Hard forks and Soft forks
Cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), use decentralized open-source software known as a blockchain. When there is a change to the blockchain’s underlying protocol, it is called a fork. Forks can be initiated by developers or community members and are important upgrades to the network.
In order to implement a fork, the machines that validate transactions on the blockchain, known as node operators, need to upgrade to the latest protocol version. Every node has a copy of the blockchain and ensures that new transactions align with its history.
A hard fork is a significant upgrade that can render previous transactions and blocks valid or invalid. It requires all validators in the network to upgrade to the newer version and is not backward-compatible. On the other hand, a soft fork is a software upgrade that is backward-compatible, meaning validators using the older version still consider the new version valid.
Generally, a hard fork leads to a permanent separation of the blockchain, as the old version becomes incompatible with the new one. Token holders on the old chain are given equivalent tokens on the new chain since they share the same transaction history. Hard forks can occur for various reasons.
What is Hard fork?
In order to grasp the concept of a hard fork, it’s important to first understand blockchain technology. A blockchain functions as a digital ledger composed of blocks of data that are linked together. Each new block is only considered valid once it has been confirmed by network validators. The blockchain retains a complete record of all transactions, allowing us to observe the very first block on the Bitcoin blockchain.
A hard fork occurs when a blockchain permanently diverges from its latest version, resulting in the separation of the blockchain. This separation arises when certain nodes no longer agree on a consensus, causing two separate versions of the network to operate.
Essentially, a hard fork leads to the creation of two paths on the blockchain. One path follows the existing set of rules, while the other path adheres to a new set of rules. However, a hard fork is not compatible with the previous version, meaning that the old version does not consider the new version valid.
Hard forks are often viewed as risky due to the potential for a chain split. When a split occurs between the miners securing the network and the nodes validating transactions, the overall security of the network weakens, making it more susceptible to attacks.
A notorious method of attacking a blockchain is through a 51% attack. This occurs when a group of miners controls more than 51% of the computing power securing the network, allowing them to manipulate the blockchain’s history. Networks resulting from hard forks have faced numerous 51% attacks, where malicious actors exploit their superior computing power to reorganize blocks and engage in double-spending.
Another vulnerability associated with hard forks is replay attacks. These attacks happen when a malicious entity intercepts a transaction on one forked network and replicates it on the other chain. Hard forks without replay attack protection consider both transactions as valid, potentially enabling someone to move another user’s funds without authorization.
Hard forks: Why do it happen?
Despite the potential security risks associated with hard forks, they still occur because they are necessary upgrades to improve the blockchain network as technology advances. Hard forks can happen for various reasons, and not all of them are negative. Here are some common motivations for hard forks:
- Adding functionality: Hard forks can be implemented to introduce new features or capabilities to the blockchain network. These upgrades aim to enhance the functionality and utility of the network.
- Addressing security risks: Sometimes, a hard fork is necessary to rectify known security vulnerabilities or weaknesses in the blockchain. By implementing the upgrade, the network can strengthen its security measures and protect against potential threats.
- Resolving disagreements: Within a cryptocurrency’s community, differences of opinion can arise regarding the direction or governance of the network. A hard fork may be initiated as a means to resolve these disputes by creating a separate chain that follows a different set of rules or principles.
- Reversing transactions: In certain cases, a hard fork is executed to reverse specific transactions or undo undesirable outcomes. This can be done to rectify errors, address fraudulent activities, or mitigate the impact of a compromised network.
Additionally, hard forks can occur accidentally. However, these situations are typically swiftly resolved, and those who were no longer in agreement with the main blockchain realign themselves and adhere to it once they realize what happened. Similarly, hard forks that introduce new functionalities and upgrade the network often provide opportunities for those who deviated from the consensus to rejoin the main chain.
Accidental Hard forks
Accidental hard forks are not uncommon on the Bitcoin blockchain. These forks occur when two miners find the same block around the same time, creating two different chains. However, these forks are usually resolved quickly and without much impact.
When two miners find the same block, they both consider it valid and continue mining on separate chains. The chain that has a subsequent block added to it first becomes the longer chain, while the other one is abandoned to maintain consensus.
Miners prefer to mine on the longest chain because it is more profitable. The abandoned chain becomes unprofitable to mine since it is essentially a fork of the network.
During these forks, the miner who found the abandoned block loses coinbase and transaction fee rewards. However, no transactions are invalidated since both blocks contain the same transactions.
In some cases, accidental hard forks can be caused by code issues. For example, in 2013, a block with more transaction inputs than usual was mined and broadcasted, but some nodes did not process it. This led to a split in the blockchain. The issue was resolved when some nodes downgraded their software to reject this larger block and reach a consensus.
Understanding Hard forks and Soft forks
Hard forks are not the exclusive method for upgrading the software of a cryptocurrency. Soft forks, on the other hand, are considered a safer alternative as they are backward compatible. This means that nodes that do not update to the latest versions can still recognize the chain as valid.
Soft forks enable the addition of new features and functionalities without altering the fundamental rules of the blockchain. These forks are commonly employed to implement enhancements at the programming level.
To better understand the distinction between hard forks and soft forks, it can be likened to a basic operating system upgrade on a mobile device or computer. Following the upgrade, all the applications on the device will remain compatible with the new operating system version. In this analogy, a hard fork would equate to a complete transition to an entirely new operating system.
