When you think of a fork, the image of poking at a tasty steak probably quickly comes to mind. In the crypto world, however, the terms "soft fork" and "hard fork" refer to two different ways a blockchain network can evolve or change. Exactly how this 'fork' works? Anycoin Direct explains.
Anycoin Direct is one of Holland's oldest crypto exchanges operating throughout Europe. Its goal? To make cryptocurrency accessible to everyone. The company first likes to take you back a bit to the basics: ''A blockchain is a chain of blocks attached to each other in a fixed order. You can best imagine this as blocks that are directly connected to each other with an intermediate line. All these blocks together make up the blockchain. Each block contains information that is stored in a distributed database.''
Thus, a hard fork and a soft fork are two ways to make changes to a blockchain. A hard fork involves drastic changes and results in two separate blockchains that are not backward compatible. On the other hand, a soft fork is a more subtle modification that remains compatible with older software, allowing security enhancements or new features to be added, for example.
According to Anycoin, the reasons behind forks can be diverse: ''Sometimes communities want to add new features or fix problems. In other cases, there may be disagreements about the direction of the network, which can lead to a hard fork in which a new cryptocurrency is created.''
One example is Bitcoin's protocol, which gave a maximum size to a block of 1 MB. When an update also allowed larger blocks, miners who did not have this update installed could no longer see these blocks. According to protocol, these blocks were therefore impossible. So there were only two options: all download the upgrade or a hard fork. The latter followed and Bitcoin Cash was born. Bitcoin continued through SegWit and the Lightning Network to address scalability. This battle was so fierce that it was even given a name: The Blocksize Wars.
According to Anycoin, as soon as it becomes clear that a hard fork is going to take place you will have to be wary of trading in such a coin until the hard fork is complete. Thus, you may well be exchanging coins through a transaction with new rules and those rules will go with a completely new blockchain, from which that particular coin will be worth much less.
Start trading yourself? Check out the Anycoin Direct website here.
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