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Making The Most of A Fork

The recent BCH fork wars are encouraging investors to learn more about cryptocurrency forks. Without going into what is a blockchain, this articles explains hard forks, soft forks, and their consequences.

Since the blockchain technology is software-based, it frequently requires upgrades. However, relatively few of these proposed upgrades fundamentally alter the protocol and lead to divergent opinions within the community. When they do, a hard fork is imminent.

In centralized systems, governing bodies impose their decisions on a network. In decentralized systems, the individuals tasked with running the network must agree on any proposed changes as they are responsible to keep the network up and running.  Each blockchain has a particular way of managing these ‘suggestions of change.’ Bitcoin Network, for instance, requires proposed changes be submitted via a standardized document known as the Bitcoin’s Improvement Proposal (which explains the change and its effects). Depending on the community’s level of acceptance for a proposed change, developers may implement new rules for the blockchain in two ways – Soft Fork or Hard Fork.

Soft fork In a soft fork, developers release a new client with new rules and all the nodes or miners on the network can download this latest version. These new rules are typically incompatible with the old rules.  As such, a mandatory upgrade of the client is not needed as the new blocks on the soft forked chain still obey the old rules. In addition, the new chain is backward compatible with the prior chain so as not to harm compatibility. Although such a soft fork may result in a temporary split of the chain, the older chain continues to be extended till the new chain gains higher hash power, thus abandoning the older chain altogether. Segregated Witness (SegWit) is a soft fork on Bitcoin. However, this soft work should not be confused with SegWit2x, a canceled hard fork of Bitcoin.

Hard fork In a hard fork, ...

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