segwit adoption by the Bitcoin community, the largest crypto community. The community desired to boost Bitcoin transaction speed. For that, it freed some Bitcoin block space to include larger transaction blocks. The solution came to be known as Segregated Witness or Segwit.
This one is just opposite to the soft fork. Here, the modification in the code requires all the systems connected in the blockchain network to change according to the new update. We can also say that a hard fork is a backward-incompatible approach. An example of a hard fork is Bitcoin Cash, forked from Bitcoin. Some community members were not happy with the SegWit update because the growth in the number of transactions would not do any good. Therefore, they all decided to perform a hard fork of Bitcoin in which the size of each block will grow from 1 MB to 8 MB. Because this hard fork lacked universal consensus for adoption, it ended up as a division into two separate branches. The one working on a re-branded opportunity became Bitcoin Cash, while the second branch was the original cryptocurrency.
Why Forks Matter?
Many experts believe hard fork calls for an uncertain event for cryptos. Quite often, the community gets divided over a particular issue. A factor that influences the profits made is the amount of stake you have in the cryptocurrency. In case you are getting the forked coin without any cost, the chances are you will keep them with you or raise the investments. However, several crypto whales would be doing the same thing, which will bring more challenges to you. So, in case you find yourself not reacting quickly, it would be better to sell off before crypto whales. With this, you will earn profits from crypto whales trying to increase their investments. Also, you can go for a larger share to overcome any inevitable market crash.
In this article, we have discussed the soft fork and hard fork. A hard fork in blockchain gives rise to a new cryptocurrency, while a soft fork forms a minor backward-compatibility update. Forks are exceptional events, and they can be fruitful or fruitless, depending on the quality of decisions made from the concerned crypto community. Until now, Bitcoin has gone through some significant hard forks and soft forks. However, the second-largest crypto, Ethereum, has also seen some minor changes. Just like it happens in this world when new demands arise, things have to be changed. New digital assets will keep appearing to fulfill many intense shortcomings in the crypto world.