What Is A Blockchain Fork? Soft Vs Hard Forks: Explained
|— A fork is an update to a blockchain and there are two types of forks: soft forks which are backwards-compatible, and hard forks which are not.|
— In the case of a hard fork, a new blockchain with the same transaction history is created.
— If a hard fork is not agreed upon, it could lead to the creation of a new cryptocurrency
Cryptocurrencies use blockchain technology as a public ledger for all transactions in its history. While this cannot be altered, the rules which a specific blockchain operates by can to an extent. These updates, known as blockchain forks, can play an important role moving forward. Let’s dive into it.
What is a Blockchain Fork?
Similar to most information technology, blockchains can receive certain updates. These updates are referred to as forks. They’re similar to how you need to update some computer programs at times – this is the cryptocurrency equivalent of it.
An update can be rather minor, or be a large one with significant changes to how a cryptocurrency operates. For example, back in 2017 the Bitcoin underwent a blockchain fork introducing SegWit to the network. This has since become the predominant address format used for managing BTC. The integration of Taproot in 2021 was another blockchain fork.
Put simply, blockchain forks can help cryptocurrencies provide more flexibility. Plus, they allow the implementation of patches for security, usability, scalability and so forth. A big difference between regular networks and blockchains is that there’s not just a single governing body. Instead, everyone participating in the network must agree with the proposed fork. In other words, they must reach consensus.
Hard Forks vs Soft Forks For Blockchain
You may have heard the term soft fork and hard fork before. They might appear completely the same to the untrained eye. However, there’s quite a difference between them.
Unique Features of Soft Forks
Soft forks are quite a bit easier. These updates are backwards compatible. This means that the blockchain itself does not need to be changed in order for these updates to take place. These forks also have little to no impact on the user. It’s like having an update for Microsoft Word, rather than needing to install a brand-new version of the program.
Unique Features of Hard Forks
On the contrary, hard forks are more like when you need to install an entirely new Microsoft Word program to benefit from new features. Unlike soft forks, hard forks are not backwards compatible. The update that a hard fork brings conflict with the current state of the blockchain. Since blockchains are immutable, hard forks involve creating an entirely new blockchain, one that imports the same transaction history. The impact here is clearly much larger and can require quite a bit of development from wallet providers. Fortunately, as a user, you would normally not be the one needing to do this.
Both in the end have the same effect: bringing an update to the network which could add new features or rules to it. However, for hard forks it can be a different story if opinions on the proposed update are divided.
What Happens When a Blockchain Network Forks?
In the beginning, we discussed that a successful fork must reach consensus in order for it to be implemented. This is especially the case for hard forks, since they create new blockchains. If everyone involved in the network agrees on the blockchain’s fork, it means they’ll all start offering their services to the newly created blockchain. As a user, any wallet provider will update its software to link to the newly created blockchain for you, meaning you wouldn’t need to do anything. Your coins would be on the new blockchain, and the old one will no longer be used as no one supports it.
Forking Blockchains Without Consensus
This isn’t always the case though. Over the course of Bitcoin’s history, there have been a few forks where consensus couldn’t be reached. There were parties that disagreed with the fork, while a large part was still in favor. The best known example is the proposed Bitcoin “BIP91” fork. There was a pretty big party that decided not to support this fork. So what happens when a hard fork is not agreed upon?
The network splits. Two different, viable chains are created. This includes the old, existing chain and the new updated chain. In the case of the BIP91 fork, the majority of the miners chose to support the update, whose chain continued to be known as Bitcoin. The other chain still had quite a lot of support as well and brought a brand-new cryptocurrency to the market: Bitcoin Cash. This meant that someone who owned one 2 Bitcoin (BTC) before the split now owned both 2 Bitcoin (BTC) and 2 Bitcoin Cash (BCH).
While it might seem like you’ve just been given a new cryptocurrency for free, this does come at a cost. It might come with a decrease in network stability – thus security – since the network becomes smaller due to the split.
Navigating Blockchain Forks With Your Ledger
Whenever a blockchain undergoes a fork, it will be up to Ledger to implement necessary changes for our applications and in Ledger Live. If there is a blockchain fork on a network you use; don’t worry. You don’t need to do a thing – Ledger will take the necessary preparations. At any rate, we strongly recommend everyone to stay updated on blockchain forks. Plus, if you need more information, feel free to contact the Ledger Customer service team for any questions relating to an upcoming fork.
As for newly created coins through blockchain forks: Ledger supports quite a few of them, Bitcoin Cash being a good example. At Ledger, we deeply care about the security of your cryptocurrencies. We are what we like to call “crypto agnostic”. Our decision to not support a blockchain fork would never be based on our opinion – only ever on technical analysis. That’s because certain blockchain forks could allow the user to fall victim to theft due to a lack of replay protection, for example.