Cryptocurrency Forks Explained: Hard Fork Vs. Soft Fork

As a cryptocurrency user and investor, one important topic that will always remain and constantly crawl up occasionally is cryptocurrency forks. These happen constantly, but do you know what cryptocurrency is, and are you positioned to profit from forks?

In this article, we will be explaining what a fork is in cryptocurrency, the types of cryptocurrency forks, a look at previous successful and failed forks, and how you can position yourself to take advantage of cryptocurrency forks when they happen.

So, without wasting any time, let’s get started already.


What is a Fork in Cryptocurrency?

Don’t get it twisted; the fork we are talking about is not your usual fork spoon with two to four teeth you use for eating.

In cryptocurrency, a fork refers to a significant change in the software architecture of a blockchain, which may or may not lead to a split of the network.

You can compare a fork to a coup and a coup d’état. A coup usually resorts to using peaceful means of exiting an incumbent leader, while a coup d’état resorts to violence in ousting an incumbent from office.

In simple language, a fork is a fancy name for blockchain software or a protocol upgrade.

The outcome of a cryptocurrency fork and the means used in effecting it determines what kind of fork we would call it.


Types of Cryptocurrency Forks

There are two (2) types of cryptocurrency forks:

  1. Hard Fork
  2. Soft Fork


What is a Cryptocurrency Hard Fork?

As stated earlier, forks are significant changes to a blockchain code. A hard fork leads to the blockchain being split into two different networks that will coexist independently even though they’re both of the same originating code.

A cryptocurrency hard fork refers to any blockchain protocol change or software upgrade that renders the old rules obsolete and switches to a new codebase.

Usually, this form of fork stems from disagreements among critical blockchain community members who fail to come to a consensus on which specific direction the network should go.

In the end, one faction of the community forces to implement a controversial change, which the other faction will not approve of and usually will elect to run with the previous code before the change.

This leads to an old and a new version of the identical blockchain that will henceforth operate independently of each other and even pursue significantly different goals and development programs in the future.

Forks create an alternate version of the blockchain, leaving two blockchains to run simultaneously on different parts of the network, depending on which type of fork is happening.

It is important to note once a cryptocurrency hard fork is successfully implemented, a rollback to the previous blockchain or system is no longer possible.

More so, not every hard fork will lead to a blockchain split into two. When the community unanimously agrees to make the significant software upgrade, the old blockchain will be dropped and die a natural death as members move on with the new code envisaged with Ethereum migration to Ethereum (ETH) 2.0.


What is a Cryptocurrency Soft Fork?

Cryptocurrency soft forks are less disruptive network upgrades or changes in the code base of a blockchain, similar to fixing patches and bugs in regular software.

These changes or everyday network upgrades can be reversed or rolled back by a majority decision without severe implications to the network’s stability and security.

Usually, soft forks are optional upgrades with possibly multiple alternatives; in contrast, a hard fork is usually a necessary change that, once made, will no longer be compatible with existing code and system, thus leading to the old code base being discarded in favor of the shining new one or some disgruntled community members taking over the old blockchain and run their coin on it.

In a soft fork, the new rules do not make the old rules obsolete. It only polishes and refines them or removes bugs.


Examples of Past Cryptocurrency Forks

Below are a few examples of past cryptocurrency forks for a better understanding.

  • Bitcoin Cash Fork of Bitcoin

A few community members led by Roger Ver implemented an aggressive upgrade of the Bitcoin Code on 15 November 2018, leading to the creation of a new Bitcoin network and coin called Bitcoin Cash (BCH). This was the first-ever Bitcoin hard fork and the beginning of the forking business.


  • Bitcoin Satoshi Vision Fork of Bitcoin Cash

Craig Wright, the faketoshi (Fake Satoshi), was a part of the Bitcoin Cash community but fell out with the leadership and decided to fork Bitcoin Cash to create his “real bitcoin” called Bitcoin Satoshi Vision (BSV), which was implemented on 15 November 2018. Bitcoin Gold and Bitcoin Diamond are similar Forks of Bitcoin. These coins were a split from the original Bitcoin code.


  • Ethereum Classic (ETC) Fork of Ethereum (ETH)

On 20 July 2016, Ethereum Classic was forked from Ethereum as a result of an irregular change to the codebase implemented by the Ethereum Foundation in an attempt to recover $50 million in funds stolen by hackers from the Decentralized Autonomous Organization (DOA) System.


  • Ethereum Constantinople Hard Fork of Ethereum

This is a perfect example of a hard fork that doesn’t necessarily lead to a network split. Ethereum Constantinople’s hard fork was implemented on 28 February 2019, featuring improvements to network efficiency and fee structure, and paved the way to developing and launching the much-anticipated Ethereum 2.0 in 2020.


  • Hive Hard Fork of Steem Blockchain

A more recent and prominent hard fork is the fork of the Steem blockchain to form Hive Blockchain.


What is the Difference Between a Hard Fork and a Soft Fork

The main difference between a cryptocurrency hard fork and a soft fork is backward compatibility.

  • A hard fork is a permanent change to the blockchain structure and is not backward compatible. On the other hand, a soft fork is a change that is compatible with the existing blockchain.
  • Hard forks are radical and permanent changes to the blockchain rules, whereas soft forks are cosmetic changes to implement valuable improvements to the code base.
  • Most hard forks lead to a split of the parent blockchain into two. Soft forks never result in a split but rather an improved network.
  • Hard forks are irreversible and non-backward compatible. Soft forks are backward compatible.


How to Make Money Taking Advantage of Cryptocurrency Hard Forks

Every hard fork leading to the creation of two blockchains leads to the existence of two separate coins. Members of the community and investors who hold some of the old coins are automatically gifted the new coin created out of the old coins.

Thus, if you hold 100 Steem coins before the fork to Hive Blockchain, you will automatically receive an airdrop of 100 Hive tokens -just like that.


Free money, right? YES!

More so, savvy investors don’t just make money off the airdrop of new coins resulting from a fork.

Usually, when a fork is announced, people rush to buy the cryptocurrency involved to receive the extra coins and possibly double their crypto wealth.

As a result of this sudden demand for cryptocurrency, the prices usually go north. Take Steem for an example, which went up by more than 200% in about 24 hours after the news of the proposed fork was released.

You can leverage this information to buy in early and sell your holdings immediately after the fork. This is because once the fork is done and everyone gets the new and free cryptocurrency, the price of the original coin almost always falls drastically due to people cashing out.

Therefore, you can end up with the extra new coin and a good profit from selling the old coin –assuming you get the timing right. You can only get the timing right if you get the correct information at the right time.