You Need to Know About Forks, Hard Forks, and Soft Forks

soft fork vs hard fork

Smart contracts are digitalised contracts that are executed on the blockchain between different parties. SINGAPORE — In the first part of Don’t skip crypto basics before you invest we covered elementary, but technical jargon related to cryptocurrency. While commonly referred to as a fork, it appears the new Luna plan is not exactly a fork of the existing Terra blockchain. Of course, this is just one proposal, with many questioning whether holders would just dump their tokens as soon as a new chain launches. Binance CEO CZ has also criticised the idea of a fork, explaining it doesn’t create value for the Terra ecosystem.

These will charge a percentage to complete the claim on your behalf, but make sure that you verify them as much as you can – social proof and expert advice are good ways to sort the wheat from the chaff. There are many more; some have passed the snapshot block, but none of these have yet gone live.

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There was disagreement between the nodes in the network if a rule change should happen or not. That is why, users who defended it caused a chain split, also known as a hard fork. This way people willing to use the old rules, continued the Bitcoin’s original chain by adding new blocs and the others started a filling block to the newly established Bitcoin Cash blockchain. Users willing to use both currencies received their BTC amount also in the BCH wallet. A hard fork occurs when a change to the code renders all existing protocols invalid. Hard forks create a completely new bitcoin currency and reject all transactions from the legacy version, becoming incompatible with the original blockchain. A hard fork, on the other hand, is a change in the block chain protocol that breaks compatibility with previous versions.

  • A hard fork and soft fork can occur on any blockchain, initiated by members of the community or the developers.
  • When a change to the protocol is enacted that is an update to the existing code but doesn’t create a new coin, it is known as a soft fork.
  • It was introduced in 2011 on the Bitcointalk forum to solve the problems of the current most popular algorithm in use – Proof of Work.
  • A reference to ‘proof-of-work’ is a reference to a type of consensus mechanism that cryptocurrencies use to verify new transactions and to create new tokens within the blockchain network.
  • It offers the industry’s largest blockchain coverage, supporting over 1,500 cryptocurrencies and protocols including Bitcoin, Ethereum, Hyperledger, and many more.
  • The attack would have been a serious financial blow to the Ethereum network as over 14% of ETH in circulation then was invested in the project.

In a planned hard fork, participants will voluntarily upgrade their software to follow the new rules, leaving the old chain behind. Those who don’t update are left mining the old chain, which very few people will be using. A hard fork is when the fork is incompatible with older versions of the software. This was what happened with Bitcoin and Bitcoin Cash, but there have been other forks, and there may be more in the future too. This is usually a radical change to a network’s protocol that makes previously invalid blocks and transactions valid, or vice-versa. In a hard fork, all nodes or users must upgrade to the latest version of the protocol software. I would like to say a few words on one of the most well-established Bitcoin forks ever created and explain a bit how and why it occurred.

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If you plan to invest during a transition period, your options are a little easier. Holders of the crypto may disagree with each other, and the price of the crypto may become highly volatile.

soft fork vs hard fork

Unlike the rest of the financial world, cryptocurrency is a much less centralised and regulated industry. The open source what is a hard fork nature of the platform and tools such as forks are instrumental in the growth and expansion of the cryptocurrency world.


Hard forks, soft forks, and the best methods – most foolproof, least polarizing have all been discussed and the pros and cons debated by experts. For example, when the Bitcoin community felt the need to alter the signature validation requirements during 2015, the need led to the creation of a soft fork.

The fork is the process of copying and improving on an existing protocol, similar to the traditional software upgrades. There is no immediate tax payable on the new coins received on a hard fork, and there will only be capital gains tax payable once they are sold. The base cost for the new coin will be a proportion of the base cost of the original coin forked from, which will be calculated using open market value on the date the coin was received. Cryptocurrency mining is the process in which transactions between users are verified and added to the blockchain public ledger. If more than 50% of miners upgrade to the latest version, then the older version will become redundant and vice versa.

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This would be called Terra, while the original chain would be Terra Classic . TerraForm Labs CEO Do Kwon has proposed a Terra Luna hard fork to rebuild the ecosystem.

What’s the highest XRP can go?

The digital asset is capped at 100,000,000,000 XRP.

Also, there have been some proposed forks , but they have been canceled before the fork could take place. Before going any further, businesses and entrepreneurs should understand how cryptocurrencies are taxed, the tax guidance from HMRC, and key developments in the crypto tools that may impact how you invest.

Author: William Edwards

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