A fork is a very common thing in open source software. Therefore, they are also common with cryptocurrencies. But what are hard and soft forks? And how do they affect crypto?
A soft fork is a small change in the blockchain protocol of a crypto. While this change can still have a significant impact, it is a simple and small change in the code. It is more like an update rather than a radical change. Once the code is implemented it is propagated in the network. Should the mining nodes in the network accept the new version they reach consensus.
If the miners reject the proposed soft fork the changes won’t get implemented and the network will simply use the same code as before the proposal. In both cases there is no action required from the users, because they don’t get involved in these decisions.
It is worth to note that during the time where a proposal is trying to reach consensus there is a small chain split. Meaning that the old and the new version of the blockchain coexist at the same time. Should the miners refuse they fall back to the old version and the new one is discarded and vice versa if they should reach consensus.
Another advantage is that all nodes running old software are still compatible with the whole network after the update. Meaning that they cannot take advantage from it, but can still send and receive transactions.
A hard fork on the other hand is quite a change, because if no consensus is reached the blockchain itself is forked away. Meaning that a radical chain split is happening. Miners and all other nodes have to decide which version of the blockchain they are going to support in future. Unlike a soft fork a hard fork is not backwards compatible.
Since a hard fork is very drastic step developers are more likely to choose a soft fork to resolve issues or implement new features. However, in some cases a hard fork is the only technical solution to achieve the desired changes. One very common example is the change of a blockchains algorithm. Monero in one example, because it uses hard forks on a regular basis to become more resilient to ASIC miners by changing its mining algorithm with hard forks.
In other cases, a hard fork not only splits the chain, but the whole community and the crypto. The most prominent example is the split between Bitcoin (BTC) and Bitcoin Cash (BCH) in 2017. The differences between people involved led to BCH as a new crypto. In this historic case users who owned BTC received the same amount of BCH and weren’t forced to take sides, but rather held two different coins.