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Hard Forks vs Soft Forks: Benefits to Each for Cryptocurrencies

Wednesday, March 09, 2022 04:45 PM | Neal Farmer
Hard Forks vs Soft Forks: Benefits to Each for Cryptocurrencies

Hard and soft forks are changes to a blockchain network’s protocol that essentially act as an update or upgrade to the latest version of the protocol software.

What are Hard Forks and Soft Forks?

The key difference between the two is that hard forks require all nodes to upgrade to the latest version and can make previously invalid transactions valid and or make previously valid transactions invalid, meanwhile, soft forks require only a majority of users to upgrade and only previously valid transaction blocks are made invalid.

Thus, soft forks result in only one valid blockchain that is backwards-compatible where users adopt the new update. Hard forks alternatively create two valid blockchains that exist side-by-side and software must be upgraded to work by the new protocol.

Reasons for a Fork

Either type of fork may be initiated due to crypto users and developers growing dissatisfied with the existing blockchain or as a way to fund new crypto projects and offerings. In that way, forks act in a similar manner to traditional updates received on a computer or phone.

Large companies such as Microsoft or Apple update software programs to fix problems with previous versions while also typically providing new quality of life changes in addition to big updates such as adding Siri. Hard and soft forks provide updates to the blockchain network and depending on which route the developers pick, users may have to update to the new protocol.

Whether to go with a hard fork or soft fork comes down to what the developers and community are looking for. The most common reason for an update is for increased security as security risks are found in older versions. Another is to reverse transactions such as when Ethereum (ETH) created a hard fork to reverse the hack on the Decentralized Autonomous Organization (DAO). Increased security and reverses are major reasons why most developers today opt to go with hard forks instead of soft forks even when soft forks could theoretically get the job done.

Benefits for Each Variant

Following the DAO hack on the Ethereum network \, the Ethereum community voted to initiate a hard fork to roll back the transactions. The hard fork allowed DAO holders to get their ETH returned and didn’t actually unwind the network’s transaction history but instead relocated funds to a newly formed smart contract. Since hard forks allow for two versions to exist side by side, DAO holders saw their funds return and transactions by the hacker were able to be rolled back. The current Ethereum blockchain exists because of this fork, while Ethereum Classic is the old chain.

Increased security measures, privacy, and reverses are why most major platforms opt for hard forks. Soft forks are still valuable as they require far less computing cost and allow for easier upgrades to implement new functionalities that are also backwards compatible. Nodes don’t have to upgrade to the new protocol and since all of the new protocols in the soft fork follow the old rules, old users accept them. Still, the more miners that update and accept the new rules, the more secure the network will be, thus, hard forks are more secure given that all nodes must upgrade. Additionally, soft forks cannot be reversed by their nature since it accepts only the set of valid blocks to be a subset of what was valid before the update.

Wrapping Up

Hard and soft forks act as an update to a cryptocurrency network in a similar manner to software updates for other technology. Hard forks are most commonly used since they provide increased security and security enhancements are often the focus point of any update to a blockchain network. Hard and soft forks can both be used in updates for new features and implementations with soft forks not requiring all to the update and comes at a lower computer cost. Finally, when transaction reversals are needed due to a security breach, hard forks are required in order to reallocate funds back to their original location.

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