To most people “hard forks” vs “soft forks” seems like a debate involving cutlery experts. But when it comes to cryptocurrencies such as discussion is no joke and involves the beating heart of the cryptoverse itself: the software used to create the blockchain. Forks are the result of a split in the blockchain, but not all splits create forks. By that, we mean that a split caused by the simultaneous discovery of blocks by different miners is not a true “fork” but a temporary split that will right itself, as we will see. The only type of split that creates true “forks” is a change in the underlying software protocols instituted by the developers. This type of split is permanent and leads to subsequent hard forks and soft forks. Below we’ll take a closer look at what causes these splits as well as the difference between hard and soft forks.
Before we get into what a fork is we need to touch on what a blockchain is. The blockchain that underlies Bitcoin is a continuously expanding distributed ledger composed of blocks of data. Each block is a verified record of the most recent transactions that are added to the chain of information regarding Bitcoin in chronological order. In this way, digital currency transactions are all accounted for and a single, verifiable "truth" is created regarding the currency which, among other things, negates the need for standard bookkeeping.
As we stated above, there are two types of splits. One is temporary and self-correcting while the other is permanent and leads to hard or soft forks in the blockchain structure. Here's a bit more about the different types of splits:
Now let’s take a closer look at hard and soft forks.
A soft fork is created when an upgrade is instituted that is compatible with older versions of the software. When such an upgrade occurs even participants who were slow to adopt it will be able to continue to participate in verifying and validating transactions.
The only aside here is that those who have not upgraded their software will not be able to enjoy any improved functionality. Other than that soft forks are relatively easy to implement and cause the least disruption to the network. Soft forks have a way of working themselves out as well because eventually, the people who have not upgraded will encounter functional limitations that should prompt them to upgrade. The process of bringing everyone into the upgraded fold, however, is no doubt a gradual one.
A hard fork occurs when a software upgrade is not compatible with old versions of the software. When this type of upgrade happens, it is incumbent upon all participants to upgrade their software asap to continue participating fully in network activities. Those who for whatever reason do not upgrade will find themselves in a kind of limbo outside of the upgraded network structure unable to validate new transactions, but still able to mine the old chain which will continue to exist concurrently alongside the upgraded chain (as long as there are participants). There are two different types of hard forks: planned and contentious. Let's look at them a little closer.
Bitcoin Cash, however, was not the only new currency derived from Bitcoin code. Indeed, the fact that the Bitcoin protocol is open source means anyone with the requisite skills can change it to facilitate the creation of a new coin. And there are many good reasons to do so. Primary among them is that it's just easier to modify the already existing Bitcoin code then it is to build a new currency from scratch.
Also, each contentious fork has the built-in advantage of carrying the Bitcoin name, which in theory gives it the kind of instant market viability, an entirely new currency simply wouldn't have.
In a nutshell, soft forks enable a slow, painless transition to the upgraded network while hard forks ensure the continued health of the underlying code base while also allowing the birth of entirely new currencies that expand the potential of the crypto economy going forward.