Hard and Soft Forks

The world of cryptocurrency is unquestionably the wild west of high finance. As the most popular crypto projects gain popularity, the governance of these projects becomes more specified to the goals which these projects are aiming to achieve. Sometimes however, the governors of these cryptocurrency coins and tokens find themselves in a state of disagreement whenever radical changes to the network are proposed. These changes are referred to as “Forks.” They can come in the form of both “hard forks” and “soft forks.” In this article, we will be looking at the difference between hard and soft forks. We will also discuss why cryptocurrencies sometimes fork, as they evolve.

Why the Fork

Cryptocurrency forking represents a clash between how a cryptocurrency is currently governed, compared to how it could be governed in the future. as cryptocurrency grows, the mining and validating industry which backs cryptocurrency will tend to have varying opinions regarding how the tokenomics and overall mechanics of the cryptocurrencies in question work. If certain aspects within the tokenomic or governance parameters of a decentralized cryptocurrency project come into question – or even need to be updated to facilitate greater functionality and/or efficiency – the developers create a “fork” of the cryptocurrency in question. When a fork of a cryptocurrency is created, the majority of either miners or validators need to come to a consensus, when determining which network changes they support, versus which protocols they are willing to dismiss.

Forks in Proof of Work vs Proof of Stake Cryptocurrencies

Proof of Work cryptocurrencies often consolidate forks more efficiently than their Proof of Stake counterparts. This is due to the competitive nature of Proof of Work mining. In contrast, Proof of Stake cryptocurrencies – as well as many of the cryptocurrencies which utilize validation-based consensus mechanisms that are similar to Proof of Stake – tend to have problems with forks. This is due to the fact that Proof of Work miners are competing to process the latest and greatest version of the currency which they mine. For this reason, the weaker side of the cryptocurrency fork tends to phase itself out of the mining equation. The competitive nature of Proof of Work mining tends to favor validation solutions which yield the highest return.

Proof of Stake cryptocurrencies on the other hand, tend to become divided during forking events. Proof of Stake cryptocurrencies do not depend on their validators nearly as much as Proof of Work cryptocurrencies depend on their miners. This means Proof of Stake platforms can potentially spawn the creation of a new cryptocurrency if enough of the validators decide not to participate in the new fork.

Hard or Soft

The difference between a hard fork and a soft fork is minimal on the technological level. Both represent a dramatic change in the code that the original cryptocurrency uses. The primary difference between the two is that a hard fork creates an additional blockchain, while a soft fork creates an additional cryptocurrency that is meant to exist on a blockchain with its parent cryptocurrency. Some of the most recognized hard forks within cryptocurrency history include Bitcoin Cash (BCH)’s separation from the original Bitcoin blockchain, and Ethereum Classic (ETC)’s separation from the Ethereum blockchain.

Conclusion

Hard forks are a normal part of the cryptocurrency ecosystem. Because hard forks are so common, it is best to invest in the tried-and-true cryptocurrency projects, which exist today. Killer Whale Large Cap Sector Strategy is a fantastic option for traders who wish to benefit from the advantageous market action of the highest valued cryptocurrencies. Many of these coins have not only survived forking events in the past but continue to flourish in nearly every market condition. If this product is not exactly what you are looking for, be sure to check out the Killer Whale Products page to find any and all of the signals and strategies you need to flourish in the world of trading!

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